Mark Latham Commodity Equity Intelligence Service

Thursday 4th February 2016
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    "The Crowded Trades Have Come Unglued On Obvious Unwinds"

    Concerned about the dramatic market moves since the start of the new year, and especially in recent days? You are not alone, but as RBC's head of US cash equities S&T Charlie McElligott, fear not: everyone is in a "sell (or short) now, ask questions later" mood as nobody really has a clue what is going on except one casual observations: popular, crowded trades are getting blown up at a ferocious speed, as "some leveraged players outright taking grosses down by selling longs and covering shorts; while others are focused on taking net exposure lower, selling longs but adding selectively to shorts."

    Seeing relief off lows but fading again, as thematically we just saw essentially ‘the’ crowded '15 macro trades come unglued on obvious unwinds: long stocks (SPX -1.3%, Estoxx -2.3%), long HY (HYG -0.2%), long Dollar (DXY -1.4%), short UST (+0.4%), short VIX (+6.5%), short crude (+5.1%), short Euro (+1.4%) / Yen (+1.8%) / EMFX (+0.5%), short copper (+1.9%)...all going wrong-way.
    Plenty of attribution going around, first being portfolio de-risking as performance for active-types (read: humans) has just been brutal.

    Others are re-treading the idea of ‘petro-state’ selling of liquid assets in light of the crude harsh fade from just 5 days ago.  I would posit that the violence (“price insensitive”) and synchronized nature of it looked quantitative in nature.
    Single-stock world shows somewhat similar picture as broad macro, with popular shorts and longs trading-backwards generally speaking, although pockets of shorts continue being pressed.
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    European lawmakers back limited reduction in car emissions

    European lawmakers on Wednesday backed a compromise deal to reduce car emissions that will still allow vehicles to exceed official pollution limits, defying calls for more radical reform following Volkswagen's emissions-test cheating scandal.

    The vote, which narrowly rejected a proposal to block the compromise, had been scheduled for January, but was delayed by bitter arguments between members of the European Parliament and fierce lobbying.

    Volkswagen's (VOWG_p.DE) admission in September that it cheated U.S. diesel emissions tests created a political storm in Europe where around half of vehicles are diesel.

    Diesel is particularly associated with emissions of nitrogen oxide linked to lung disease and premature deaths.

    The European Commission, the EU executive, had already begun trying to close a known gap between laboratory testing of new vehicles and the real world, where toxic emissions have surged to more than seven times official limits.

    However, the European Automobile Manufacturers' Association (ACEA) said in a position paper seen by Reuters that the Commission's reform plans were too challenging for current diesel models and could threaten the technology as a whole, jeopardizing jobs across the region.

    At a closed-door meeting in October, EU member states agreed a compromise -- now backed by the European Parliament -- that would cut emissions but still allow a 50 percent overshoot of the legal ceiling for nitrogen oxide of 80 milligrams/kilometer.

    Mayors from cities including Copenhagen, Paris, Madrid, Milan and Naples had urged the European Parliament, meeting in Strasbourg, to reject the plan.

    "If such a decision would be confirmed, we fear that our commitment to reduce air pollution in cities will become meaningless," a letter from eight city mayors to members of parliament said.

    Green lawmakers and liberals also pressed for a rejection, saying the compromise was an illegal weakening of already agreed limits.

    "Unfortunately, clean air, fair competition and the rule of law did not get a majority today," Dutch Liberal politician Gerben-Jan Gerbrandy said.

    But the dominant center right grouping, the European People's Party (EPP), backed the compromise

    It said rejecting the plan would delay a reduction in vehicle emissions, as a new proposal would have to be agreed and the car industry would lack regulatory certainty to invest in cleaner technology.

    The European Commission welcomed Wednesday's vote as a step in the right direction and urged manufacturers to start designing vehicles "for full compliance with the legal emissions limit" when measured in real driving conditions.
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    The Luxembourg government has signalled its intention to get behind the mining of asteroids in space.

    It is going to support R&D in technologies that would make it possible and may even invest directly in some companies.

    The Grand Duchy will also put in place a legal framework to give operators who are based in the country the confidence to go about their business.

    Former European Space Agency boss Jean-Jacques Dordain is to be an adviser.

    He told reporters on Wednesday that space mining was no longer science fiction in the pages of a Jules Verne novel; that the basic technologies - of landing and returning materials from asteroids - had essentially been proven.

    And he urged European entrepreneurs to follow the example of start-up American companies that had already begun to consider how they could exploit the expensive metals, rare elements and other valuable resources in space bodies.

    "Things are moving in the United States and it was high time there was an initiative in Europe, and I am glad the first initiative is coming from Luxembourg," he said. "It will give no excuse for European investors to go to California."

    Two notable American companies, Deep Space Industries and Planetary Resources, have begun assembling teams to design spacecraft systems that can survey potential targets and eventually grab ores at, or just below, their surface.
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    Oil and Gas

    Oil bears closing of $600 million triple-short fund bet seen adding to tumult

    This week's roller-coaster ride in the global crude oil market was likely fueled in part by the sudden liquidation of a $600 million leveraged fund bet on falling prices, market sources said on Wednesday.

    Unknown investors in the VelocityShares 3x Inverse Crude Oil Exchange Traded Note (ETN) - which offers the ability to make a bearish bet on prices magnified threefold, with gut-churning ups and downs - bailed out early this week after jumping into the fund in January, ETN data show.

    Some 1.8 million shares worth more than $602 million were redeemed on Tuesday, the largest outflow from the ETN in the past year, according to data from FactSet Research.

    The selloff suggests that at least some big investors are betting that the worst of an 18-month oil market rout is over after U.S. prices fell to $26 a barrel last month for the first time since 2003. Trading activity has also jumped to the highest levels on record.

    "Speculators are getting out of the down oil market. People start unwinding these positions because they think they have gotten their juice out of it," David Nadig, vice president, director of exchange traded funds for FactSet, said.

    The DWTI note inversely tracks the S&P GSCI Crude Oil Index ER, which follows movements in the oil market. And because it offers investors three times the exposure, the impact on the underlying futures is magnified - as is the volatility in the ETN, whose price more than doubled in the first three weeks of January before halving again as oil futures rebounded.

    The net asset value of the fund - one of a handful of exchange funds that allows investors to trade oil without the complexity of a futures exchange - fell from close to $1 billion to $417 million on Tuesday and to $322 million on Wednesday, according VelocityShares' website.

    As a result, the mass exodus likely forced the ETN's issuer, Credit Suisse, to quickly buy back short positions as investors redeemed shares.

    VelocityShares, a unit of Janus Capital Group, was unable to comment on the trading activity.

    To unwind alone may have amounted to upwards of 40,000 futures contracts on Tuesday, according to estimates by analysts.

    There is a day's lag between when redemptions and creations are ordered and when they show up in share figures, according to Nadig, meaning that Tuesday's flows were ordered on Monday, when oil reversed a three-day rally to close $2 a barrel lower.

    On Wednesday, oil prices surged more than 8 percent to $32.28 a barrel, despite a seemingly bearish report from the U.S. Energy Information Administration showing nationwide crude inventories rose by 7.8 million barrels last week.

    Volume in the March West Texas Intermediate futures contract surged on Wednesday to more than 777,000 lots traded, its second highest volume on record, according to data via ThomsonReuters' Eikon. DWTI volume was also unusually heavy on Wednesday, with more than 1.9 million shares traded.

    To be sure, redemptions in the short ETN were not the only driver of higher crude prices. A falling dollar and renewed hopes for a meeting among non-OPEC and OPEC members to curtail global production also bolstered futures values. [O/R]

    It is unclear who may have been behind the ETN position, but they ended up on an extraordinarily wild ride. The investment appears to have been made in January, based on asset data showing the note rarely held more than $200 million last year.

    Its price peaked at more than $484 on Jan. 20, when oil traded at a low of $26.55 a barrel, but then fell to as low as $225 last week. It surged to $335 on Tuesday before dropping 25 percent on Wednesday. It is still up 24.5 percent for the year.

    Attached Files
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    Cepsa resumes Iranian oil supplies to Spain

    Spanish refiner Cepsa will ship a 1-million barrel cargo of Iranian oil to its refineries, according to vessel agents' data and market players' information on Wednesday.

    Global oil markets, already oversupplied, have been jittery over the return of Iranian oil after the lifting of international sanctions imposed over Tehran's nuclear programme.

    According to Reuters shipping data,  epsa has chartered the suezmax Monte Toledo which will load at Iran's Kharg Island for delivery to the Spanish ports of Huelva and Algeciras.

    Iran is on track to raise oil production by 500,000 barrels per day after the lifting of Western sanctions last month. Reuters shipping data shows that since sanctions were removed a number of vessels have been tentatively fixed to sail to various locations in Europe and the Mediterranean.

    Trading sources said Litasco, the trading arm of Russia's Lukoil, looked set to become the first buyer in Europe since the lifting of sanctions.
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    Peru to lower royalty payments from oil companies

    Peru said it plans to decrease the royalty payments it receives from oil companies by July in a bid to survive the oil price crash.

    The country said it also might allow firms to postpone part of their payments.

    The move, which was announced by Perupetro, said 20 companies with exploratory contracts and three with extractive rights have declared force majeure as the drop in oil price hits profits.

    Since 2014, crude oil prices have decreased by about 70%.

    Rafael Zoeger, the president of Perupetro, said:”Otherwise what’s going to happen is they’re going to start giving up their oil blocks.

    “Companies that can’t do business are going to leave.”

    Several global oil companies operate in Peru, including Pacific Exploration & Production, Perenco, China National Petroleum Agency and Ecopetrol.

    Peru is a net oil importer, and its production dropped to 58,000 barrels per day in 2015, almost half of peak production in the 1970s.

    Attached Files
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    Shell Fourth-Quarter Profit Drops 44% as Crude Oil Prices Tumble

    Royal Dutch Shell Plc, which is on the brink of completing the oil industry’s largest deal in a decade, said fourth-quarter profit fell 44 percent after the rout in crude prices deepened.

    Profit adjusted for one-time items and inventory changes shrank to $1.8 billion, near the midpoint of the preliminary $1.6 billion-to-$1.9 billion range it gave last month, Shell said in a statement Thursday. That matches the $1.8 billion average estimate of 14 analysts surveyed by Bloomberg, and compares with profit of $3.3 billion a year earlier.

    Crude’s collapse has slashed earnings for oil companies from Exxon Mobil Corp. to BP Plc, leaving them struggling to strike a balance between investing for growth and making shareholder payouts. Shell is betting its $50 billion acquisition of BG Group Plc will help it maintain dividends and increase oil and gas production at a time when cash flow is shrinking.

    Shell’s shareholders last month approved the company’s plan to buy BG, which has oil fields in Brazil and natural-gas assets from Australia to Kazakhstan, despite the 40 percent tumble in crude prices since the deal was announced. The average price of benchmark Brent crude in the fourth quarter was $44.69 a barrel, the lowest since 2004. Average prices have lost more than $10 this quarter, making it harder for Shell to deliver on its promises to investors.

    The company’s B shares, the class of stock used in the deal with BG, have dropped 6.8 percent this year. The eight-member FTSE 350 Oil & Gas Producers Index has declined 4.7 percent.

    The acquisition of BG is due to become effective on Feb. 15.
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    Statoil claims $41 breakeven

    Today, Statoil presents its update to the capital markets, announcing a step-up in its improvement programme by 50% to USD 2.5 billion peryear in 2016. One year ahead of plan, Statoil delivers annual cost improvements of USD 1.9 billion, compared to its 2016 target of USD 1.7billion. Statoil is reducing organic capital expenditure from USD 14.7 billion in 2015 to around USD 13 billion in 2016, and has substantiallyimproved its portfolio of non-sanctioned projects, with planned start-up by 2022, reducing the average break-even oil price from USD 70 perboe in 2013 to USD 41 per boe in 2016.

    Attached Files
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    Halliburton Poised to Offer Baker Hughes Deal Concessions to EU

    Halliburton Co. was given more time by the European Union to come up with a package of asset sales that will assuage competition concerns over its takeover of oilfield services rival Baker Hughes Inc.

    The company said Wednesday that it would offer the remedies soon, after the EU pushed back the deadline for reviewing the deal by 20 working days to June 23.

    "Halliburton believes the extension will facilitate the commission’s review of a remedies package, which will be formally offered by the company in the near future in order to address the commission’s concerns," Emily Mir, a spokeswoman for the Houston-based company, said in an e-mail.

    The EU merger authority opened an in-depth probe into the deal on Jan. 12, citing concerns that combining the the second- and third-largest suppliers to oil exploration companies may impede competition and increase prices.

    Halliburton last month expanded a list of assets to sell to try to convince antitrust authorities across the world that the deal won’t harm competition. The oilfield services company said it presented its new plan to the U.S. Justice Department in January. It didn’t disclose what new assets it’s planning to divest.

    The cash and stock deal was valued at $34.6 billion when it was announced near the end of 2014, just as oil prices had begun their downward spiral. Shares of both companies have dropped more than 30 percent since then. Halliburton would have to pay Baker Hughes a breakup fee of $3.5 billion if the bid is dropped.
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    Australia's AGL Energy quits gas business as oil price bites

    Australia's second-largest energy retailer AGL Energy Ltd has quit its coal-seam gas business as plunging oil prices undermined the economics of the projects, highlighting the pressure on the country's energy industry.

    AGL has been trying to sell its gas assets in Queensland state for several years, but said in a statement on Thursday that efforts to sell the Moranbah, Silver Spring and Spring Gully sites may take time because of "difficult market conditions."

    The collapse in oil prices has impacted long-term gas prices for those projects and will result in a A$498 million ($357 million) impairment charge to its half-yearly results next week, it said.

    The Sydney-listed company said it will not move forward with its Gloucester project and will stop output at its Camden project, both in New South Wales, earlier than planned. The Gloucester project was halted as "disappointing gas flow" on a test well showed lower-than-expected project output from the site.

    These decisions will bring another A$142 million impairment charge, AGL said.

    While AGL, Australia's biggest carbon polluter, has faced pressure from environmental campaigners over its NSW gas projects for years, CEO Andy Vesey said the company decided to bail on those assets because they did not justify investment totalling A$1 billion.

    AGL and other energy retailers' forays into gas exploration and production and gas exporting seemed like a natural diversification for the retailers when the projects were planned and oil prices, used to formulate gas-sales prices, were above $100 a barrel. With oil now trading above $30 a barrel, the outlook for the plans are not as rosy.

    Australia's largest energy retailer Origin Energy Ltd in September asked shareholders for $1.8 billion to cut debt as the weak oil price hampered the outlook for A$25 billion Australia Pacific Liquefied Natural Gas project.

    Oil and gas producer Santos Ltd has also put its assets on the block to cope with the downturn.

    "If anybody knew that the oil price was going to tumble from $120 a barrel to $30 a barrel, we'd all be very rich," said Shaw and Partners analyst David Fraser.

    "People far more specialised than AGL couldn't see it coming."

    Investors welcomed the move, sending AGL shares up as much as 2.4 percent to touch a record intraday high of A$18.95, in a higher overall market.

    The company reports half-year results on Feb. 10, with analysts forecasting an underlying net profit of A$708 million, up 12 percent on the prior corresponding period, according to Thomson Reuters Starmine.

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    Summary of Weekly Petroleum Data for the Week Ending January 29, 2016

    U.S. crude oil refinery inputs averaged over 15.6 million barrels per day during the week ending January 29, 2016, 24,000 barrels per day less than the previous week’s average. Refineries operated at 86.6% of their operable capacity last week. Gasoline production decreased last week, averaging over 8.6 million barrels per day. Distillate fuel production decreased last week, averaging over 4.4 million barrels per day.

    U.S. crude oil imports averaged about 8.3 million barrels per day last week, up by 647,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 8.0 million barrels per day, 7.8% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 624,000 barrels per day. Distillate fuel imports averaged 191,000 barrels per day last week.

    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 7.8 million barrels from the previous week. At 502.7 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 5.9 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 0.8 million barrels last week but are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 5.6 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 9.5 million barrels last week.

    Total products supplied over the last four-week period averaged 19.7 million barrels per day, up by 0.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 8.7 million barrels per day, down by 0.9% from the same period last year. Distillate fuel product supplied averaged over 3.5 million barrels per day over the last four weeks, down by 16.0% from the same period last year. Jet fuel product supplied is up 2.8% compared to the same four-week period last year.


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    US oil production sees very small drop last week

                                                Last Week    Week Before  Last Year

    Domestic Production '000...... 9,214              9,221           9,177
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    Another Leg Lower In Oil Coming After Many Producers Found To Have Far Lower Breakevens

    According to a report by the Bloomberg Intelligence analysts William Foiles and Andrew Cosgrove, Saudi Arabia may have its work cut out for it as it will be far harder to kill many U.S.E&Ps than analysts originally thought.

    The reason: a break-even model for the Permian Basin and Eagle Ford shows that oil production across five plays in Texas and New Mexico may remain profitable even when WTI prices fall below $30 a barrel, according to a 55-variable Bloomberg Intelligence model for horizontal oil wells.

    The Eagle Ford's DeWitt County has the lowest break-even, at $22.52, followed by Reeves County wells targeting the Wolfcamp Formation, at $23.40. The diversity of breakevens highlights the hazard posed by looking for a single number, even within a play.

    These counties together produced about 551,000 barrels of liquids a day in October. Taking into account drilled but uncompleted wells boosts the number of potential survivors to 19. The wide range of break-evens undermines efforts to come up  with a single threshold for U.S. shale producers.

    The full list of breakevens by county is shown below:

    Image title

    To corroborate its model of break-even levels for oil producers in the Permian and Eagle Ford, Bloomberg used a Baker Hughes' horizontal rig counts in the Spraberry play Permian and Eagle Ford. Howard County, Texas, has the lowest average break-even, at a WTI price of $29.19 a barrel. Its rig counts have doubled since oil prices began collapsing in mid-2014. In Midland County, at $30, rig counts are up 56%. Counts in Irion and Reagan counties, with two of the highest break-evens targeting the play, have fallen more than 70%.



    None of this would be feasible if average breakeven prices were anywhere close to the $50-60 assumed by the consensus.

    But where Bloomberg's analysis gets outright disturbing, if only for Riyadh, is that once wells are completed, breakeven costs tumble to Saudi-like sub-$20 prices in some countries.

    From Bloomberg:

    Tapping drilled but uncompleted (DUC) horizontal oil wells drops break-even WTI oil prices to less than $20 a barrel in eight county-play combinations in the Permian and Eagle Ford. The analysis assumes that drilled wells are sunk costs and that drilling constitutes 30% of a well's total cost. The 55-variable model shows that the impact of removing drilling expenses varies significantly by county and play, with break-even reductions ranging from $7.24 to $21.51, or 28% to 42%.

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    National Oilwell Varco records $1.5 billion net loss for the fourth quarter

    Houston-based National Oilwell Varco on Wednesday posted a $1.52 billion net loss for the final three months of the year amid the ongoing oil crash.

    The oilfield equipment and services giant saw its revenues drop 60 percent in the quarter, but NOV also recorded $1.63 billion in pre-tax impairment charges.

    For the full year, NOV took a $767 million net loss, down from a $2.5 billion profit in 2014. NOV’s 2015 revenues dropped 33 percent from the year prior.

    NOV Chairman, President and CEO Clay Williams said the company performed well given the “very tough market.”

    “Tumbling oil prices brought capital austerity and sharply lower oilfield activity, which is intensifying as we enter 2016,” Williams said in a prepared statement, citing NOV’s solid cash generation and strong balance sheet. “We are well positioned to take advantage of the opportunities we expect to emerge during 2016.”

    Several energy companies have waited to post large impairment charges in the fourth quarter to address the shrinking values of their assets and more.

    Schlumberger posted a $1 billion fourth-quarter loss, while Halliburton recorded a smaller $28 million net loss.

    In an analyst note, Tudor, Pickering, Holt & Co. called NOV’s earnings “much worse than we envisioned,” adding that the “most challenging quarter in some time reflects the harsh reality” of exploration and production companies slamming the brakes on spending.

    On a per-share basis, NOV’s earnings were 40 cents a share after being adjusted for one-time costs. That’s down from $1.84 a share a year prior.

    Williams said the “lower-for-longer” period of low oil prices will eventually push demand to grow and provide the foundation for an eventual recovery.

    “We nevertheless recognize that the timing of the recovery remains uncertain and that we face additional headwinds in the year ahead,” Williams added. “We remain resolute in our focus on reducing costs, improving execution, doing more with less and, ultimately, emerging from the depths of this cycle well positioned for the upturn.”

    Earlier this week, NOV said it plans to cut 129 Houston workers as the company closes its North Houston manufacturing facility near Greenspoint at Air Center Boulevard. The company said it will lay off workers in phases, beginning last week and lasting until June. NOV said some workers had been laid off with little advance notice, and that those employees had been provided additional pay and benefits.

    In November, NOV said it was cutting 120 employees as it shuttered a plant in San Angelo. Williams has said the company will continue slashing costs wherever possible, including shuttering plants.

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    Marathon Petroleum slumps on inventory writedown

    Marathon Petroleum Corp. said its fourth-quarter earnings fell 77% as weak fuel prices resulted in an inventory markdown that weighed on results at its refinery and Speedway retail divisions.

    Chief Executive Gary R. Heminger said in prepared remarks Wednesday that Marathon made progress on the company's objectives of "growing the more stable cash-flow segments of our business and enhancing our refining margins."

    The Findlay, Ohio, company in early December combined its MarkWest Energy Partners LP acquisition with Marathon's MPLX LP pipeline master-limited partnership. The latest results include MarkWest's results as of Dec. 4, when the deal closed.

    Mr. Heminger said Marathon's Speedway unit, which includes the former retail operations of Hess Corp., substantially completed planned conversions of its East Coast and Southeast retail locations to the Speedway brand well ahead of schedule.

    Mr. Heminger said average selling prices and continued strong demand for gasoline supported crack spreads, an industry term for the difference between the wholesale price of gasoline and the price of crude oil.

    The refining and marketing segment reported operating income of $207 million, sharply lower than the $1.02 billion reported a year earlier.

    The company's Speedway business reported that operating earnings fell by slightly more than half to $135 million.

    The pipeline business posted operating profit of $71 million, an increase of 22%, thanks to the addition of MarkWest.

    Over all, Marathon Petroleum reported a profit of $187 million, or 35 cents a share, down from $798 million, or $1.43 a share, a year earlier. The latest period included 44 cents a share in inventory write-downs. Revenue slumped 30% to $15.68 billion.

    Analysts polled by Thomson Reuters expected per-share profit of 69 cents and revenue of $16.35 billion.

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    Gulfport Energy reports boost in year-end proved reserves

    Gulfport Energy Corporation today reported year-end 2015 proved reserves, provided an operational update for the quarter and year ended December 31, 2015 and scheduled its fourth quarter and full-year 2015 financial and operational results conference call.  Key information includes the following:

    • Year-end 2015 total proved reserves grew to 1.7 Tcfe, as compared to 933.6 Bcfe at year-end 2014, an increase of 83% year-over-year.
    • Year-end 2015 total proved developed reserves grew to 767.1 Bcfe, as compared to 453.8 Bcfe at year-end 2014, an increase of 69% year-over-year.
    • Proved reserves by volume were 91% natural gas and 9% oil and natural gas liquids.
    • Net production during the full-year of 2015 averaged 548.2 MMcfe per day, exceeding the high-end of Gulfport’s annual 2015 guidance of 541 MMcfe per day.
    • Realized natural gas price before the impact of derivatives and including transportation costs averaged $2.08 per Mcf during 2015, a $0.58 per Mcf differential to the average trade month NYMEX settled price.
    • Realized oil price before the impact of derivatives and including transportation costs averaged $42.29 per barrel, a $6.59 per barrel differential to the average WTI oil price during 2015.
    • Realized natural gas liquids price, before the impact of derivatives and including transportation costs, averaged $13.18 per barrel, or $0.31 per gallon during 2015.
    • Entered into a joint venture (“JV”) with a subsidiary of Rice Energy Inc. (NYSE: RICE), which venture completed a lateral that connects two existing dry gas gathering systems on which Gulfport currently flows the majority of its dry gas volumes.
    • Secured an incremental 150,000 MMBtu per day of firm arrangements starting November 2016 through March 2017 at an average differential of $0.61 off NYMEX.
    • Increased hedge position to approximately 480 MMcf per day of natural gas fixed price swaps during 2016 at an average fixed price of $3.29 per Mcf and 347 MMcf per day of natural gas fixed price swaps during 2017 at an average fixed price of $3.07 per Mcf.
    • Year-end 2015 cash on hand totalled approximately $113.0 million and Gulfport’s revolving credit facility of $700 million was undrawn with outstanding letters of credit totalling $178.6 million.
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    Suncor Cuts Spending After Posting Surprise Loss on Writedowns

    Suncor Energy Inc. will cut spending by about 10 percent this year after the oil-sands producer posted a surprise loss for the fourth quarter amid writedowns on the value of Canadian, Libyan and offshore assets.

    Suncor lowered its capital spending plan to between C$6 billion ($4.4 billion) and C$6.5 billion from a November estimate of C$6.7 billion to C$7.3 billion, it said in a statement Wednesday. The reduction comes partly from deferring maintenance at its Firebag oil-sands operations to 2017 from this year.

    The Canadian oil giant has lowered costs and delayed projects to weather collapsing prices that are making many oil-sands operations unprofitable. The 2016 spending cuts come after the company eliminated more than 1,000 jobs and slashed its budget last year.

    “We have surpassed the reliability and cost reduction targets we established in early 2015,” Chief Executive Officer Steve Williams said in the statement.

    Missed Estimates

    The company reported a fourth-quarter loss of C$2 billion, or C$1.38 a share, compared with net income of C$84 million, or 6 cents, a year earlier. Excluding one-time items, per-share profit fell short of the 8 Canadian-cent average of 15 analysts’ estimates compiled by Bloomberg.

    Suncor reported after-tax impairments of C$1.6 billion, including charges of C$798 million for some offshore assets because of lower crude prices, C$415 million for its Libyan assets and C$290 million for the Joslyn oil-sands venture. Its unrealized foreign exchange loss on U.S. dollar denominated debt was C$382 million.

    Even with crude prices near 12-year lows, Suncor is pressing ahead with the C$13 billion Fort Hills project, with plans to spend C$1.6 billion this year to begin production at the end of 2017. The company is also taking advantage of the oil industry downturn to expand through deals including the C$4.2 billion takeover of Canadian Oil Sands Ltd. and the purchase of a bigger stake in a venture with France’s Total SA.

    West Texas Intermediate, the U.S. benchmark, averaged $42.16 in the quarter compared with $73.20 in the year-earlier period. The crude is still hovering just above $30 a barrel.

    Suncor estimates its oil-sands operating costs per barrel, excluding the Syncrude venture, will be C$27 to C$30 this year, while WTI will average $39. Production this year will average between 525,000 and 565,000 barrels a day, the company said.

    The Canadian Oil Sands acquisition, pending shareholder approval, will increase Suncor’s stake in the Syncrude venture that processes bitumen into light oil in northern Alberta to 49 percent, from 12 percent. Currently, the largest owner is Exxon Mobil Corp.-affiliate Imperial Oil Ltd., which holds 25 percent and operates Syncrude.

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    Alternative Energy

    China to boost crackdown on illegal rare earth mining

    China plans to boost its crackdown on illegal mining of rare earths by setting up a system to certify the origin of supplies of the materials, used in everything from fighter jets to mobile phones.

    Illegal Chinese output and smuggling have helped drag global rare earth prices to their lowest in around six years, hitting legitimate producers hard inside and outside China, which churns out 90 percent of the world's supply.

    "There's a reasonable level of agitation in every part of the supply chain which is saying (the industry situation) is not good," said Amanda Lacaze, chief executive of Australia's Lynas Corp, the only remaining rare earths miner outside China.

    Lynas is just breaking even as a result of the price slump, while U.S. company Molycorp has been forced to shut its mine. Other aspiring producers' projects have been put on ice.

    Vice minister of industry and information technology Xin Guobin said at a rare earths industry meeting last week that a "product tracing system" would be set up, using special rare earth invoices and other information like export data, the Association of China Rare Earth Industry said on its website.

    The body also said on Tuesday that Xin had promised the government would beef up powers to conduct raids on companies, as well as continuing to investigate and prosecute illegal exploration, production and distribution of rare earths.

    Lynas is also looking to introduce a certificate of origin, similar to certification that has curbed trading in so-called "blood diamonds", Lacaze told Reuters.

    Material from illegal miners, who damage the environment with toxic chemicals, makes up as much as half of China's rare earth supply.

    "Illegal producers don't pay taxes and don't observe environmental and occupational health standards, so their costs are less," said Dudley Kingsnorth, an industry consultant based in Perth.

    "It's a real issue and China can't solve it by itself. End users have got to pay attention to the sources of material and make sure they're not actually buying illegal material. That's a lot easier said than done."
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    World's biggest offshore wind farm to add £4.2 billion to energy bills

    The world's biggest offshore wind farm is to be built 75 miles off the coast of Grimsby, at an estimated cost to energy bill-payers of at least £4.2 billion.

    The giant Hornsea Project One wind farm will consist of 174 turbines, each 623ft tall - higher than the Gherkin building in London - and will span an area more than five times the size of Hull.

    Developer Dong Energy, which is majority-owned by the Danish state, said it had taken a final decision to proceed with the 1.2 gigawatt project that would be capable of powering one million homes and create 2,000 jobs during construction.

    First electricity from the project is expected to be generated in 2019 and the wind farm should be fully operational by 2020.

    The wind farm was handed a subsidy contract by former energy secretary Ed Davey in 2014 that will see it paid four times the current market price of power for every unit of electricity it generates for 15 years.

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    Base Metals

    First Quantum Minerals Announces Its 2015 Production and Sales

    First Quantum Minerals Ltd. today announced its production and sales for the three months and year endedDecember 31, 2015.

    Production of all metals was within the Company's previously-announced market guidance as was pre-commercial copper production from its Sentinel project of 32,971 tonnes for the year.

    Amounts shown for Q4 and Year 2015 are preliminary and subject to final adjustment. Disclosure of the three-year guidance for production, production cost and capital expenditures is expected prior to the release of the Company's financial results for Q4 and Year 2015.

    Full details:

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    South32 to book $1.7 billion charge, slash manganese output and jobs

    Australia's South32 Ltd said on Thursday it will write down its assets by $1.7 billion, axe hundreds of jobs, and cut global manganese supply by about a quarter as it battles what it sees as a prolonged slump in commodity prices.

    The miner, spun off last year by BHP Billiton, said it would reduce production at its manganese operation in South Africa, which would help it cut costs and position it well for any eventual rebound.

    "We are, however, not immune to external influences and the significant change in the outlook for commodity prices is expected to result in non-cash charges of approximately $1.7 billion when we report our December 2015 half year financial results," Chief Executive Graham Kerr said in a statement.

    The writedowns are mostly on its Australian manganese business and energy coal in South Africa.

    South32, the 60 percent owner of the world's largest manganese business, Samancor, suspended mining at the Hotazel mines last November while it completed a review of the business.

    It has now decided to resume production at Hotazel at a reduced rate of 2.9 million tonnes a year, removing about 900,000 tonnes a year from the global market "for the foreseeable future".

    That will cut its costs in South African rand by about 23 percent, with about 620 jobs to go across the joint venture co-owned by Anglo American Plc, and help it cut capital spending by about 80 percent next year.

    At the same time, South32 flagged it planned to slash costs at its metallurgical coal, alumina and manganese operations in Australia and the Cerro Matoso nickel mine and smelter in Colombia, which will result in further job cuts to be announced at its results on Feb. 25.

    South32 shares jumped 9 percent after the announcement to A$1.035, but the stock has still lost half its value since listing last May.

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    Zinc climbs to three-month high as supplies tighten after cutbacks

    Zinc is up for a fourth day and is this year’s best performing main contract on the London Metal Exchange. The price of metal for immediate delivery is near the largest premium to the three-month contract since July, a signal that there is less available material.

    The metal slumped 26% last year as China’s economic slowdown reduced demand for metals and prompted mining companies including Glencore and Nyrstar to shutter production, some of which had become unprofitable. ICBC Standard Bank expects a refined global surplus to halve this year and shift to a deficit in 2017.

    “After the announcements of extensive production cuts, there is likely to be a huge supply deficit on the global zinc market this year,” Daniel Briesemann, an analyst at Commerzbank in Frankfurt, said in an e-mailed note. “This justifies much higher prices.”

    Zinc for delivery in three months climbed 0.7% to $1 685 a metric ton by 11:32am on the LME. It earlier touched $1 696, the highest since November 4, and is up 4.7% this year. Some traders have been buying to close out bets on falling prices, according to Marex Spectron Group.

    The metal for immediate delivery settled at a premium of $4 a ton to the benchmark three-month contract on Tuesday, after reaching $5 on Friday. The market structure, known as backwardation, may signal more demand or less supply. Inventories in warehouses tracked by the LME have fallen for the past 10 days.
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    Steel, Iron Ore and Coal

    China's Shenhua aims to more than double coal exports in 2016

    China's largest thermal coal producer Shenhua is targeting exports of 3 million mt in 2016 -- representing a 150% increase on the company's total exports of 1.2 million mt in 2015, a source close to the company said Wednesday.

    The target also marks a sharp turnaround in Shenhua's export performance.

    Shenhua's coal exports tonnage declined by 25% in 2015 from 1.6 million mt in 2014, according to the company in an operating report January 22.

    Shenhua's main export customers are in Japan and South Korea.

    The Chinese coal producer traded 2.6 million mt of thermal coal in the seaborne market last year, said the source.
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    CCEA nod for auction of coal linkages to unregulated sector

    IANS reported that aiming to make the process of allocating natural resources more transparent, the cabinet committee on economic affairs (CCEA) on Wednesday approved the awarding of fresh coal linkages for the unregulated sector through auctions.

    Mr Piyush Goyal, Power Minister told reporters here after a CCEA meeting chaired by Prime Minister Mr Narendra Modi that "Except for the power and fertiliser sectors, non-regulated sectors like steel, aluminium, cement and sponge iron will in future bid in transparent auctions for coal linkages."

    Mr Goyal said "Existing private party linkages will continue till the expiry of the current FSAs (fuel supply agreements) and they have to bid in auctions after these lapse for getting fresh coal linkages."

    He said that "To ensure there is no interruption in supplies, the lapsed FSAs will continue till restart of supplies after auctions."

    He added that coal linkages for state-run undertakings, however, would continue to be extended, though they would need to bid in auctions to satisfy any extra requirement of coal.

    He further added that it has been decided that 25 percent of excess fuel produced by state-run Coal India would be made available for non-regulated sector needs through e-auction.

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    India's KIOCL considers building iron ore plants in Iran

    State-run Indian company KIOCL is considering building an iron ore pellet complex in Iran at a cost of about $59 million and is in talks to sell more than 2 million tonnes of the steelmaking raw material to the Gulf country now free from trade sanctions.

    The potential Indian investment could offer cheaper supplies of processed iron ore to Iranian steel mills that, like most companies around the world, are having to contend with cut-price steel from an oversupplied China.

    Companies such as KIOCL and aluminium maker NALCO, which is considering setting up a $2 billion smelter complex in Iran, hope that India's long-held ties with the Middle Eastern country would help them seal new deals.

    India had remained one of Iran's top oil buyers during the Western trade curbs and is already in talks to buy more now that the sanctions have been lifted.

    KIOCL Chairman Malay Chatterjee told Reuters on Wednesday that he discussed setting up a 1.1 million tonne beneficiation plant -- for ore purification -- and a 1.1 million tonne pelletising plant in Iran through a potential joint venture with a local company when he was there in Tehran late last year.

    Further government-level talks could take place soon to pave the way for the project, which could cost abut 4 billion rupees ($59 million), he said.

    KIOCL's commercial director, M.V. Subba Rao, flew to Tehran on Tuesday and to scout for more deals after selling 67,000 tonnes of ore pellets to Iran's Mobarakeh Steel Company last month.

    "Rao will talk to Mobarakeh and other companies as we have the capacity to export up to 2.5 million tonnes of pellets a year," Chatterjee said. "There is enough demand in Iran, though everybody is facing competition from an oversupplied China (steel industry)."

    Mobarakeh's managing director, Bahram Sobhani, said his company sources pellets from a variety of suppliers, including KIOCL, but declined to give details.

    Keyvan Ja'fari Tehrani, head of international affairs at the Iranian Iron Ore Producers and Exporters Association, said the country's steel mills are not aggressively chasingexpensive foreign pellets because local steel production has been falling.

    However, talks over KIOCL's proposed investment in an Iranian plant could be complicated by plans for two Iranian companies -- Gol-e-Gohar and Sangan Mines -- to start their own pellet production from March, which Tehrani said would add more than 5 million tonnes in supplies.

    Iran used to import 7-8 million tonnes of pellets a year, with total demand of 28-29 million tonnes, but Tehrani said the new supplies could soon end the country's reliance on imports.

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    China 'war on coal' to drive labour unrest — report

    China’s decision to speed up closures and mergers of small coal mines, in a bid to reduce pollution and improve energy efficiency, will face mounting resistance, a new report shows.

    According to BMI Research, labour unrest across the country’s coal industry, following late salary payments and job cuts, will increase costs for local miners in the medium term, 80% of which were already losing money by the end of last year.

    The measures, aimed to shrink both oversupply and environmental pollution, will be met with increasing resistance.

    The situation is likely to worsen soon, the analysts say, following last month’s fresh decision by Beijing to invest $4.6 billion in closing about 4,300 coal mines. The fresh move includes removing outdated production capacity of 700 million tonnes and redeploying around 1 million workers over the next three years.

    The newly announced measures follow China's decision to halt the approval of new coal mines until at least 2019.

    These resolutions will inevitable trigger labour issues. Change is already in the air — protests and demonstrations doubled in 2015, to 2,774, with December's total of more than 400 such incidents setting a monthly record, according to the Hong Kong-based China Labour Bulletin.

    Since 2013, the nation’s coal sector has shed 890,000 jobs, equal to all the new jobs the same industry created during the stimulus-driven boom that began in 2007. The struggling sector currently employs nearly 6 million people.

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