Mark Latham Commodity Equity Intelligence Service

Wednesday 19th October 2016
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    ECB's First Chief Economist Warns: The EU Is A "House Of Cards"

    The Telegraph reports:

    The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned.

    “One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB’s first chief economist and a towering figure in the construction of the single currency.

    Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since degenerated into a fiscal free-for-all that once again masks the festering pathologies.

    “Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly,” he told the journal Central Banking in a remarkable deconstruction of the project.

    The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue.

    Prof Issing lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. “The moral hazard is overwhelming,” he said.

    The ECB has “crossed the Rubicon” and is now in an untenable position, trying to reconcile conflicting roles as banking regulator, Troika enforcer in rescue missions and agent of monetary policy. Its own financial integrity is increasingly in jeopardy.

    The central bank already holds over €1 trillion of bonds bought at “artificially low” or negative yields, implying huge paper losses once interest rates rise again. “An exit from the QE policy is more and more difficult, as the consequences potentially could be disastrous,” he said.

    “The decline in the quality of eligible collateral is a grave problem. The ECB is now buying corporate bonds that are close to junk, and the haircuts can barely deal with a one-notch credit downgrade. The reputational risk of such actions by a central bank would have been unthinkable in the past,” he said.

    Prof Issing slammed the first Greek rescue in 2010 as little more than a bailout for German and French banks, insisting that it would have been far better to eject Greece from the euro as a salutary lesson for all. The Greeks should have been offered generous support, but only after it had restored exchange rate viability by returning to the drachma.

    Indeed, as I highlighted in last year’s post: German Study Proves It – 95% of Greek “Bailout” Money Went to the Banks.
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    China third quarter GDP grows 6.7 percent as expected as construction booms, debt rises

    China's economy grew 6.7 percent in the third quarter from a year earlier, steady from the previous quarter and in line with expectations, as increased government spending and a property boom offset stubbornly weak exports.

    Analysts polled by Reuters had predicted gross domestic product (GDP) data would show the world's second-largest economy was stabilizing, expanding at the same pace as in the first and second quarters and putting it on track to hit the government's full-year target.

    But slumping private investment, surging debt levels and the risk of a property market correction are leaving growth more dependent on government spending and keeping global investors on edge.

    Real estate investment growth ticked up to 5.8 percent in January to September, a slight increase from 5.4 percent over the first eight months. But many cities are moving to restrict home sales as prices surge over 50 percent in some places, leading to concerns that growth will take a hit.

    "Looking ahead, we think that the cooling measures in property market will weigh on China's economy over the coming quarters," Commerzbank economist Zhou Hao in Hong Kong said in a note.

    Official data showed consumption contributed 71 percent of GDP growth in the first three quarters of the year, compared to the 66.4 percent contribution for 2015. The increase is partly due to contracting net exports but also indicates some success in rebalancing from investment-led growth.

    The economy grew 1.8 percent quarter-on-quarter, the National Bureau of Statistics said on Wednesday, in line with market forecasts and compared with revised 1.9 percent quarterly growth in the second quarter.

    The government has set a growth target of 6.5-7 percent for the full year. The economy expanded 6.9 percent in 2015, the slowest pace in a quarter of a century.

    The statistics bureau said in a statement that many uncertain factors in the economy remain and that the foundation for sustained growth is not solid.
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    Huaneng power output down 3.5pct over Jan-Sept

    Huaneng Power International Inc., China's largest listed power producer, generated 232.59 TWh of electricity in the first nine months of the year, down 3.49% from the year-ago level, said the company in a statement released on October 18.

    The company attributed the decline to decreasing utilization hours of thermal power units, sharp rise of nationwide hydropower output, and newly-installed nuclear units in Liaoning, Guangdong, Fujian and Hainan, which squeezed the market share of the company's thermal power units.

    In the third quarter this year, the company realized electricity generation of 86.51 TWh, rising 6.56% from a year ago.

    In the first three quarters of the year, a total 219.74 TWh of electricity was sold, and the average on-grid electricity price was 394.45 yuan/MWh, down 11.69% on year, the company said.

    The power sales amounted to 81.66 TWh in the third quarter, down 6.83% on year, it added.
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    Oil and Gas

    Al-Falih at Oil and Money conference


    Al-Falih: We're going to double Saudi Arabia's gas - 70% of utilities will be fueled by gas. Introducing 10 GW solar/wind

    Al-Falih: We will be doing the preparatory steps to introduce nuclear. Decision has been made, regulatory steps will be proper.

    Al-Falih: Saudi Aramco listing will allow the rest of the world to see what an incredible company it is

    Al-Falih: Saudi Aramco is on its way to being the largest refiner, and is also increasing its role in the chemical space.

    Al-Falih on Vision2030: we will continue to build on the three pillars of KSA economy - oil & gas, chemicals and mining

    Al-Falih: Saudi Aramco's IPO will be the largest in history.

    Al-Falih: Supply/demand fundamentals continue to improve on their own accord. This will be strengthened by Opec's Algiers Agreement

    Al-Falih: There is this high-level Opec committee, and behind-the-scenes many of my colleagues have been discussing meeting targets.

    China's oil demand is mostly evolving as opposed to slowing, while India has large latent potential demand growth.

    Al-Falih: There is still an extended buildup of oil inventories weighing on prices today.

    Al-Falih: I fully expect market conditions to continue improving.

    Al-Falih: 4 industry imperatives - replace maturing fields, meet incremental demand, meet COP21 commitments, technical innovation

    Non-OPEC producer contributions to stabilizing the market "every bit as critical as those by OPEC"

    OPEC can continue to act as a stabilizing force in the market if its members act collectively" Khalid AlFalih

    OIl demand growth in healthy, there is a danger of future supply shortfall: Al-Falih

    Saudi oil minister Falih: after testing period of sub $30 "market is clearly balancing"

    "Mkt forces are clearly working...Fundamentals are improving & the mkt is clearly rebalancing"-Saudi min @Khalid_AlFalih

    It's rational for OPEC to intervene short term, OPEC should not resolve long term oil market imbalance: Al-Falih

    Saudi Energy Minister Khalid Al-Falih says oil market now at the end of a considerable downturn.

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    Saudi Arabia Says Oil at $50-$60 Ensures Adequate Global Supply

    Officials from Saudi Arabia and Kuwait, key protagonists in shaping OPEC policy, said oil at $50 to $60 a barrel would ensure adequate global supply, setting out a potential price band for the producer club before its meeting in Vienna next month.

    “A $50, $60 oil price -- absent a supply accident -- is sufficient to develop the low-cost resources to provide increases that will be necessary over the next three to four years,” Andrew Gould, board director at state-owned giant Saudi Arabian Oil Co., said Tuesday in London.

    His comments, at the annual Oil & Money conference in London, suggest Riyadh sees relatively little upside to prices in the short term. While benchmark Brent crude is up about 13 percent since the Organization of Petroleum Exporting Countries reached adeal Sept. 28 to manage supply, it’s still trading at half its level of mid-2014, at around $52 a barrel.

    Projections for $50 to $60 oil over the next 15 months are “logical” and “acceptable,” Kuwait’s acting Oil Minister Anas Al-Saleh said in a report from the state-run Kuwait News Agency. “Unless there are new developments in the major oil-producing countries, this scenario will be most likely,” he said.

    Saudi Arabia and Kuwait were among oil producers to hold output at or near all-time highs in September as OPEC continued to defend market share against rival suppliers including the U.S. While many high-cost shale wells were shut in after oil’s collapse, some North American drillers are starting to bring back rigs.

    A sustained rally will depend on OPEC’s ability to agree on individual quotas when it meets on Nov. 30. Should the group succeed, a further price increase is likely to spur shale output, according to Fatih Birol, executive director of the International Energy Agency, who said he agrees that $50 to $60 is enough to meet short-term supply needs until 2020.

    “This upward pressure on the prices would stimulate some high-cost producers to increase their production such as the U.S. shale oil,” Birol said Tuesday before the conference. “The price level around $60 would give a strong impetus to the bulk of the current U.S. shale industry.”

    Others are looking for a higher price to proceed with longer-term projects. Hess Corp. Chief Executive Officer John Hess said Tuesday that low prices have been “devastating” and producers need $60 to $80 a barrel for “long-cycle” developments. A price of $50 would hold shale production flat, he said at the conference.
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    Oil rises on U.S. crude inventory draw, falling Chinese output

    Oil prices rose on Wednesday, lifted by a report of a drop in U.S. crude inventories and declining production in China, while an upbeat OPEC statement on its planned output cut also supported the market.

    A slightly weaker dollar boosted oil as well, traders said, as it makes fuel purchases cheaper for countries using other currencies, potentially spurring demand.

    U.S. West Texas Intermediate (WTI) crude oil futures were trading at $50.73 per barrel at 0326 GMT, up 44 cents, or 0.87 percent, from their last settlement.

    International Brent crude futures were at $52.14 a barrel, up 46 cents, or 0.89 percent.

    "The American Petroleum Institute crude inventory numbers were released ... this has given early Asian trading a bullish start," said Jeffrey Halley, senior market analyst at OANDA in Singapore.

    U.S. crude stockpiles fell 3.8 million barrels in the week to Oct. 14, to 467.1 million barrels, the API reported late on Tuesday.

    The U.S. Energy Information Administration (EIA) is due to release official crude and fuel storage data later on Wednesday.

    Traders said oil was supported by Mohammed Barkindo, secretary general of the Organization of the Petroleum Exporting Countries (OPEC), saying he is confident about the prospects of a planned production cut following an OPEC meeting on Nov. 30.

    "I am optimistic we will have a decision," he said.

    In its first output cut agreement since 2008, OPEC said it plans to reduce production to 32.50 million to 33.0 million barrels per day (bpd), compared with record output of 33.6 million bpd in September.

    The group also hopes non-OPEC producers, especially Russia, will cooperate in a cut.

    In China, a raft of economic and trade data was released on Wednesday.

    While economic growth was in line with expectations, at an annual growth rate of 6.7 percent in the third quarter, its oil figures were supportive of higher oil prices, traders said.

    China processed 43.8 million tonnes (10.7 million bpd) of crude oil in September, up 2.4 percent from a year ago, government data showed on Wednesday.

    Over the same month, China's oil production fell 9.8 percent to 15.98 million tonnes (3.89 million bpd), in its steepest decline in 19 months.
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    OPEC will use secondary sources for Algiers deal

    OPEC will use secondary sources for Algiers deal, OPEC takes average of 6 sources for secondary output data - Barkindo - OPEC will meet with Russia on Monday to discuss output cut.

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    EIA: World Oil Production In Balance, U.S. Natural Gas Production Way Down

    World oil production is in balance and U.S. marketed natural gas output fell for the first time since 2005.

    The EIA (U.S. Energy Information Administration) published its Short Term Energy Outlook (STEO) today. Here are the highlights.

    World oil (liquids) output for September was 96.47 mmbpd (million barrels per day) and consumption was 96.39 mmbpd. That resulted in a slight surplus of 80,000 bpd, about as close to balance as it gets (Figure 1). That's bad news considering that the Brent price of $52 per barrel acts like there are a few million bpd of surplus. So much for the global economy.

    EIA forecasts an average production WTI price of $50/barrel in 2017 with Brent $1/barrel higher.

    The long decline in U.S. crude oil production appears to be over. September output increased 60,000 bopd.

    Natural gas marketed production fell from 3.2 Bcf/d (billion cubic feet of gas per day) in 2016 but EIA expects it will magically gain 1 Bcf/d before the year is over (I doubt that).

    Natural gas production continues its decline and total supply is projected to go into deficit in December 2016.

    This is the first annual decline in gas production since 2005. But never fear-EIA projects a 3.7 Bcf/d increase in 2017.

    I'm not sure where that will come from given that their gas forecast is an average price of $3.07 for 2017 and the best shale gas areas need $4 while the other plays need more like $6/mmBtu.

    I guess that hedges and awesome increases in productivity explain the expected production rally.

    EIA forecasts gas prices to average $3.04 for fourth quarter. Too bad the price is $3.31/mmBtu today!
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    Opec's Libya producing 580,000 b/d

    Opec's Libya producing 580,000 b/d and could reach 800,000 b/d in 2 months ahead of Opec meeting in Vienna in Nov., says Libya's NOC.

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    Russia's Gazprom Neft CEO says could slow oil output growth

    Gazprom Neft, the oil arm of Russian state gas firm Gazprom, could slow its oil output growth compared with the current plan if needed, its Chief Executive Alexander Dyukov told Rossiya 24 TV.

    Gazprom Neft said earlier this month it was not ready to cut output and had not been asked to do so as the Organization of the Petroleum Exporting Countries (OPEC) tries to flesh out the details of a plan to cap global oil production.

    "If we talk about Gazprom Neft, then there is of course a technical possibility to reduce or stabilise production," Dyukov said in an interview broadcast on Tuesday.

    OPEC last month agreed on a modest production cap. Details of how it can be done by the group's members, and non-OPEC producers like Russia which may join the process, are expected to become clearer towards the end of November.

    The Russian government has said that it was talking to domestic oil companies about the OPEC proposals.

    According to Dyukov, "temporary output stabilisation" is being discussed now but it would be an uneasy step for Gazprom Neft as it planned to continue raising its production in 2017-2019.

    "If one takes a look at the Russian industry, some companies are raising output, some of them are reducing it, and we hope that altogether everything can end up that we somewhat reduce pace of the production growth, but, however, manage to keep a small production growth."
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    SEA\LNG: LNG ready to meet shipping industry demand

    SEA\LNG, the cross-industry coalition recently formed to address market barriers and accelerate the widespread adoption of LNG as a marine fuel, has issued a position statement ahead of the 70th Session of the IMO’s Marine Environment Protection Committee (MEPC).

    The position statement outlines the benefits of LNG as a marine fuel and offers SEA\LNG’s support for the implementation of MARPOL Annex VI for the prevention of air pollution by ships.

    SEA\LNG Chairman, Peter Keller, said: “Independent of the timing of the IMO’s implementation of the 0.5% global sulfur cap, today LNG is already a clean, safe, practical and economically viable fuel for the shipping industry. The industry is making big steps in creating the infrastructure to enable quick, safe and cost-effective LNG bunkering in key global ports; diminishing the price premium for LNG-fuelled vessels; as well as working with regulators to establish consistent international and national regulations, which we believe will enhance investment in this sector.”

    Position statement

    In addition to issuing its support for the implementation of the MARPOL Annex VI for the prevention of air pollution by ships, SEA\LNG states its belief that the implementation date decision for the marine fuel sulfur cap needs to rest with the Member States comprising the MEPC.

    SEA\LNG believes that LNG will be the fuel of choice for vessels operating in global trade lanes, as well as in emission control area (ECA) zones, where LNG is already gaining a foothold.

    SEA\LNG’s members come from across the LNG marine value chain, including LNG suppliers, shipping lines, classification societies, original equipment manufacturers (OEMs) and Port Authorities. Members include Carnival Corp. & plc, DNV GL, Eagle LNG Partners, Engie, GE, Gaztransport & Technigaz (GTT), Keppel Offshore & Marine, Lloyd’s Register, Mitsubishi Corp., NYK Line, Port of Rotterdam, Qatargas, Shell, TOTE Inc., and Wärtsilä.
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    Gazprom's Revised 2016 Investment Program Up to $13.5 Bln - Company

    Gazprom has increased its investment program by $175 million to $13.5 billion this year as compared to the program approved in December 2015.
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    Canacol Energy tests Trombon 1 discovery at 26 MMSCFPD

    Canacol Energy Ltd. is pleased to provide the following update for the Trombon 1 discovery, which represents the Corporation's fifth consecutive gas exploration success.

    Trombon 1 Gas Discovery

    Esperanza Exploration & Exploitation ('E&P') contract, Lower Magdalena Basin, Colombia, 100% working interest

    Offsetting the Nispero 1 gas discovery that Canacol announced in late August 2016, the Trombon 1 exploration well was spud on the Esperanza E&P contract on September 13, 2016. The well reached total depth of 10,360 feet measured depth ('ft. md') in sixteen days. The well encountered 26 ft. md (21 feet true vertical depth) of net gas pay with average porosity of 22% within the primary Cienaga de Oro ('CDO') reservoir target. The CDO reservoir interval was perforated between 8,328 to 8,354 ft. md and flowed at a final stabilized rate of 26 million cubic feet per day ('MMscfpd') of dry gas with no water. Trombon 1 tested with a flowing tubing head pressure of 2,254 pounds per square inch over a 36-hour test period. The Corporation finished completion of the Trombon 1 well for permanent production via the Nispero to Jobo flow line. Trombon 1 will tie into the Corporation's operated Jobo production facility.

    2016 Drilling Program

    The Corporation's resource capture strategy anticipates four more wells before year end. The Corporation has contracted the Tuscany Rig-14 to drill the Nelson 6 gas exploration well and Nelson 8 gas development well. Tuscany Rig-15 is mobilizing from the Trombon discovery to the Clarinete field to drill the Clarinete 3 gas development well. The Nelson 6 exploration well is expected to spud on October 18, 2016 and will target interpreted gas pay within the shallow Porquero sandstone reservoir in the Nelson field. Upon completion, the Corporation will drill the Nelson 8 development well targeting productive reservoirs within the CDO reservoir that are not being drained by the existing producing wells in the Nelson field. A third rig will be contracted to drill the Mono Capuchino-1 oil exploration well on the VMM 2 E&P contract located in the Middle Magdalena Basin.

    Corporate Production

    Realized contractual oil and gas sales for the quarter ended September 30, 2016 averaged approximately 18,908 boepd, which consisted of 86.1 MMscfpd (15,107 boepd) of gas, and 3,801 barrels of oil per day.
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    Rapid Permian Rig Rebound Driven by Deep Bench of Low Breakeven Wells

    As Q3 results soon rollout, with many first looks toward 2017, we are reminded of the longer term value proposition: namely that capital can be invested with returns above the marginal cost of debt. Genscape currently analyzes over 250 individual company play breakevens, defined as NPV > 0 at 10 percent cost of capital, covering substantially all of the United States horizontal drilling. In the Permian, we cover 24 companies and 42 company plays, and find an average breakeven of $36-$39.

    The horizontal rig count in the Permian has rebounded 49 percent from its May low adding 57 rigs (now down 51 percent verses year ending 2014), while the Eagle Ford has only recovered two rigs (now down 84 percent from year ending 2014). This does not come as much of a surprise to us, as the Permian has been a magnet for M&A activity this year – over eight billion dollars in deal value during Q3 alone, driven by relatively low breakevens, a diverse set of operators, and a deep inventory of future drilling locations.
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    Turning to the financials of Permian companies, over the past 10 quarters, the market has punished those whose debt increased relative to production levels. Companies that have grown production and kept debt down have been rewarded. Diamondback, Callon, and RSP Permian, have demonstrated the ability to improve debt and production metrics, which unsurprisingly rank favorably in our economics report verses many of their peers.

    Oil prices have ticked significantly higher in the past couple of weeks on hopes that OPEC will announce a production cut at next month’s meeting. With the Q3 earnings season on the horizon, we expect announcements of companies putting even more rigs back to work. Now this clearly does not mean every company will benefit to the same degree as the range of breakeven prices and well results are disparate, and even in the Permian there are some company type curves that do not breakeven until reaching $60 or more.

    Attached Files
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    U.S. shale output drop seen for 12th straight month in November: EIA

    U.S. shale oil production was expected to fall for a 12th consecutive month in November, according to a U.S. government forecast released on Monday, on the back of a two-year global rout in oil markets.

    November oil production was expected to fall by 30,000 barrels per day to 4.43 million bpd, according to the U.S. Energy Information Administration's drilling productivity report, the lowest output since March 2014.

    The biggest decline was in the Eagle Ford in Texas, which was set to drop by 35,000 bpd to 947,000 bpd. In North Dakota, oil production in the Bakken was set to drop by 21,000 bpd to 946,000 bpd.

    While oil futures are trading at less than half their value of over $107 a barrel in mid-2014, they have recovered from a 13-year low near $26 in February, recently fetching $50 a barrel. That has allowed drillers to start increasing production in the Permian, the largest U.S. shale basin.

    Permian output from West Texas and eastern New Mexico was set to rise by 30,000 bpd to a record high over 2 million bpd, its third monthly increase in a row, according to EIA data going back to 2007.

    Total natural gas production, meanwhile, was forecast to decline for a seventh consecutive month in November to 46.0 billion cubic feet per day, the lowest level since July 2015, the EIA said.

    That would be down almost 0.2 bcfd from October, making it the smallest monthly decline since July, it noted.

    The biggest regional decline was expected to be in the Eagle Ford, down almost 0.2 bcfd from October to 5.6 bcfd in November, the lowest level of output in the basin since November 2013, the EIA said.

    Output in the Marcellus formation, the biggest U.S. shale gas field, meanwhile, was expected to rise by almost 0.1 bcfd from October to 18.2 bcfd in November. That would be its first increase since July.

    EIA also said producers drilled 506 wells and completed 533 in the biggest shale basins in September, leaving total drilled but uncompleted (DUC) wells at 5,069, the least since January 2015.

    The only region to gain DUCs in September was the Permian, which rose for a third month in a row, gaining 51, to a total of 1,378, its highest since at least December 2013, EIA said.
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    Pioneer Natural Resources comments from presentation

    Pioneer Natural Resources' Scott Sheffield: You can get a great profit at $40-$45 oil in Permian

    Pioneer Natural Resources' Scott Sheffield: We'll start seeing Permian growth in 2017, maybe 300,000 barrels/day for 10 years.

    Pioneer Natural Resources' Scott Sheffield: Concerned about stricter EPA rules that could cut production by 1 million barrels/day.

    Pioneer Natural Resources' Scott Sheffield: Concerned about getting skilled staff back if Permian ramps up aggresively.

    Pioneer's Scott Sheffield: $55-$60 will drive rig expansion at Eagle Ford and Bakken. Could add 700,000 barrels per day

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    SM Energy to buy Permian Basin acreage for $1.6 billion

    SM Energy Co said on Tuesday it would buy 35,700 net acres in West Texas's Howard and Martin counties for about $1.6 billion and sell its Williston Basin assets in North Dakota for $785 million to Oasis Petroleum Inc.

    SM Energy has been trying to boost its presence in the Permian basin, while divesting assets elsewhere. The company had bought 24,783 net acres in Howard County for about $980 million in August.

    The latest deal, which is expected to close in December, will expand SM Energy's footprint in the Permian Basin to about 82,450 net acres.

    The company said it would pay $1.1 billion in cash and about 13.4 million in shares for the Permian property to QStar LLC, a portfolio company of EnCap Investments LP and a related entity.

    SM Energy said it would use the proceeds from the Williston Basin asset sale to fund the majority of the acquisition. The rest would come from its revolving credit line.

    The company also raised its capital expenditure to about $710 million, before acquisitions, as it plans to add a fourth rig in Permian's Midland basin during the fourth quarter. For 2017, SM energy's expects to run a total of six rigs in the basin.

    Oasis said it was offering 40 million shares to fund the Bakken deal. The company's stock was down about 4.1 percent at $10.77 in premarket trading.

    SM Energy shares rose 3.3 percent to $40. The company's stock has risen more than 32 percent since its Permian acquisition in August.

    Petrie Partners advised SM Energy on both deals, while Jefferies LLC was the financial adviser to QStar and EnCap Investments LP.
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    Gulfport Energy Reports 13% Increase in Q3 Net Production; Updates on Other Operations

    Gulfport Energy Corporation (Nasdaq: GPOR) provided an operational update for the quarter ended September 30, 2016 and scheduled its third quarter financial and operational results conference call. Key information for the third quarter of 2016 includes the following:

    Net production averaged 734.1 MMcfe per day, a 13% increase over the third quarter of 2015 and a 10% increase versus the second quarter of 2016, exceeding Gulfport’s previously provided third quarter of 2016 guidance of 685 MMcfe per day to 705 MMcfe per day.
    Realized natural gas price, before the impact of derivatives and including transportation costs, averaged $2.10 per Mcf, a $0.71 per Mcf differential to the average trade month NYMEX settled price.
    Realized oil price, before the impact of derivatives and including transportation costs, averaged $41.81 per barrel, a $3.13 per barrel differential to the average WTI oil price.
    Realized natural gas liquids price, before the impact of derivatives and including transportation costs, averaged $13.98 per barrel, or $0.33 per gallon.

    Third Quarter Production and Realized Prices

    Gulfport’s net daily production for the third quarter of 2016 averaged approximately 734.1 MMcfe per day. For the third quarter of 2016, Gulfport’s net daily production mix was comprised of approximately 86% natural gas, 9% natural gas liquids and 5% oil.

    Gulfport’s realized prices for the third quarter of 2016 were $2.67 per Mcf of natural gas, $45.09 per barrel of oil and $0.34 per gallon of NGL, resulting in a total equivalent price of $2.87 per Mcfe. Gulfport's realized prices for the third quarter of 2016 include an aggregate non-cash derivative gain of $22.4 million. Before the impact of derivatives, realized prices for the third quarter of 2016, including transportation costs, were $2.10 per Mcf of natural gas, $41.81 per barrel of oil and $0.33 per gallon of NGL, for a total equivalent price of $2.35 per Mcfe.
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    Alternative Energy

    UK botched its renewable energy programs, auditors report

    The UK government miscalculated the costs of renewable-energy support and is likely to overshoot its 7.6 billion-pound ($9.2 billion) annual budget by about a fifth in 2020 and 2021, according to auditors.

    The “government’s forecasting, allocation of the budget and approach to dealing with uncertainty has been poor, and so has not supported value for money,” Amyas Morse, head of the National Audit Office, said Tuesday in an e-mailed report.

    The support mechanism, known as the levy control framework, was established by the UK’s Department of Energy & Climate Change, subsequently renamed by Prime Minister Theresa May’s government to the Department of Business, Energy & Industrial Strategy. It sets annual caps on costs for clean energy such as feed-in tariffs, renewable obligation certificates and contracts for difference.

    The audit cited revised framework costs of 9.1 billion pounds between 2020 and 2021. That would add 110 pounds to a typical household dual-fuel energy bill, about 17 pounds more than if it had remained within budget.

    The UK’s generous subsidies for renewables resulted in a rapid build-out of solar and wind farms. The overcast northern European country has 9.2 gigawatts of solar farms installed, according to data from Bloomberg New Energy Finance. The government reduced those programs in 2015 and ended one for onshore wind a year early.

    Most of the allocated government funds have been spent and there is little left over to fund new projects between now and 2021. It would have been more cost effective to spend more of it later as technologies such as wind turbines and solar panels are much cheaper now than they were a few years ago, the auditors said.

    The levy control framework has also failed to adequately support investor confidence in the sector, they said. Issues include the “short and decreasing timeframe and a lack of transparency over forecasts and how the budgetary cap would operate.”

    Attached Files
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    ‘Super grass’ to cut cow burp and fart emissions

    Scientists aim to reduce the 90 million tonnes of methane cows produce by burping and farting each year by developing a new type of grass.

    They say the “super grass” will be digested more efficiently by cattle so will produce less gas but more milk.

    The £1.6 million project, which is expected to be ready by 2024, will see genetics experts from the University of Aarhus in Denmark use DNA technology to create a strand which could be grown on farms across the world.

    Senior Researcher Torben Asp, who is overseeing the project, said: “It will simply create a better diet for the cow, which can utilise the feed more efficiently and therefore they don’t release as much methane when they burp.”

    The US Food and Agriculture Organisation believes agricultural methane output could go up by 60% by 2030 if nothing is done.

    Esben Lunde Larsen, Denmark’s’ Environment Minister, added: “We know that cattle are one of agriculture’s culprits when it comes to releasing greenhouse gases so it’s important that we explore how we can reduce cows’ emissions.

    “It’s also a good example of future sustainable food production, in which there is a contradiction between growth and climate but production goes hand in hand with nature.”
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    Precious Metals

    Seabridge Gold Discovers New Higher Grade Zone at KSM

    Seabridge Gold Inc. today announced that a core hole drilled this summer to test the Iron Cap Lower Zone at depth has successfully found the down plunge extension of Iron Cap’s higher grade core while also discovering a previously unknown deposit with initial gold and copper grades among the best found to date on the KSM Project. Early indications are that the new discovery could represent a new core zone with a potentially positive impact on the project. The newly discovered zone is being evaluated for additional drill testing in 2017. The KSM Project in northwestern British Columbia is wholly-owned by Seabridge.

    Drill hole IC-16-62 was collared well north of previous drilling in an area covered by rubble and ice which had prevented surface mapping and geophysical surveys. The hole was designed to be “steered” into the target zone using down hole navi-drilling tools to obtain an intersection below the existing resource of the Iron Cap Lower Zone and about 400 meters below the intersection in drill hole IC-14-59 (593 meters of 1.14g/T gold, 0.37% copper and 3.7g/T silver). The new hole confirmed the extension of the Iron Cap Lower Zone over an interval of 556 meters at 0.83g/T gold, 0.24% copper and 4.4g/T silver in rocks that closely resemble IC-14-59. This intersection is likely to increase the inferred resource for this deposit. (see

    In the shallow part of hole IC-16-62, a distinctly separate mineralized zone was also intercepted, yielding a 61 meter interval averaging 1.2 g/T gold, 0.95% copper and 4.1 g/T silver. This zone consists of an intensely-veined porphyritic intrusive rock similar to KSM’s Mitchell deposit, juxtaposing against the disseminated silica-potassic alteration of Iron Cap along a normal fault. Although the scale of this discovery is not yet known, it rests below the Sulphurets Thrust Fault as do the other major deposits at KSM, it bears evidence of a powerful mineralizing system and its mineralogy closely resembles the higher-grade core zones found on the KSM property.

    Seabridge Chairman and CEO Rudi Fronk commented: “Once again, exploration at KSM continues to generate upside surprises. Since 2012, our exploration focus at KSM has been to find core zones with higher grade material to improve overall project economics. This focus resulted in the discovery of the higher grade Deep Kerr and Lower Iron Cap zones. Earlier this month, we released the results of a Preliminary Economic Assessment including these new deposits and the potential impact on economics was highly significant.” (see

    “Although we have only one hole into it, this new discovery has all the same hallmarks that proved to be relevant in the first holes drilled into Deep Kerr and Lower Iron Cap and which led us to pursue these deposits. Our exploration team thinks this discovery could be the elusive Mitchell North deposit which they have hypothesized since 2009,” said Fronk.

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    Base Metals

    Codelco unions say mulling company-wide strike at Chile's copper mines

    Unionized workers at Chile's state-owned copper miner Codelco are mulling going on a company-wide strike, possibly by mid-November, if the government does not make progress on a number of demands, union leaders told Reuters on Tuesday.

    Codelco, the world No. 1 copper producer, returns all its profits to the state and is funded by a mixture of capitalization and debt. The recent sharp downturn in the copper price has hit it hard when it needs to invest in new projects to keep output flowing, forcing it to scale back ambitious expansion plans.

    The Copper Mining Federation (FTC), which serves as the umbrella organization for Codelco's unions, will ask Chile's government for permanent capitalization for the company and to overturn a law that requires that 10 percent of Codelco's revenues support Chile's defense budget.

    "By (mid-November) we could be organizing a strike if we don't have a response from the government," said Marcelo Perez, director of the Caletones union at Codelco's underground El Teniente mine.

    According to Perez, the unions have not decided how long the strike could last. However, Liliana Ugarte, who heads one of the unions at the open-pit Chuquicamata mine, said on Friday that if workers were to go on strike it would likely last 24 hours.

    "We're going to get in touch with the Senate, Finance Ministry and the President of the Republic and following all those conversations we will again meet no more than 15 days later and see if our demands have been met. If not we will call for a 24-hour national strike, as a warning," said Ugarte.

    Codelco produced 843,000 tonnes of copper in the first half of the year.
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    Steel, Iron Ore and Coal

    Australian thermal coal prices hit $100 per tonne for first time since 2012

    Australian thermal coal spot prices have hit $100 per tonne for the first time since 2012, with a cargo ordered at that price for delivery from Newcastle port in November, according to trading platform GLOBALcoal on Tuesday.

    The deal means that Pacific benchmark prices have now soared by almost 100 percent since June to levels last seen in April 2012, making coal the hottest commodity of the year.

    The price rally ended half a decade of steady declines, and has lifted mining share prices like Whitehaven Coal, Glencore or Anglo American away from lows.

    The price spike has been spurred by domestic mining cuts in China, which has required electricity generators and also steel makers to make up for the shortfall via imports, taking much of the market by surprise.

    "Coal miners are just as surprised as anyone in how well coal has performed. Limited supplies of high-quality thermal coal should keep the market in good shape through the end of the year. After that, it will be determined by the supply response," said James Wilson, analyst at Argonaut Securities.

    Many traders say that the almost unprecedented boom of 2016 will almost certainly lead to some form of a downward correction.

    Forward prices for both Australian physical coal prices as well as for Chinese coal futures show prices fall off sharply into 2017.
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    China Sept coke output up 7.3pct on year

    China produced 39.29 million tonnes of coke in September, edging up 0.41% from August and up 7.3% year on year, showed data from the National Bureau of Statistics on October 19.

    Total coke output over January-September dipped 1.6% on year to 331.74 million tonnes, data showed.

    In September, China's coke exports plunged 40.38% from a month ago to 0.62 million tonnes, with value dropping 36.97% on month to $92.24 million, showed data from the General Administration of Customs (GAC).

    Over January-September, coke exports stood at 7.5 million tonnes, climbing 13.9% on year, with value decreasing 14.2% on year to $936.47 million.
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    China Coal Energy Sept coal sales up 7.3pct on year

    China Coal Energy Co., Ltd, the listed arm of China National Coal Group, sold 11.29 million tonnes of commercial coal in September, rising 7.3% year on year but down 11.7% month on month, the company said in its latest statement.

    Of the sales, 6.48 million tonnes were self-produced commercial coal, dropping 12.2% on year and down 3.9% from August.

    In the first nine months, the company sold 100.46 million tonnes of commercial coal, falling 0.7% from the year before, with sales of self-produced commercial coal dropping 15.2% to 60.73 million tonnes.

    The company produced 6.6 million tonnes of commercial coal in September, falling 11.3% on year and down 3.6% from August.

    The production during January-September stood at 60.07 million tonnes, sliding 16.1% from the year prior.
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    China Sept coal output falls ahead of Beijing's step to boost supplies

    China's coal output output fell 12.3 percent last month, extending a prolonged period of government-enforced cuts before Beijing gave the go-ahead for producers to reopen shuttered capacity amid a surge in prices.

    Output in September fell to 277 million tonnes from a year ago, according to the National Bureau of Statistics on Wednesday. Production has fallen every month since at least July last year, government data shows.

    For the first nine months, output was down 10.5 percent to 2.46 billion tonnes, the bureau said.

    The drop may not last into October. At the end of September, Beijing allowed producers to increase output after government efforts to cut overcapacity and curb pollution depleted supplies to utilities and triggered an historic rally in prices.

    Extending one of the commodity market's biggest ever bull runs, Australian thermal coal prices hit $100 per tonne on Tuesday for the first time since 2012.

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    South Korea Sept met coal imports further rise

    South Korea imported 2.93 million tonnes of metallurgical coal in September, including coking coal and PCI coal, rising 11.82% on year and 7.83% on month, according to the latest customs data.

    The country imported 2.39 million tonnes of coking coal in September, up 22.64% from a year ago and 12.76% from August.

    Of this, 1.41 million tonnes were shipped from Australia, increasing 37.99% on year and up 36.47% on month.

    This was followed by Russia at 479,900 tonnes, surging 163.1% from the same month in 2015 and up 87.46% from the previous month; the US at 240,600 tonnes, almost doubling the year-ago level and a rise of 20.97% from August; and Canada at 224,800 tonnes, dropping 51.33% on year and 54.50% on month.

    In September, South Korea imported 541,100 tonnes of PCI coal, declining 19.48% compared with the year-ago level and falling 9.59% on month.

    Australia remained the largest PCI coal supplier to South Korea in the month at 340,500 tonnes, a drop of 40.37% on year, followed by Russia at 140,100 tonnes, soaring 230% from the previous year, and China at 38,500 tonnes.
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    China's steel capacity cuts draw closer to an end

    China's capacity cuts in steel industry this year is drawing closer to an end in the fourth quarter, following great efforts the country and steel enterprises have made in cutting surplus capacity during the past months.

    Jiangsu, Sichuan and some other provinces in China are expected to finish their de-capacity targets set for 2016 by end-October.

    Sichuan had demolished six furnaces in three steel makers, shedding 4.2 million tonnes per annum (Mtpa) of capacity.

    Jiangsu, the second largest steel province, will cut 3.9 Mtpa of steelmaking capacity at four steel firms in advance by end-October.

    Jiangsu has 49 above-sized steel makers at present, with iron and steel-making capacity at 104 Mtpa and 132 Mtpa.

    It planned to cut crude steel capacity of 17.5 Mtpa during the 13th Five-Year Plan period (2016-2020), with 70% of the target to be done by end-2018.

    By end-August, China had completed 77% of its 2016 de-capacity target or 34.68 Mtpa.
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    China Sept crude steel output edges down on month

    China produced 68.17 million tonnes of crude steel in September, rising 3.9% year on year but edging down 0.6% month on month, showed data from the National Bureau of Statistics (NBS) on October 19.

    Over January-September, the country's crude steel output rose slightly by 0.4% from the year-ago level to 603.78 million tonnes.

    Meanwhile, production of steel products rose 0.2% on month and 4.3% on year to 98.09 million tonnes in September; and pig iron output posted a year-on-year increase of 4.1% to 59.32 million tonnes, down 1.4% from August, the NBS data showed.

    In the first nine months this year, China produced 851.78 million tonnes of steel products, up 2.3% on year; while pig iron output slid 0.3% on year to 528.25 million tonnes.

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    Higher demand, prices point to strong Q3 for Russia's steelmakers

    Russia's steelmakers are expected to post higher earnings when they report third-quarter results in coming weeks due to a recovery in prices and stronger demand.

    The companies, including Russia's largest NLMK and second-biggest Evraz, suffered in 2015 as world steel prices plumbed 10-year lows and as the country's economic downturn sapped domestic demand. NLMK and Evraz full-year core earnings fell 18 and 39 percent respectively.

    But steady or higher output levels in the third quarter coupled with a recovering global market outlook point to stronger earnings for the three months.

    "We are increasingly positive on the sector outlook with strong third-quarter earnings expected," VTB analysts wrote in a note. "With seasonally stronger demand ahead in the fourth quarter ... we expect further gains ahead."

    Steel prices fell to their lowest level since 2004 last year due to oversupply from China, the world's largest producer and consumer of steel, and slack demand.

    They have since recovered by around 30 percent and the World Steel Association said last week it now sees global demand growing 0.5 percent year-on-year in 2016, compared with a 0.8 percent fall forecast in April.

    Russia's Evraz said on Tuesday its third-quarter crude steel output rose 6 percent quarter-on-quarter to 3.4 million tonnes after the completion of blast furnace repairs.

    Severstal's production rose 6 percent in the third quarter while MMK, Russia's third-largest producer, said output was flat at 3.2 million tonnes.

    Only NLMK recorded a fall in output, down 4 percent quarter-on-quarter, due to planned repairs at its plant in Lipetsk.

    But the steelmakers will have to contend with higher coking coal prices - a key component of steel production - which have doubled since July to more than $200 per tonne on expectations of lower supply. This will increase the steelmakers costs and potentially squeeze profit margins.

    While Severstal and Evraz are partially shielded from the higher production costs by their in-house coal facilities, NLMK and MMK are particularly vulnerable, VTB analysts said.

    Sergei Stepanov, head of Evraz's coal division, said: "We see that supply ... is at its limit, it all depends on China, whether it increases production."

    "But I do not think prices will fall below $150 per tonne."

    Evraz said on Tuesday its capital spending would total $450 million in 2016 and around $500 million in 2017-2018, having said in August it would be in the range of $375-400 million.
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    Liberty House said to bid for Arrium's assets

    Liberty House Group is among bidders to have submitted an offer for the steel and iron-ore assets ofAustralia’s Arrium, according to people with knowledge of the process.

    The London-based steelmaker and metals trader made a non-binding proposal, the people said, requesting anonymity as the details are private. Liberty House faces competition, including from private equity groups and entities with interest only in specific assets, two of the people said.

    Liberty House declined to comment in an e-mailed statement. A representative of KordaMentha also declined to comment on details of the process.

    Arrium, which appointed the administrator in April, hassteel-making capacity of about 2.5-million metric tons a year.Operations include the Whyalla steelworks and port, the OneSteel steel manufacturing, distribution and recycling unit and an iron ore mining division, according to company filings. Binding offers are scheduled to be submitted in December and detailed due diligence materials are being prepared for bidders, KordaMentha said in an October 5 filing.


    The administrator has “a strong preference for offers that will allow for the sale of the business in one line as a going concern,” it said. A separate process for a sale or an initial public offering is underway for Arrium’s mining consumablesbusiness, which has sites from Chile to Indonesia.

    Liberty House was among bidders for Tata Steel’s UKoperations and in March agreed to buy two Tata Steel mills inScotland. The producer last month formally reopened the Dalzell works in Scotland and last year restarted operationsat a rolling mill in Wales.

    Global steel producers, including Arrium, have been pressured by rising exports from China, maker of half the world’s steel, which have weighed on prices and eroded profits. Arrium’s underlying net loss in the six months to December 31 widened to A$24-million ($18-million), from A$22-million a year earlier, the producer said in February. Lenders in April rejected the producer’s proposed $927-million recapitalisation plan.

    Steel prices have improved in 2016 as global policy makers pledged to back growth, bolstering the outlook for producers.BlueScope Steel, Australia’s top steelmaker, more than doubled underlying profit in the year ended June 30, whileArcelorMittal, the world’s biggest producer, in July reported the highest quarterly profit since 2014.

    Liberty House, with steel operations in the UK, Africa andIndia, is pursuing a strategy to acquire distressed assets and drive improvements by lowering energy costs and favoringscrap metal over iron ore, executive chairperson Sanjeev Gupta said in an April interview.
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