Mark Latham Commodity Equity Intelligence Service

Wednesday 16th December 2015
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    Congress negotiators get tax, spending deal and oil exports

    Congressional negotiators on Tuesday wrapped up a sprawling deal to keep the U.S. government operating through next September, while setting new policies ranging from repealing a 40-year-old ban on oil exports to making many business tax breaks permanent, according to Republican lawmakers.

    House of Representatives Speaker Paul Ryan told his rank-and-file Republicans that weeks of negotiations with Democrats had culminated in a deal that would eliminate any possibility of government shutdowns until at least next October, according to lawmakers present.

    "That's my understanding, that there is agreement on both tax extenders and the omnibus" spending bill," Representative John Kline told reporters upon leaving a closed-door meeting of House Republicans.

    Republican lawmakers added that Ryan will put the tax and spending bills to a vote on Thursday, just before they leave town for the rest of the year. The Senate is also expected to vote by week's end.

    A senior Senate Democratic aide told Reuters that the legislative language was being reviewed to make sure it "reflects the negotiations."

    Even some of the most conservative House Republicans, who leveled searing criticisms of former Speaker John Boehner before he resigned in October, left the meeting with Ryan upbeat.

    Representative Steve King said he thought it would be difficult to pass the spending bill in the Republican-controlled House. But he told reporters that Ryan "got the best bargain that I think can be negotiated."

    Representative Ann Wagner confirmed that in return for a repeal of the oil export ban, Democrats won temporary tax breaks to boost wind and solar development, an important priority for President Barack Obama in the aftermath of a Paris climate change deal that calls for significant reductions in carbon dioxide emissions from burning fossil fuels.

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    China Names and Shames Provinces for Fudging GDP

    Stop the presses! There’s cheating going on in China’s official statistics!

    China’s official numbers have long been viewed skeptically in and outside of China. As party secretary of northeastern Liaoning province in 2007, China’s current premier, Li Keqiang, was quoted in a leaked diplomatic cable telling U.S. officials that Chinese provincial statistics were “manmade” and therefore unreliable.

    So the disclosures in recent days by the official Xinhua News Agency and People’s Daily that gross domestic product figures in China’s northeastern rust-bowl region were doctored was less surprising. What was noteworthy was that official media made the episode so public, suggesting official tolerance for official fudging is on the wane.

    The articles cite an anticorruption investigation after which they said local officials in the northeast provinces of Heilongjiang, Jilin and Liaoning admitted they had been falsifying economic data for years. The practice has encouraged corruption, undermined faith in the Communist Party-led government and led to distorted policy decisions, the articles said, without providing specific examples.

    The scale was such that the official data generated by some counties alone suggested that their economies rivaled Hong Kong’s in size, Xinhua said, quoting Jilin lawmaker Zhao Zhenqi. Mr. Zhao couldn’t be reached.

    For many years, the sum of China’s provincial growth figures exceeded the national total by as much as 11%. In recent months, under the banner of slower “new normal” growth, fudging has become less fashionable.

    Economists and analysts said they read a few things into the timing of the disclosures. While massaging figures is common among Chinese provinces, the practice appears more pronounced recently in the northeast – China’s slowest-growing region this year — given weak exports, stumbling resource and manufacturing industries and struggling real estate investment, some said.
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    "Dark" Days Ahead: Main Power Supplier For Brazil Olympic Games Pulls Out

    Back in July, we asked if Olympians at the upcoming summer games in Rio would be swimming in feces. “Extreme water pollution is common in Brazil, where the majority of sewage is not treated. Raw waste runs through open-air ditches to streams and rivers that feed the Olympic water sites,” AP explained. “As a result, Olympic athletes are almost certain to come into contact with disease-causing viruses that in some tests measured up to 1.7 million times the level of what would be considered hazardous on a Southern California beach.”

    Obviously, spending billions on modernizing the country’s basic sanitation infrastructure isn’t in the cards now that the government is mired in a fiscal crisis and desperately needs to cut spending in order to hit what certainly look like unrealistic primary surplus targets.

    We’ve long predicted that the country’s economic and political strife would end up having an adverse impact on the games and sure enough, we found out earlier this month that athletes in Olympic village will be asked to pay for their own air conditioning and will not have televisions in their rooms. In short, organizers can no longer depend on the government (and who knows what the government will look like by the time the games commence) to fund cost overruns. That means spending only as much as Brazil expects to take in from sponsorships, ticket sales, and a grant from the International Olympic Committee.

    Apparently, the games were already some $520 million over budget. The government was supposed to cover that (and more) but obviously that’s out of the question given Brazil’s worsening fiscal crisis. “By the time the Games begin, the committee plans to have 500 fewer paid staff than the 5,000 it originally expected,” Bloomberg said, adding that “the deepest cuts will probably come from operational areas like catering, transportation and cleaning services.”

    Well, if you thought all of the above was bad, consider that now, a major supplier of power has reportedly backed out of the event, suggesting that in addition to unsanitary conditions and no air conditioning, athletes could well run out of energy - literally.

    As Reuters reports, “longtime Olympic power provider Aggreko has pulled out of a tender to supply generators for the games in Rio de Janeiro next year, dealing a major blow to organizers rushing to secure an energy source for the world's largest sporting event.”

    With Glasgow-based Aggreko, it’s the experience that counts. The company has helped power nine Olympics and six World Cups and although Rio 2016 spokesman Mario Andrada told Reuters he was comfortable with the companies still competing for the tender, some say he probably shouldn’t be.

    "There is increased risk of it going to someone who doesn't have the experience. Are there people out there with enough equipment? Probably. But in terms of the operational side of things, Aggreko are pretty good at this," said Will Kirkness, an analyst at Jefferies.

    While Aggreko didn’t give a reason for pulling out, Reuters suggests they may have become exhausted with the planning process which, if you go by the 2012 London games, is behind by about 12 months.

    Of course it’s also likely that Aggreko worried it wouldn’t get paid. As noted above, and as we discussed two weeks ago, the government can’t fund cost overruns, which means that if the planning committee exceeds the budget, it’s not clear who would cover the bill.
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    Rio Tinto CEO says dividend in ‘strong position’

    “We are well positioned — the strongest balance sheet, the least debt of any of the majors,” Sam Walsh, chief executive officer of the second-biggest mining company, said in a Bloomberg Television interview in London. “It puts the dividend in a strong position.”

    Anglo American, Glencore and Vedanta have scrapped payouts in recent months as they battle a slump in prices for industrial metals to a six-year low. Rio Tinto and BHP Billiton are the only major miners still vowing to pay higher dividends each year, a policy viewed by some analysts as unsustainable given the ups and downs of the industry.

    “Dividends are very high on our radar screen,” said Walsh, 65, who became CEO in 2013. “Personally, for me, they are very, very important. We have shareholders who are invested in our business. They put their faith in us and I believe they need a fair return. At the end of the day, it’s a board decision, it’s not my decision.”

    Rio Tinto’s first priority in spending cash is sustaining global mining operations, costing about $2.5 billion a year, then the progressive dividend, Walsh said. New mines and operations are next, then paying down debt and more returns to shareholders, he said.

    The company raised its dividend payment 12% in the first half to $2.2 billion even as underlying earnings plunged 43% to $2.9 billion. Full-year profit is set to slide 48% to $4.85 billion, according to the average of 14 analyst estimates compiled by Bloomberg. Iron-ore prices are down 45% this year. The steelmaking raw material contributed $2.1 billion, or 72%, of Rio’s underlying earnings in the first half.

    “Quite frankly we haven’t finished the business improvement, there’s more ahead of us. You can’t turn around a business in two-and-a-half years, it takes longer than that,” Walsh said. “2016 is going to be tough again.”
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    Killing Zone: 22/25 Equity returns sharply negative over 3 months.

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    Oil and Gas

    Saudi Arabia shipping more Nov-Dec crude to Asia to meet robust demand

    Saudi Arabia is shipping more crude oil to Asia over the last two months of the year as strong refining margins boost demand, trade sources said, helping the top oil exporter defend its market share amid fierce competition.

    Cheap Saudi oil - in comparison with prices for other Middle Eastern grades - has drawn several Asian refiners to request a few million barrels above contractual volumes as they ramp up crude run rates to capture robust margins.

    The increment in demand will require Saudi Arabia to pump at near record volumes just as a battle over global market share is expected to intensify following the failure of the Organization of the Petroleum Exporting Countries (OPEC) to set a production quota, and ahead of higher exports from Iran next year once sanctions over its nuclear programme are lifted.

    "There is a bigger call for Saudi crude as monthly supply nominations from Asian refiners have gone up," said an industry source familiar with the matter, adding that the kingdom will raise shipments to Asia by a few million barrels over November and December.

    The trend may continue into early next year as a drop in exports from key light sour producer Abu Dhabi has increased demand for Saudi grades of a similar quality.

    Saudi Aramco declined to comment.

    Nearly half of Saudi's crude production is exported to Asia. Saudi Arabia's major Asian customers received about 4.2 million barrels per day (bpd) of crude in the first 11 months this year, up 2.7 percent from the same period a year ago, data from Thomson Reuters Research & Forecasts showed.

    Saudi Arabia last raised oil exports to Asia over contract volumes in January and February this year to meet peak winter demand in the Northern Hemisphere. The OPEC member's offers of extra crude in low-season October, however, failed to attract interest from Asia.

    Demand for Saudi crude picked up again in November and December as refining margins rebounded.

    At least four Asian refiners lifted more crude as Saudi Aramco set more competitive official selling prices (OSPs), sources close to the matter said.

    Under oil contracts, the seller or buyer can adjust loading volumes, depending on demand and shipping logistics, using an operational tolerance that ranges from plus to minus 10 percent of the contracted volume.

    "The OSP is not bad and the (refining) margin is wonderful," said a trader with a North Asian refiner that has requested more Saudi crude.

    Saudi Aramco's Arab Extra Light OSP is about $7 a barrel below Abu Dhabi's Murban, the widest discount since August.

    Light sour crude supply is expected to tighten early next year as Abu Dhabi National Oil Company has cut Murban and Das crude exports on field maintenance and higher domestic demand.

    Light crudes typically yield more light products such as naphtha, whose crack to Brent NAF-SIN-CRK averaged $111.93 a tonne in November, the highest since September 2014.

    This helped boost refining margins at a typical complex refinery in Singapore to the highest in eight months in November.

    Taking the strong refining margins in Asia into greater consideration, Saudi Arabia cut its January OSPs for most of the crude grades it sells to Asia by a smaller extent than expected last week.

    Asian refiners are now waiting for other Middle Eastern producers to set their prices before deciding on how much Saudi crude to ask for in January, sources said.

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    Russia Sees No Oil Price Recovery In The Coming 7 Years

    “Lower for longer” is becoming the catch phrase of the global oil industry, as an increasing number of energy executives and government officials alike see no opportunity for prices to rebound to their levels of mid-2014.

    The latest such forecast came from Maxim Oreshkin, Russia’s deputy finance minister, who says he expects oil to sell for no more than $40 to $60 per barrel for the next seven years, and that Moscow is adjusting its budget planning accordingly, given that half the country’s annual budget relies on revenues from oil and gas sales.

    “In our estimates, one should hardly expect any serious growth of the oil price above $50,” Oreshkin told a breakfast forum hosted by Russian newspaper Vedomosti on Friday. “The oil industry is changing structurally and it may happen that … the global economy will not need that much oil."

    “Therefore we see a range from $40 to $60 somewhere for the next seven years,” Oreshkin said. “And these are the prices we should base our macroeconomic policy on.” They also must take into account the pressure on Russia’s economy brought by Western sanctions imposed because of Moscow’s annexation of Ukraine’s Crimean peninsula and its role in the country’s internal conflict.

    The Finance Ministry’s first step, he said, will be to address an expected deficit of 3 percent for the country’s 2016 fiscal year because his ministry forecasts that the average global price of oil will remain where it has been for the past few months, between $40 and $50 per barrel. In fact, the world’s two international benchmarks, Brent crude and West Texas Intermediate, recently dipped below $40.

    Specifically, Oreshkin said his country’s deficit forecast for fiscal 2016 is $21.7 billion if the price of oil remains around $40 per barrel for the next year. Revenues are expected to be $204 billion in 2016, compared with $238 billion in projected spending, he said.

    The low cost of fossil fuels, including gas and coal, may be a boon to consumers and businesses who still rely on such energy, but they’re devastating not only to oil companies but also to countries, including Russia, who rely on oil to balance their budgets.

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    Russia's Sberbank CEO says oil price under $40 'additional challenge'

    The head of Russia's top lender, Sberbank, said on Tuesday that oil prices below $40 per barrel presented an additional challenge to the country's banking sector, where a number of players have already received state support.

    The Russian government pledged aid of around 1 trillion roubles ($14.20 billion) in late 2014 to help banks after the rouble fell sharply on weaker oil prices and Western sanctions, which limited external financing.

    But in the last two months oil prices have fallen even further, hitting multi-year lows and posing risks to Russia's commodity-dependent economy.

    "Oil prices of under $40 per barrel are an additional challenge, but under all scenarios we are considering we (Sberbank) are stable even under a price of $35 per barrel," Sberbank boss German Gref told reporters.

    Russia's rouble is trading close to 2015 lows, hurt by new falls in the Brent crude price, which is now below $40 per barrel. At 1330 GMT Brent crude was quoted at $38.07.

    Russia's central bank head, Elvira Nabiullina, said last week that the regulator had drawn up a risk scenario under which oil prices stayed around $35 for the next three years.

    Still, she said, banks are ready from the start of 2016 to switch to a market exchange rate from the favourable one introduced at the end of last year to reduce pressure on their capital ratios.

    Sberbank, in which the central bank is a majority owner, did not use the state recapitalisation programme to boost its capital, in contrast to some other large domestic banks.

    "Never say never. But so far, none of our scenarios assume the need of a capital injection from the state. ... Even under $35 per barrel we won't need support but I am afraid to make any promises," Gref said.

    The Russian authorities are now deciding how to help VEB, the state development bank, and are considering a support package of as much as 1.2 trillion roubles to repay its debts and deal with bad loans.

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    Trafigura announces increase in LNG volumes

    In its annual results for the year ended 30 September 2015, Trafigura has announced that its LNG volumes more than doubled compared to the previous year, from 1.7 million t to 4.2 million t.

    The company’s Oil and Petroleum Products Division also noted increased trading volumes across crude and refined products.

    The report read: “Trafigura was well positioned to grow its LNG book profitably during the year. We more than doubled traded volumes and developed significant new markets and customer relationships. We grew the team in Geneva, Houston and Singapore.”

    The report continued: “Looking forward, we see the LNG market continuing to grow in size and liquidity, with new American and Australian export flows likely to be a key focus on the supply side and European imports playing an important role in balancing demand. Our strategy is to maintain profitable volume growth, to provide innovative and flexible products to our clients and to invest opportunistically in infrastructure where we can add value.”
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    Nuclear restarts push Japan’s LNG demand down

    Japan’s consumption of liquefied natural gas is expected to dwindle due to a slower economy mixed with the restart of the country’s nuclear capacity and increase in renewable sources.

    Platts’ analytics unit, Eclipse Energy reveals that Japan’s demand for LNG is expected to fall from 86 million tons in 2014 to 77 million tons by 2020.

    In the first 10 months of 2015 Japan has already bought 3 million tons less LNG than it was the case in 2014.

    The country’s utilities are slowly restarting their nuclear reactors, and this is already showing effects on LNG consumption.

    Kyushu Electric, that has recently restarted it 890 MW nuclear reactors at Sendai, unloaded seven LNG cargoes at its Tobata terminal, 6 fewer than it was the case in November 2014, according to the report.

    In the period from September to November, Kyushu Electric received nine LNG cargoes at the Oita terminal, staying at the same level as in the same period the year before, the report said.

    However, it is expected that the restart of Kyushu Electric’s Genkai nuclear reactors will replace up to 4 LNG cargoes per month.

    Japan is also expected to import more LNG on long-term contracts, a number that is expected to rise from 82.3 million tons in 2017 to 88.2 million tons in 2019. On the demand side, Japan will see a drop to 77.2 million tons in 2020 from 78.2 million tons in 2017.

    Volumes contracted from LNG projects in the United States are predicted to be used during peak winter periods, but Eclipse Energy expects Japanese utilities to use around 25 percent of the total 17 million tons of LNG per year tolling arrangements during 2018 and 2019 with the utilization to reach 50 percent beyond 2020.

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    Diesel tankers make U-turn in mid-Atlantic as Europe stocks swell

    Tankers laden with diesel heading from the U.S. Gulf Coast to Europe are turning around in mid-ocean as European storage is nearly filled to the brim.

    At least three 37,000 tonne tankers - Vendome Street, Atlantic Star and Atlantic Titan - have made U-turns in the Atlantic ocean in recent days and are now heading back west, according to Reuters ship tracking.

    It is unclear if the tankers will discharge their diesel cargoes in the Gulf Coast or will await new orders, according to traders and shipping brokers.

    "European prices are so soft," one trader said. "Sellers must see better numbers."

    The Vendome Street was more than three quarters of the way to Europe, turning around just 800 miles off the coast of Portugal. Ship brokers said a turnaround so late in the journey would come at a cost to the charterer.

    European diesel prices and refining margins have collapsed in recent days to six-year lows as the market has been overwhelmed by imports from huge refineries in the United States, Russia, Asia and the Middle East.

    At the same time, unusually mild temperatures in Europe and North America further limited demand for diesel and heating oil, ptting even more pressure on the market.

    Gasoil stocks, which include diesel and heating oil, in the Amsterdam-Rotterdam-Antwerp storage hub climbed to a fresh record high last week.

    Prompt Low Sulphur Gasoil futures, the European diesel benchmark, have been trading at sharp discount to later contracts, in what is known as contango, prompting traders to store product.

    In some cases, traders opted to store product on tankers. At least 250,000 tonnes of diesel are currently anchored off Europe and the Mediterranean seeking a discharge port, according to traders.

    "The idea is to keep tankers on the water as long as you can and try to find a stronger market," a trader said.

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    YPF, Dow To Invest $500M In Argentina Shale In 2016

    Argentina’s state-run oil company, YPF SA, and Dow Argentina, the local unit of Dow Chemical Co., said Tuesday they will invest $500 million in 2016 to explore for shale gas.

    The companies, which have already invested $350 million in a joint shale gas venture, said in a statement that total investment could reach $2.5 billion in coming years.

    The transaction will represent the first significant foreign investment announcement in Argentina since President Mauricio Macri took office last week. His administration is seeking to dismantle key policies of his predecessor and boost investor confidence to kick-start a moribund economy.

    The joint venture is the leading shale gas project of its kind in Argentina, with daily production of about 750,000 cubic meters. The aim is to triple that next year to about 2 million.

    YPF and Dow have already drilled 19 shale gas wells in Vaca Muerta, a massive shale oil and gas rich region in the province of Neuquén. They will drill 30 new wells next year and eventually increase that to more than 180 wells in the years ahead.

    Argentina ranks second in the world, behind China, in potentially recoverable shale-gas reserves, with 802 trillion cubic feet, according to the U.S. Energy Information Administration. Argentina also ranks fourth in shale oil with an estimated 27 billion barrels.

    YPF is also working with Chevron Corp. to produce shale oil in Vaca Muerta. The two companies have invested around $3.5 billion to drill unconventional oil wells, making Argentina the leading unconventional producer outside of Canada and the U.S. The companies could total $16 billion over the next 15 years.

    YPF has also joined with with Malaysia’s Petroliam Nasional Bhd, or Petronas, in a deal that could lead to up to $9 billion in investment over the next decade. And in September, YPF signed a deal with Russia’s OAO Gazprom that could lead them to develop shale projects.

    Dow, which began working with YPF in 2013, is eager to obtain gas for use as a key ingredient in its chemical business.

    “We are seeing extraordinary results, and we’re doubly enthused that a leading petrochemical company trusts us to develop its first upstream project,” Miguel Galuccio, YPF’s chief executive, said.

    Argentina’s government sets the price of newly produced gas at $7.50 per million British Thermal Unit, making it a profitable option for some companies in Argentina. In comparison, the spot price for a similar amount of natural gas in the U.S. is close to $2.

    After years of divestment by oil and gas companies, Argentina’s government expropriated YPF in 2012 and began a push to raise oil and gas production.

    The lack of investment had turned Argentina into a net oil and gas importer and led the government to spend billions of dollars every year to import energy. That, in turn, led to a shortage of U.S. dollars available to import other goods and make debt payments.

    Mr. Macri hopes that by reversing his predecessor’s key economic policies, he can boost investor confidence and spur foreign investment.

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    Mexico's oil auction beats expectations despite oil price plunge

    Mexico's oil regulator awarded all 25 contracts on offer on Tuesday, beating expectations despite a dramatic plunge in crude prices, in an auction aimed at boosting new Mexican oil companies after a historic sector reform finalized last year.

    Peak oil production from the 25 onshore fields will reach 77,000 barrels per day and attract investment of $1.1 billion, Energy Minister Pedro Joaquin Coldwell said in a tweet following the auction. Mexican officials had said they would consider the auction a success if at least five contracts were awarded.

    "This is a triumph for Mexico," Juan Carlos Zepeda, president of Mexico's oil regulator CNH told local radio after the auction.

    Among the 14 consortiums with winning bids, there were a dozen small Mexican oil companies, marking a dramatic shift for a sector long dominated by state-owned Pemex.

    No international oil major participated in the auction, which featured relatively small onshore blocks where Pemex has drilled in the past.

    The Mexican consortium led by Geo Estratos was the auction's big winner, nabbing four contracts. Canada's Renaissance Oil Corp won three contracts, while Mexican start-up Strata Campos Maduros also claimed three.

    Diavaz Offshore, a longtime domestic service provider to state-owned oil company Pemex, won two contracts.

    "What we like about Mexico is that it's a place where there will be big opportunities going forward," said Pablo Christlieb, Renaissance Oil's lawyer, adding he expected crude prices to recover.

    The price of Mexico's mostly heavy crude export mix has plunged to below $28 a barrel, down more than 70 percent since last year and at its lowest level in more than a decade.

    The auction was designed to allow experienced Mexican oilfield service providers the opportunity to operate fields on their own, which is permitted under the reform.

    Competing alone and in consortia, some 80 mostly Mexican companies pre-qualified for the onshore auction run by the CNH, while only half registered to bid.

    The constitutional overhaul, finalized last year, ended Pemex's decades-long monopoly on crude production and aimed to reverse a prolonged slide in output by luring new expertise and private investment.

    The fields on offer include a mix of mature onshore fields, most of which feature ongoing production and others that have been underdeveloped or abandoned, with combined proven and probable reserves of about 49 million barrels of oil equivalent.

    Total production from 19 of the 25 fields currently hovers under 20,000 bpd.

    The CNH awards contracts based on which bidder offers the biggest share of pre-tax profits to the government via a weighted formula that also includes an investment commitment.

    The share of profits is 90 percent of the formula, while the investment commitment accounts for the rest.

    The winning bids ranged from 10.56 percent of pre-tax profits for the San Bernardo field won by Mexican firm Sarreal, to 85.69 percent for the Moloacan field won by a consortium led by the Netherlands's Canamex Dutch along with two Mexican firms.

    The total government take on the contracts will be even higher as it includes other taxes and royalties.

    The onshore auctions followed two previous offshore auctions in July and September, in which five of 19 contracts on offer were successfully tendered.

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    U.S. regulators seek more concessions to OK Halliburton-Baker Hughes deal

    Halliburton Co  and Baker Hughes Inc said U.S. antitrust officials were not satisfied with the concessions they offered to win approval for their proposed merger, and that officials said they would assess further proposals.

    The two oilfield service providers said it was unlikely they would be able to settle with the U.S. Department of Justice by Tuesday, the earliest closing date for the deal.

    The two companies also extended the deadline for closing the proposed merger to April 30, 2016.

    The earliest closing date for the deal, which would create the second-largest oilfield services company after Schlumberger Ltd (SLB.N), was extended to Dec. 15 after U.S. regulators requested more information from the companies.
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    Magnum Hunter Files for Bankruptcy as Gas Hits 14-Year Lows

    Magnum Hunter Resources Corp., an oil and gas explorer once heady with spending amid the U.S. shale boom, filed for bankruptcy as its heavy debt load was exacerbated by the glut in cheap energy.

    The company said Tuesday that it has the support of a majority of its lenders for a turnaround plan. Holders of 75 percent of the company’s debt have agreed to support the restructuring, which calls for a $200 million loan to keep Magnum Hunter operating in bankruptcy, according to a statement.

    The loan will convert to equity in a new, reorganized company in a process that Chief Executive Officer Gary C. Evans said will be efficient and cost-effective, and allow it to take advantage of the energy slump.

    “This restructuring will position Magnum Hunter as a market leader in the upstream sector with an ideal capital structure to capitalize on the large number of opportunities anticipated in our industry due to the precipitous commodity cycle downturn ,” Evans said in the statement.

    A bankruptcy judge would still need to approve any plan.

    Gas slumped to a 14-year low Monday amid record-breaking December warmth in the eastern U.S. Magnum Hunter blamed the slump, plus its own “substantial debt,” for the bankruptcy. The company had stopped drilling in its two main locations -- the Marcellus Shale and the Utica Shale -- at the start of this year due to the price drop.

    Magnum is among many other energy firms that have succumbed to financial troubles, including Samson Resources Corp., which filed for bankruptcy in September.

    Magnum listed debts of more than $1.1 billion in the Chapter 11 filing in Delaware. Among the biggest claims unsecured by collateral are notes due in 2020, listed in court papers at $634.6 million.

    Marcellus and Utica assets, as well as properties in Kentucky, accounted for 96 percent of Irving, Texas-based Magnum’s total proved reserves. The Williston Basin in North Dakota and Saskatchewan accounted for the rest, as of June 30, the company has said.
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    Carrizo Oil & Gas Said to Seek Buyers for Colorado Shale Assets

    Carrizo Oil & Gas Said to Seek Buyers for Colorado Shale Assets

    Carrizo Oil & Gas Inc. is seeking buyers for its land in Colorado’s Niobrara shale formation, which could fetch as much as $200 million, according to people familiar with the situation.

    The Houston-based company is working with Royal Bank of Canada to seek buyers for the assets, said the people, who asked not to be identified because the matter isn’t public.

    U.S. explorers are selling off land to preserve cash and raise money for drilling in their best areas as they deal with a prolonged slump in commodity prices. Carrizo’s shares rose 1.5 percent to $33.27 at 1:38 p.m. in New York on Tuesday, giving the company a market value of about $1.94 billion.

    Analysts and investors consider Carrizo to be among the healthier U.S. shale explorers because it has a fairly liquid balance sheet and controls lots of valuable land in Texas, Colorado, Pennsylvania and elsewhere.

    The company has significant hedges to sell much of its oil at above-market prices through 2016, and was among more than a dozen U.S. explorers that made it through a recent evaluation of its bank loans with its credit line intact, according to company filings and data compiled by Bloomberg.

    Carrizo has 35,100 net acres in the Niobrara with proved reserves equivalent to 5.9 million barrels of oil, according to a December investor presentation. Its top competitors in the Niobrara include Whiting Petroleum Corp. and Noble Energy Inc., the presentation shows.

    Its Niobrara position is its second largest, based on net acres, behind its 84,000 net acres in the Eagle Ford Shale basin of Texas, where it is primarily focused. It has reduced spending in the Niobrara this year while allocating about 70 percent of its estimated $540 million 2015 capital budget to the Eagle Ford, according to the presentation.

    Carrizo also drills in the Permian basin of west Texas and New Mexico, and in the Utica and Marcellus Shale basins in the eastern U.S. The company reported a net loss of about $775 million during the first nine months of 2015, after earning about $93 million in the same period a year earlier, according to its third-quarter report.

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    Alternative Energy

    Hazardous smog hits Shanghai as China's bad air spreads

    Smog in Chinese metropolis Shanghai hit its highest level since January on Tuesday, prompting schools to ban outdoor activities and authorities to limit work at construction sites and factories as polluted air spreads around the country.

    Last week, hazardous pollution levels in Beijing triggered the capital's first "red alert," meaning vehicles were ordered off the roads, classes were cancelled and heavy vehicles banned.

    Shanghai's heavy smog arrived just a day before the city hosts the closely-watched World Internet Conference, which will include a speech by President Xi Jinping. Attendees are expected to include global tech industry titans and the leaders of countries such as Russia and Pakistan.

    On Tuesday, a curtain of grey smog fell over Shanghai, China's business capital with a population of over 20 million. It limited visibility and drove the city's air quality index (AQI) above 300, a level deemed "hazardous" on most scales and which can have a long-term impact on health.

    The levels of PM 2.5, dangerous tiny pollutants, hit 281, the highest since mid-January, according to data compiled by the U.S. Department of State. PM 2.5 particles are a major cause of asthma and respiratory diseases, experts say.

    "Because of (the smog) my kid often gets sick, often has a stuffy nose and a cough," said Valen Wang, 40, a full-time mother in Shanghai.

    "At the moment, the pollution feels like it just keeps on getting worse, and all we can do is slow it down a little."


    The smog prompted Shanghai authorities to issue a "yellow alert," the third-highest level warning, and to advise elderly, young and sick residents to remain at home, avoid outdoor activity and keep the windows closed.

    China's pollution is causing a headache nationwide, with many rivers and lakes clogged with garbage, and heavy metals in the soil. Bad air sometimes causes flight delays.

    China will impose a nationwide credit system making it harder for environmental offenders seeking loans, the environmental protection ministry and state planner the National Development and Reform Commission, said.

    In contrast, businesses with a good environmental track record will "receive support" in seeking financial help, administrative certificates and government procurement projects, the government bodies said in a joint statement.

    They did not say when the plan would take effect.

    The heavy smog in Shanghai also comes as provinces to the north tighten pollution regulations for steel mills and cement plants, pushing production south.

    Some Shanghai residents donned masks to filter the air, while others shunned protection.

    "My throat is rather dry and it hurts," Cao Yonglong, a 30-year-old delivery man said. "I keep wanting to have a drink of water."
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    Solar Prospects Shine on Tax Credits and California Payments

    U.S. congressional leaders reached a deal that would extend tax credits for renewable energy. And California, solar’s biggest U.S. market, upheld payments for power sold from rooftop panels.

    Shares of solar companies jumped with SunEdison Inc., the world’s biggest renewable-energy developer, rising 13 percent at the close in New York.

    In Washington, House Speaker Paul Ryan told Republicans in a closed-door meeting on Tuesday that the House plans to vote Thursday on a $1.1 trillion spending bill that would extend tax credits for wind and solar power. In California, regulators rejected requests by utilities to increase fees and cut payments to new solar users in a proposed ruling that’s seen as a bellwether for how the rest of the country deals with the rapid emergence of power generated by customers.

    The California proposal issued by an administrative law judge at the California Public Utilities Commission on Tuesday offers rooftop solar installers “very significant positives that should secure profitable growth for the industry after 2016,” Patrick Jobin, an analyst for Credit Suisse Group AG, said in a research note.

    Under the proposal in California, solar panel owners would pay a one-time connection fee of about $75 to $150 and other small fees to fund low-income and energy efficiency programs, according to the administrative law judge’s filing. Solar companies and advocates lauded the plan while PG&E Corp., the state’s largest investor-owned utility, said regulators “could do more.”

    The California fees and charges are less than those proposed by utilities, the California Solar Energy Industries Association said in a statement.

    California utility owners PG&E, Edison International and Sempra Energy had asked the state to increase fees and cut payments to power-generating customers, arguing that customers who don’t have solar shouldn’t subsidize those who do. They’ve also said the program needs to better reflect the value of the power and the cost of upgrading the grid to handle it. The proposal is scheduled to be voted on at the commission’s Jan. 28 meeting.
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    China's State Power Investment Corp buys Pacific Hydro

    China's State Power Investment Corp has bought IFM Investors' renewable energy business, Pacific Hydro, confirming an earlier report by Street Talk.

    IFM signed a deal to sell Pacific Hydro in its entirety on Wednesday afternoon following a hotly-contested auction which saw multiple bids for the business as a whole and for the separate Australian and South American units.

    Santander advised State Power Investment Corp. The sale price is said to be north of $3 billion, including debt.

    The deal is expected to close in late January.

    Pacific Hydro's globally-significant portfolio develops, builds and operates renewable energy projects in Chile, Australia and Brazil.

    Pacific Hydro expects $175 million earnings before interest, tax, depreciation and amortisation in the 2015 calendar year. About half of the earnings are scheduled to come from Chile, while 41 per cent is from Australian assets and the remaining 7 per cent from Brazil.

    Bank of America Merrill Lynch and Credit Suisse ran the sale for IFM.

    China's State Power Investment Corp beat off rival bids from the likes of Australian private equity firm Pacific Equity Partners, Morgan Stanley Infrastructure Fund, China's Huadian Corporation, ENGIE (the company which was formerly GDF SUEZ), Gas Naturale from Spain, TransAlta and Marubeni Corporation.

    Sources indicated that offers for the parts were close to the winning bid received for the business as a whole.

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    Base Metals

    OZ Minerals Hydromet trial a success

    OZ Minerals has successfully concluded the Hydromet demonstration plant trial, with first parcel upgraded to 53 to 55% copper and the second parcel upgraded to 58 to 60% copper.

    Some 150 tonnes of copper concentrate from Prominent Hill was treated in two separate parcels of differing mineralogical quality, with impurities in the concentrate reduced to well below penalisable levels in both cases.

    CEO and managing director Andrew Cole said the trial surpassed its expectations and has begun providing samples to existing and potential customers. He thinks such high quality concentrates will be in demand by the market, particularly at a time when copper grades are declining and impurities increasing.

    The South Australian state government has provided $10 million to fund a joint study with OZ Minerals and Adelaide University to add further value to copper concentrates produced in the South Australia Gawler Craton. OZ Minerals pledged an additional $8 million to find an established plant to quickly and efficiently start demonstration scale testing.
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    Steel, Iron Ore and Coal

    Japan, S. Korea plan new coal-fired plants despite global climate deal

    Less than a week since signing the global climate deal in Paris, Japan and South Korea are pressing ahead with plans to open scores of new coal-fired power plants, casting doubt on the strength of their commitment to cutting CO2 emissions.

    Even as many of the world's rich nations seek to phase out the use of coal, Asia's two most developed economies are burning more than ever and plan to add at least 60 new coal-fired power plants over the next 10 years.

    South Korea did scrap plans for four coal-fired power plants as part of its pledge to the Paris summit, but 20 new plants are still planned by 2021.

    In Japan, 41 new coal-fired power plants are planned over the next decade, and taxes favor imports of coal over cleaner-burning natural gas.

    Officials at both countries' energy ministries said those plans were unchanged.

    Japan, in particular, has been criticized for its lack of ambition - its 18% target for emissions cuts from 1990 to 2030 is less than half of Europe's - and questions have been raised about its ability to deliver, since the target relies on atomic energy, which is very unpopular after the 2011 disaster at the Fukushima nuclear plant.

    Japan's Electric Power Development Co Ltd, the country's top thermal coal user, said the Paris deal would have no impact on its coal plans.

    "Our stance on new coal plants is unchanged," a spokesman said, adding that emissions would be cut as ageing coal plants were replaced by new ones using the latest technology.

    In South Korea, tax on imported coal for power generation was raised in July, but is still only just over a third of the import tax on natural gas.

    Coal-fired power plants there currently run at about 80% of capacity, compared with 35-40% for gas plants, according to calculations based on data from Korea Electric Power Corp (KEPCO), the country's largest power utility.

    Analysts say Japan and South Korea could reduce carbon emissions by much more than they pledged in Paris.

    "The focus in Asia has been more on China and India, so we haven't seen much attempt to put pressure on Japan and South Korea yet. But I imagine pressure will start to increase," said senior analyst Georgina Hayden at BMI Research, a unit of ratings agency Fitch Group.

    To be sure, China uses vastly more coal and has nearly a thousand more such plants in various stages of planning and construction.

    But it has also recently reformed its gas price system to encourage a switch away from coal.

    Attached Files
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    Glencore pulls the plug on Blakefield North

    Diversified miner Glencore on Wednesday confirmed that it would postpone the development of the Blakefield North underground mine, in New South Wales. 

    The project, which forms part of the larger Bulga coal complex, had been due to start longwall production in 2017, and would have extended the life of the existing underground operations at the Bulga complex. However, a spokesperson for Glencore told Mining Weekly Online on Wednesday that a decision has now been taken to place the underground project on hold, owing to continued low thermal and coking coal prices. 

    “Glencore is one of the most efficient longwall miners in Australia, but we are not immune from the ongoing market challenges. Unfortunately, the current market does not support the proposed project and we have decided to place Blakefield North on hold until we see improvement in the economic climate,” the spokesperson said. 

    “We remain confident of coal’s medium to long-term outlook and that our Hunter operations will play an increasingly important role in meeting this future demand. “Presently, however, we have to ensure that the volumes and qualities of coal we produce are aligned with market requirements. 

    We will not push incremental tonnes into markets that don’t want them or need them,” the spokesperson added. 

    The company estimated that some 340 employees and 60 contractors would be affected by this decision over the next two years, with employee consultation starting this week. “We appreciate this decision will have impacts on our employees and their families as current underground operations reach the end of their scheduled life in 2017, as well as the local communities and businesses supported by our underground operations. 

    “We will be working closely with those employees affected during this difficult time,” the spokesperson said. Operations at the Blakefield South underground mine would continue as planned until 2017, when its final longwall panels have been mined, while Glencore’s opencut mine at Bulga, which last year received regulatory approval to extend its mine life until 2035, would not be impacted by the decision.
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    Arch Coal to delay bond interest payment

    Arch Coal Inc, the second-largest coal miner in the United States, said it has chosen to extend by 30 days a $90 million in bond interest payments that was due on Tuesday.

    The company, which ended a proposed debt swap in October that was seen as key to delaying a potential bankruptcy, said it plans to use the grace period to continue talks with creditors to restructure its balance sheet.

    Arch Coal, struggling under strict regulation and plummeting coal prices, had said last month that it could follow its smaller peers into bankruptcy in the near term, even if current talks with creditors yield a restructuring agreement.

    Competitors such as Walter Energy Inc, Alpha Natural Resources Inc and Patriot Coal have all filed for bankruptcy this year.

    Arch Coal had about $694.5 million in cash and short term investments as of September.
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    China Nov crude steel output down 1.6pct on year

    China’s crude steel output fell 1.6% from the year prior and down 4.23% from October to 63.32 million tonnes in November, showed data from the National Bureau of Statistic (NBS) on December 14.

    Average daily crude steel output dropped 1.04% from October to 2.11 million tonnes in November, as producers cut output amid seasonally weaker demand.

    Over January-November, total crude steel output slid 2.2% on year to 738.4 million tonnes, data showed.

    During the same period, total output of steel products rose 1% year on year to 1.03 billion tonnes, while that of pig iron decreased 3.1% on year to 638.5 million tonnes.

    In November, China produced 93.96 million tonnes of steel products, increasing 2% on year but down 0.33% on month; while output from pig iron fell 0.8% on year and down 4.69% from October to 53.67 million tonnes.

    Prices of steel products further dropped in November, as demand reduced with the slowdown in construction activity as temperature fell in northern China. In late November, average price of 16-25mm HRB 400 rebar went down to 1908.4 yuan/t, down 108.9 yuan/t, while that of wires fell 143.7 yuan/t from ten days ago to 1997.3 yuan/t.

    Attached Files
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    Sinosteel says will extend bond redemption period for 3rd time

    Sinosteel, a state-owned steelmaker, said on Wednesday it will extend the registration period for early redemption on a putable bond that investors could originally elect to redeem in mid-October until Dec. 30.

    The statement posted on the website of one of China's main bond clearinghouses marked the third time Sinosteel has extended the redemption period.

    The latest extension comes after Sinosteel had asked bondholders of its 2 billion yuan ($309 million) October 2017 bond not to exercise a put option on Oct. 20, because the company would not be able to make a full payment, according to a letter seen by Reuters.
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