Archive for Energy

Oil collapses as coronavirus fears intensify

By Lukman Otunuga, Research Analyst, ForexTime

Oil prices collapsed to fresh multi-month lows on Monday as concerns intensified over China’s coronavirus outbreak hitting demand for fuel.

WTI Crude and Brent crude both tumbled more than 3% amid the market unease with investors becoming increasingly anxious about the widening crisis and ramifications to global growth. China is the world’s largest economy consumer, so a slowdown in demand could bruise and de-stabilize oil markets. It remains unknown how badly the virus has affected consumer spending and business confidence in China. However, tourism revenues will be in the direct firing line, which could weigh heavily on the world’s second-largest economy. This will be another rough week for WTI and Brent, especially if fears mount over the virus spreading further.

The technical picture paints a heavily bearish setup for the WTI Oil with prices trading around $52.60 as of writing. A solid daily close above $52.20 may open the doors towards $51.00 and $49.50.

Gold glows through market chaos

Gold has entered the week on a positive note, jumping roughly 0.7% amid the market caution.

Investors are maintaining a safe-distance from riskier assets with hotspots like Gold, Dollar and the Japanese Yen becoming prime destinations of safety. Gold is positioned to appreciate further this week with market uncertainty opening the gates towards $1600. A solid daily close above $1580 should encourage a move towards $1589 and $1600, respectively.

Should $1580 prove to be unreliable support, prices could journey back towards $1555.

Currency spotlight – EURUSD

There is a classic breakdown strategy forming on the EURUSD with 1.10 acting as the trigger point.

A solid breakdown and daily close below this support level may signal a move lower with 1.0940 and 1.0879 acting as significant points of interest. If bears are unable to conquer the 1.10 level, a rebound back towards 1.1090 could be on the cards.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


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The “Twin Threats” Facing Big Oil

By OilPrice.com

The global oil and gas industry is facing the “twin threats” of the loss of profitability and the loss of social acceptability as the climate crisis continues to worsen. The industry is not adequately responding to either of those threats, according to a new report from the International Energy Agency (IEA).

“Oil and gas companies have been proficient at delivering the fuels that form the bedrock of today’s energy system; the question that they now face is whether they can help deliver climate solutions,” the IEA said.

The report, whose publication was timed to coincide with the World Economic Forum in Davos, critiques the oil industry for not doing enough to plan for the transition. The IEA said that companies are spending only about 1 percent of their capex on anything outside of their core oil and gas strategy. Even the companies doing the most are only spending about 5 percent of their budgets on non-oil and gas investments.

There are some investments here and there into solar, or electric vehicle recharging infrastructure, but by and large the oil majors are doing very little to overhaul their businesses. The top companies only spent about $2 billion on solar, wind, biofuels and carbon capture last year.

Before even getting to the transition risk due to climate change, the oil industry was already facing questions about profitability. Over the past decade the free cash flow from operations at the five largest oil majors trailed the total sent to shareholders by about $200 billion. In other words, they cannot afford to finance their operations and also keep up obligations to shareholders. Something will have to change.

But, of course, as climate policy begins to tighten, oil demand growth will slow and level off. Most analysts say that it won’t require a big hit to demand in order for the financial havoc to really begin to devastate the balance sheets of the majors. Demand only needs to stop growing.

The IEA said there are things the industry can do right now – and should have done a long time ago. Roughly 15 percent of the energy sector’s total greenhouse gas emissions comes from upstream production. “Reducing methane leaks to the atmosphere is the single most important and cost-effective way for the industry to bring down these emissions,” the IEA said. But, the Permian is flaring more gas than ever, and methane leaks at every stage of the extraction and distribution process. Drillers have promises improvements, but the industry’s track record to date is not good.

Meanwhile, the IEA also noted that while attention is often focused on the oil majors, national oil companies (NOCs) account for more than half of global oil production. The majors only account for about 15 percent.

It is one thing for ExxonMobil or Chevron to face an existential crisis – which, absent an attempt to transition to a low-carbon business, they certainly do – but it’s an entirely different thing for the NOCs who will struggle to deal with the energy transition. The threat from the energy transition is not just to a specific business, but to whole governments and entire populations. “Some are high performing, but many are poorly positioned to adapt to changing global energy dynamics,” the IEA said. “None of the large NOCs have been charged by their host governments with leadership roles in renewables or other noncore areas.”

Ultimately, the report from the IEA should be worrying for the industry. The agency itself has faced criticism for not being more at the forefront of calling for a clean energy transition, and its forecasts for renewables have consistently undershot actual improvements for renewable technologies. The agency also continues to call for more upstream oil and gas investment. In other words, the IEA is somewhat conservative, and has been slow to recognize major shifts in the energy sector.

As such, the majors should probably take note when the IEA says something like “the transformation of the energy sector can happen without the oil and gas industry.” They can drag their feet, and will become increasingly ravaged by policy change and a deterioration in their core business. Or, they could proactively transform themselves, as the IEA says they should. Solutions to climate change “cannot be found within today’s oil and gas paradigm,” the agency said.

Link to original article: https://oilprice.com/Energy/Crude-Oil/The-Twin-Threats-Facing-Big-Oil.html

By Nick Cunningham of Oilprice.com

 

 

Standard Lithium Demo Plant Operating Soon, First Production in 2022

The Energy Report

Source: Peter Epstein for Streetwise Reports   01/23/2020

Peter Epstein of Epstein Research provides an update on a company with a lithium project in Arkansas.

This month, Standard Lithium Ltd. (SLL:TSX.V; STLHF:OTCQX) is targeted to switch on a relatively large-scale, proof-of-concept lithium extraction Demonstration Plant in southern Arkansas. If all goes reasonably as planned, it should take just a few months to prove the company’s proposed operational flow sheet. Then, management believes a final JV agreement with Lanxess Corp. will be signed.

CEO Robert Mintak commented,

“We’re making chemical products, not merely extracting a raw commodity. We’re doing sophisticated chemistry to produce a chemical that goes into batteries. It’s a high-end product.” GM [recently] announced they were going to build a $2.3 billion factory in Ohio to make lithium batteries. The industry is only going in one direction. We’re at the point where we’re going to be the U.S. hub for it. It’s the next energy revolution and El Dorado [Arkansas] will play a part in it….

….The key element is our growing partnership with German specialty chemicals giant Lanxess, a company with 73 chemical plants around the world employing tens of thousands. They have extensive and sophisticated sales networks to sell specialty chemical products. That’s a critical part of the whole story.”

Significant vote of confidence in Standard Lithium’s JV project

On October 30, Standard Lithium Ltd. (TSXV: SLL) (OTCQX: STLHF) obtained a C$5 million five-year loan, at just 3% interest from strategic partner Lanxess. The loan is convertible into 6,251,250 common shares, with 3,125,625 three-year warrants attached. The warrant strike price is C$1.20 (shares were at C$0.68 at the time of announcement). Please see the press release for further details.

These are very favorable terms; Standard effectively raised capital at a premium to market at a time when most lithium juniors can’t raise capital at all. The warrants were struck at a 76.5% premium to the October 30 share price. In the end, Lanxess will potentially own 6,251,250 + 3,125,625 = 9,376,875 shares in Standard Lithium, paying an average price of ~C$0.93.

Assuming the new warrants get exercised, the company would have roughly 97.5 million shares outstanding and would have raised a total of $8.75 millin. Therefore, the pro forma Enterprise Value (EV) [market cap + debt – cash] with shares currently at C 0.91 is about C$82 million.

Compare that figure to Standard Lithium’s interest in the after-tax NPV of 30% x C$1.336 billion = C$400 million. Standard is trading at 20% of its 30% share of the after-tax NPV. Under certain circumstances, Standard’s interest in the project and its economics can be increased from 30% to up to 40%.

The loan represents another important milestone and clear vote of confidence in Standard Lithium, the JV project in southern Arkansas, and a very impressive management and technical teams led by Robert Mintak and Dr. Andy Robinson. For the past year, I’ve been saying that the company should be able to reach commercial production with fairly minimal equity dilution. This news is a meaningful step in the right direction.

If Lanxess is willing to invest today, at PEA-stage, with dismal lithium market sentiment, I imagine they might be willing to invest again in 2020 or 2021. That, or be a cornerstone order in future capital raises. This is on top of Lanxess’ expected commitment to line up 100% of project financing. Commercial production is expected to commence in 2022 with full phase 1 production of 9,700 tonnes Lithium Carbonate Equivalent (LCE)/year (2,910 tonnes LCE net to Standard) reached in 2023.

Use of proceeds will further advance the company’s Demonstration Plant (DP). When fully commissioned, the DP will continuously process an input “tail-brine” flow of ~50 gallons per minute. That’s an annualized production rate of 100–150 tonnes of LCE. The DP is assembled on-site; commissioning started in December.

Above is a recent picture of the DP.

As can be seen, it’s a fairly significant structure. Notice the pick-up trucks on the left and the UFO in the upper left corner! The facility is purpose-built to be scaled-up to commercial design capacity of 9,700 tonnes LCE/year in phase 1 production, targeted to start in 2022, and be fully ramped up in 2023.

The DP showcases Standard’s proprietary LiSTR technology that uses a solid sorbent material to selectively extract lithium. The environmentally friendly process eliminates the need for evaporation ponds and reduces processing time from 12–18 months to a matter of hours, while, at the same time, greatly increasing lithium recovery rates.

Although a run-rate of 100-150 tonnes LCE/year is not much by commercial standards, it’s impressive as far as pilot plants go. Finished lithium products will be used internally for testing, and, more importantly, will provide Lanxess proof of concept for its final investment decision.

Two years and C$20 million…

Standard could now be just two years from initial production of lithium products. In addition, the amount of additional equity capital required to reach that critical point could be only C$20 million.

If true, the company is pretty far along in having meaningfully de-risked the project. Remember, funding is the #1 challenge these days facing battery metals juniors. Standard Lithium appears to have the funding piece of the puzzle largely in place.

As readers of my articles and interviews know, there are a number of lithium brine projects in Argentina and Chile. Several in Argentina were expected to reach first production in 2021 or 2022. On average, I estimate those projects have been pushed back 18–24 months due to a lack of funding, and more recently, uncertainty around a critical presidential election (the less mining-friendly candidate won) and social unrest/protests in Chile.

Even more recently, a mid-December ruling by a Chilean environmental court upholding claims of excessive water use by SQM seriously threatens its expansion plans in 2020 and beyond.

Perhaps half of the projects on the drawing board, (PEA-stage or further advanced) 2–4 years ago are no longer serious contenders. By NOT falling behind, Standard has caught up to Lithium Triangle projects, and could be in production ahead of the pack. This is very important. The early-to-mid 2020s will be a very good time to be in production, a time when global demand for lithium could finally take off.

Lithium producers trading on average at 7.5x Revenue

In the chart below, one can see that a sample of lithium producers is trading at an average EV to trailing 12-month revenue multiple of 7.5x. Eighteen months ago it was closer to 10x. Although Standard Lithium is not yet in production and will never be a giant like SQM or Albemarle, one can imagine what an indicative valuation might look like.

Readers should take note of EBITDA margins among producers, averaging 29%. Haircutting the assumed margin in Standard’s PEA by one-third to be conservative still results in a healthy 45% operating EBITDA margin.

How much revenue (net to Standard Lithium) might be possible upon achievement of phases 1 and 2? The chart below shows revenue scenarios for 2024 (after phases 1 and 2 are fully online). According to its spring 2019 prospectus filing, Standard will own at least 30% of project economics and perhaps up to 40%, depending on various factors that have not been made public.

In working on a broad, indicative valuation range, I assume 20 million shares get issued between now and year-end for a pro forma total of ~117,500,000. And, I discount indicative per-share valuations back 4 years at a 10%/year discount factor.

As can be seen, the range of per-share values is wide; from C$1.30 to C$5.14. I, of course, don’t know where the share price is headed, but using this chart for illustrative purposes makes me feel pretty good about the possibilities. Note, the current share price is C$0.91.

At a 5x EV/2024 revenue multiple—on revenue from selling lithium @ US$12,000/tonne—the indicative per-share value discounted back four years is C$2.45.

Conclusion

Given that Standard Lithium’s (TSX-V:SLL) / (OTCQX:STLHF) JV project is well on its way to being fully funded with the technical and financial support of giant specialty chemicals conglomerate Lanxess, and given that a third-party PEA has demonstrated robust project economics, Standard Lithium is arguably more de-risked than the market is giving it credit for. Near-term catalysts, most notably the operation of the DP, will provide ongoing news flow.

In 2020–21 management will be tweaking the DP, sending out lithium product samples and working on a Pre-Feasibility Study. Market sentiment for lithium is at multi-year lows. Now might be a great time to be looking at lithium juniors, some of which could see a considerable bounce back in their share price along with lithium prices.

Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University’s Stern School of Business.

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Disclosures: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Standard Lithium, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Standard Lithium are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this interview was posted, Peter Epstein owned shares of Standard Lithium, and the Company was an advertiser on [ER].

Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.

( Companies Mentioned: SLL:TSX.V; STLHF:OTCQX,
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Crude Down Despite Inventories Draw

By Orbex

The latest report from the Energy Information Administration has added further downside pressure for crude prices this week.

The EIA update showed that US crude inventories fell by 400k barrels last week.

News of a drawdown is typically positive. However, on the back of last week’s 2.5 million barrel drawdown, the market had been expecting a 1 million barrel decline. Therefore, it was disappointed by the news of a weaker than expected draw.

Gasoline Inventories Increase

Other elements of the report were also more obviously bearish.

The data showed that gasoline inventories were higher by 1.75 million barrels over the week. This increase was above the expected 1 million barrel level.

However, distillate stockpiles were far lower than expected. These dropped by 1.2 million barrels over the week versus an expected build of 3 million barrels.

Crude prices have been weighed down due to the outbreak of the Wuhan virus in China. This has already claimed the lives of nearly 20 people while infecting a further several hundred.

The virus has already spread across Asia, with one confirmed case in America and further possible cases identified as far as Scotland.

Wuhan Virus Causing Concern

A wave of reduced risk appetite has hit the markets. Traders are fearing a SARS-like outbreak which could cause widespread economic damage and reduced fuel demand.

The SARS outbreak in 2003 caused a sharp drop in fuel demand. It also sparked a recession in Hong Kong and a sharp economic hit to China.

If the outbreak continues to intensify, there are fears that the local economy, already in the throes of a downturn, will suffer significantly.

EIA Forecasts Lower Prices

In its January short-term energy outlook, the EIA forecast crude prices to fall over 2020.

The driver behind this projection is the passing of geopolitical risks such as the tension between the US and Iran.

However, there are several factors providing upward pressure. These include the progress being made towards ending the US/China trade war, the greater clarity around Brexit and the increase in OPEC production cuts announced in December.

Technical Perspective

Frustratingly for crude traders, if we look at the higher timeframe you can see that not much has changed.

Price is essentially trading where it was a year ago. Despite having broken above 64, the reversal has brought price right back down into the middle of the range which framed much of last year’s price action.

Crude is currently challenging the rising trend line from last year’s lows. If we break here, the next level to watch will be the 57 mark, with the 2018 lows below that as the main downside marker.

By Orbex

 

4 Promising Oil Trends To Watch In 2020

By OilPrice.com

Since the turn of the year, energy stocks have become a put owner’s dream–what with the energy sector virtually generating the worst returns of all US sectors.

And the harder you look, the worse it gets, making it nearly impossible to find value in this gridlocked mess.

One of the industry’s popular benchmarks, the SPDR S&P Oil & Gas Exploration ETF (XOP) has tanked 30% over the past year, badly underperforming the broader market all thanks to a perfect storm of supply and demand shocks coupled with slowing economies.

This comes to nobody’s surprise, considering that small-cap oil and gas stocks have higher leverage than large-caps. XOP invests in a lot of highly leveraged small-and mid-cap oil and gas companies in the exploration sector that tend to decline significantly on concerns about liquidity and debt repayments, but also bounce back quickly due to supply shocks like the Saudi Aramco drone attacks or, better still, a significant discovery.

Nothing quite tickles the fancy of energy investors like a giant oil or gas find.

But here’s the secret sauce: stocks of small-cap companies tend to enjoy serious leverage whenever they strike oil, whereas the heavyweights, well, not so much.

You don’t have to look very far for an example: shares of ExxonMobil Corp. (NYSE:XOM) are down more than 20% since the company announced a 14-strong string of good discoveries off the coast of Guyana in 2015, one of its best finds ever.

That’s because companies like Exxon have their fingers in too many pies, and their share prices depend on many variables. Junior explorers, however, tend to have a singular focus. You can buy them up for pennies, and when and if they strike oil, it’s a shareholder bonanza of big returns.

Granted, state-owned behemoths and giant energy companies tend to have more than their fair share of discoveries. But that does not in any way mean smaller companies have been missing out on the action–on the contrary, they have time and again showed up the big boys and earned their bragging rights in the arena, too.

Here are some of the biggest discoveries made or potential for discoveries that might be made by smaller oil and gas exploration companies:

#1 Biggest Oil Discovery in the Australian North West Shelf

For more than 15 years, oil exploration companies had been coming up empty in the once-fecund Australian North West Shelf. Nearly everybody had given up searching for liquids in the offshore block.

That is, until block partners Quadrant Energy and Carnarvon Petroleum hit paydirt in 2018 after making what is billed as “Australia’s most exciting oil find in decades“.

Quadrant and Carnarvon have emerged as some of the top wildcatters to watch in the region after uncovering a find containing some 171 million barrels of oil. You would have to go back to 1996 to find an oil discovery in the region above 100 million barrels.

Shares of Carnarvon ($555 million market cap) have jumped more than 150% since the discovery was announced, while Quadrant was acquired by Australian natural gas giant Santos Ltd (STOSF) in 2018.

 

Actually, these guys got lucky. The companies were prospecting for 545 bcf of gas but ended up with something far more valuable. After all, oil has a significantly lower risk profile than gas and does not require expensive infrastructure or gas contracts.

In other words, oil is both easier and faster to monetize than gas.

So, what are the expected pickings here?

Before the latest appraisal was carried out, Quadrant executive Fred Wehr had gushed:

“…the low case is solidly commercial, the mid-case is awesome and the upside is staggering.”

After the appraisal, Santos chief executive Kevin Gallagher revealed that the find was actually “bigger than expected”.

So, we can surmise that Quadrant thinks the find is awesome-to-staggering since it’s well above the base case estimate of 150 million barrels of oil.

#2 Namibia’s Eagle Ford

Reconnaissance Energy Africa (TSX-V: RECO, OTCMKTS:LGDOF) is the smallest of the three small-cap discoveries, with a market cap of only $39 million, with shares selling for under $0.80. Yet, it’s sitting on a shale basin that’s 25,000 square kilometers, similar in size to the Eagle Ford basin. Yes, that’s right: This tiny explorer just acquired a 90% exploration permit interest to the entire, 6.3-million-acre Kavango Basin in Namibia—Africa’s area which includes shale geology.

It’s quite unique for a company this small to have a basin this big, but while few have heard of the company, everyone in the business has heard of the geologist who examined the data on this basin. They’ve also heard of Recon’s CEO, Jay Park QC—the former director of Caracal Energy, which was acquired by giant Glencore in 2014 for $1.3 billion.

Bill Cathey is the geoscientist who looked at initial data. When the Company brought the magnetic survey data from Namibia’s Kavango Basin to Cathey, Cathey said the basis is a 30,000-foot sedimentary basin. He also said that all basins of this depth, anywhere else in the world, produce commercial hydrocarbons. Recon management dropped everything, so the story goes, got on a plane, and finalized the rights to the giant Kavango Basin.

So, now, tiny Reconnaissance is sitting on a basin similar in size to the Eagle Ford.

Reconnaissance has a 90% interest in a 4-year exploration license leading to a 25-year production license starting on commercial discovery.

 

The Kavango Basin is filled by the Karoo Supergroup of rocks, and it’s also been shown to have the same depositional environment as Shell’s Whitehill Permian shale play, part of the Karoo Supergroup to the south in South Africa.

Sproule–a tier 1 resource assessment company–estimated that Kavango has a potential 12 billion barrels of oil or 119 trillion cubic feet of natural gas. That’s just for the shale, not counting any conventional potential.

The first wells are slated to be drilled in Q2 2020.

 

Namibia is one of the most oil and gas production friendly governments in Africa. Ask Shell, or Exxon, both of whom are acquiring assets here, making Recon (TSX-V: RECO, OTCMKTS:LGDOF) a natural acquisition target if a commercial discovery is made.

#3 Mid-Tier Mania

 

Eco Atlantic Oil and Gas Company Ltd (CVE:EOG) is a $104-million Canadian explorer whose shares popped 160% in August following the announcement of back-to-back oil discoveries in the fabled Guyana-Suriname Basin, where Exxon has made 14 discoveries in a short time span.

Shares of Eco’s partner in Guyana, Tullow Oil Plc (LON:TLW) with a $1.03-billion market cap, have been less impressive after rallying 20% in the same period. Tullow is bigger and there’s less leverage from one new discovery.

Eco has reported that Tullow Oil-operated Joe-1 has struck high-quality oil in the sandstone reservoir in offshore Guyana in an area believed to extend from Exxon’s Stabroek acreage. The Joe-1 discovery came just a month after the two successfully drilled Jethro-1 giving encouraging hints that they are right on the money.

Although the companies are yet to conduct a detailed evaluation of the Orinduik, it’s estimated to hold some 3.98 billion barrels of prospective resources, thus giving Eco ~600mln barrels for its 15% stake in the project.

This, however, might be just the beginning of good tidings for Eco shareholders as the company has announced that it has ample resources to drill even more wells.

#4 – Oil Majors Are Choosing Investments More Carefully

Africa has long been a hotspot for oil and gas majors, but things have gotten rocky in recent years, especially in Nigeria.

Nigeria is home to about 37 billion barrels in oil reserves. And while it’s got some 32 active oil rigs out there, only 81 wells were completed last year – down from 141 in 2014.

Since oil prices started tumbling in 2014, the government has been shaking down oil companies, with back taxes and new legislation. Now, it wants majors Chevron, Shell and French Total SA to fork out around $62 billion. It claims in was short-changed under a revenue-sharing agreement dating back to the 1990s.

Chevron (NYSE:CVX) is seeking to sell several Nigerian oilfields, and it isn’t the first: Exxon (NYSE:XOM) and Shell (NYSE:RDS.A) have both been reducing their footprint in the country.

Now, Nigeria is proposing new legislation that would increase taxation on the oil industry. The bill would add another 3-10 percent in royalty rates at oil prices between $50 and $80 per barrel. Nigeria’s current system gives Nigeria between 60 percent and 70 percent of all deepwater revenues, which includes taxes, royalties, along with state-run NNPC’s share of production.

While Nigeria has given majors some pushback, other countries have been a bit more accommodating. Take Suriname, for instance. It is quickly becoming a hotspot for ambitious majors looking to leverage its massive reserves.

Total (NYSE:TOT) recently announced a major oil discovery offshore Suriname with its partner, Apache (NYSE:APA). John J. Christmann, Apache CEO and President noted, “The well proves a working hydrocarbon system in the first two play types within Block 58 and confirms our geologic model with oil and condensate in shallower zones and oil in deeper zones. Preliminary formation evaluation data indicates the potential for prolific oil wells.”

British Petroleum (NYSE:BP) is another major eyeing “off-the-beaten-path” opportunities in Africa. While BP has some oil assets in the region, it is focusing heavily on renewable power generation and natural gas production. Recently, it began work on a project in Mauritania and Senegal. The company noted, “We see this as the start of a new chapter for Africa’s energy story.”

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Forward-Looking Statements. Statements contained in this document that are not historical facts are forward-looking statements that involve various risks and uncertainty affecting the business of Recon. All estimates and statements with respect to Recon’s operations, its plans and projections, oil prices, recoverable oil, production targets, production and other operating costs and likelihood of oil recoverability are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, development, exploitation and production, geological risks, marketing and transportation, availability of adequate funding, volatility of commodity prices, imprecision of reserve and resource estimates, environmental risks, competition from other producers, government regulation, dates of commencement of production and changes in the regulatory and taxation environment. Actual results may vary materially from the information provided in this document, and there is no representation that the actual results realized in the future will be the same in whole or in part as those presented herein. Other factors that could cause actual results to differ from those contained in the forward-looking statements are also set forth in filings that Recon and its technical analysts have made, We undertake no obligation, except as otherwise required by law, to update these forward-looking statements except as required by law.

Exploration for hydrocarbons is a speculative venture necessarily involving substantial risk. Recon’s future success will depend on its ability to develop its current properties and on its ability to discover resources that are capable of commercial production. However, there is no assurance that Recon’s future exploration and development efforts will result in the discovery or development of commercial accumulations of oil and natural gas. In addition, even if hydrocarbons are discovered, the costs of extracting and delivering the hydrocarbons to market and variations in the market price may render uneconomic any discovered deposit. Geological conditions are variable and unpredictable. Even if production is commenced from a well, the quantity of hydrocarbons produced inevitably will decline over time, and production may be adversely affected or may have to be terminated altogether if Recon encounters unforeseen geological conditions. Adverse climatic conditions at such properties may also hinder Recon’s ability to carry on exploration or production activities continuously throughout any given year.

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By James Burgess

Oil prices slide on China virus fears; Gold steadies

By Lukman Otunuga, Research Analyst, ForexTime

“What goes up will eventually come back down” perfectly describes oil’s explosive movements since the start of 2020.

After initially rallying on geopolitical tensions during the early parts of January, WTI Crude and Brent have both taken a painful beating over the past few weeks. Rising concerns over Asian economic growth and oil demand weakening from the coronavirus outbreak in China sent oil prices tumbling to levels not seen since November 2019 below $55 on Thursday. WTI Crude has depreciated more than 5% this week and almost 10% since the start of the year!

The path of least resistance for oil prices will most likely point south for the time being due to a host of factors. China is the world’s largest energy consumer, so essentially a drop in demand due to slowing economic growth should negatively impact oil markets. Another theme weakening oil is the mighty Dollar. General uncertainty and unease could force investors to maintain some distance from riskier assets with safe-haven destinations like the Dollar, Japanese Yen and Gold becoming attractive hotspots.

If uncertainty over US-China trade ends up making an unwelcome return, this could be the knockout blow that sends oil prices crashing towards $50.

From a technical standpoint, WTI Crude is under intense selling pressure on the daily timeframe with prices trading around $55.32 as of writing. A breakdown below $54.80 should encourage selloff towards $53.70. Should $54.80 prove to be reliable support, Oil prices could rebound towards $57.60.

 

 

ECB meeting another snoozer 

In other news, the European Central Bank left monetary policy unchanged as widely expected.

The Euro fell to a seven-week low below 1.1040 at after European Central Bank President Christine Lagarde struck a slightly more dovish tone than some expected during the press conference. Moving forward, the EURUSD is likely to bounce within a wide 150 pip range until a fresh directional catalyst is bought into the picture.

Technical traders will continue to closely observe how the EURUSD trades around 1.1050. A decline towards 1.1000 could open a path towards 1.0879 in the medium to longer term.

 

 

Commodity spotlight – Gold 

Gold held gains on Thursday, finding comfort around $1565 after the European Central Bank left monetary policy unchanged.

Appetite towards the precious metal should remain supported by growing fears over the coronavirus outbreak in China. The general uncertainty is likely to accelerate the flight to safety with Gold seen testing $1580 in the short term. Should $1555 prove to be an unreliable support level, prices could slip back towards $1545.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

 


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Millennial Lithium: Full Speed Ahead

The Energy Report – Source: Peter Epstein for Streetwise Reports   01/22/2020

 – With initial production at its Argentina project expected in 2022, Peter Epstein of Epstein Research believes the company could be an “excellent” bet when lithium prices rebound.

Earlier this month, the mining court of Salta, Argentina, granted Millennial Lithium Corp.’s (ML:TSX.V; MLNLF:OTCMKTS) Argentine subsidiary four mining licenses on its 100%-owned Pastos Grandes project in Salta province. Readers may recall that Millennial recently delivered a bank feasibility study (BFS) and expects to reach initial production in 2022 (subject to funding and permits), ramping up to nameplate capacity of 24,000 tonnes lithium carbonate equivalent (LCE)/year by mid-decade.

Farhad Abasov, president & CEO, commented: “Millennial is pleased to have received four mining licenses which comprise ~97% of the property area at Pastos Grandes. Millennial expects the final license to be granted in the near future. The company continues to actively advance its three-tonne-per-month lithium carbonate plant and pilot evaporation ponds. Millennial is moving forward with financing, off-take and other key strategic initiatives with large industry players.”

This news comes on the heels of the October announcement that the national mining secretary of Argentina granted a federal fiscal stability certificate (FFSC) for Pastos Grandes. The certificate outlines the tax regime, plus additional benefits bestowed on the project, and officially confirms a reduction in the corporate income tax rate from 30% to 25%.

CEO Abasov commented, “The granting of the FFSC assures the tax and additional benefit terms under which we can operate a lithium carbonate production operation. Receipt of the FFSC confirms our confidence that mining projects in Salta have the support of all levels of government.”

This means that, like Australia-listed Galaxy Lithium’s (GXY:ASX) Sal de Vida and Lithium Americas Corp. (LAC:TSX; LAC:NYSE)/Jiangxi Ganfeng Lithium Co. Ltd.’s (002460:CH) 50/50 joint venture (JV) (Cauchari-Olaroz) brine projects in Argentina, Millennial’s Pastos Grandes has both a BFS and fiscal stability package. At a time when many lithium brine projects in Chile and Argentina are moving very slowly—or are stalled—it’s clear that Millennial’s management team is working closely with all stakeholders to successfully advance Pastos Grandes.

Unlike most peers, Millennial has been blessed with ample cash liquidity. Even today it’s sitting on ~$23 million, enough to last well into 2021 if necessary.

Exciting times ahead

Next is the lining up of strategic/financial partners, signing offtake agreements, raising construction capital, construction of ponds and plant, and first production—expected in 2022. That’s about 12–18 months behind Lithium Americas’ JV project. Importantly, Millennial will greatly benefit from valuable lessons learned from Lithium Americas’ and Galaxy’s development progress, as well as expansions underway at Livent Corp. (LTHM:NYSE) and Orocobre Ltd. (ORL:TSX; ORE:ASX).

Chile’s Albemarle Corp. (ALB:NYSE) and SQM (SQM:NYSE), and Argentina’s Livent, Orocobre, Galaxy and Lithium Americas are public companies. Problems with ponds or processing facilities at those companies will become known to Millennial’s technical team. Therefore, there’s a decent chance that mishaps at other projects can be avoided. Sometimes there are benefits to not being a first mover.

In addition to benefiting from the learning curve others are ascending, Millennial will enjoy regional infrastructure that is being built and/or expanded: roads, rail, power lines, natural gas pipelines, etc. Mining equipment and service providers are setting up offices to serve companies including Lithium Americas/Ganfeng, Livent, Orocobre, Galaxy, POSCO (PKX:NYSE), Neo Lithium Corp. (NLC:TSX.V), Argosy Minerals Ltd. (AGY:ASX), Advantage Lithium Corp. (AAL:TSX.V; AVLIF:OTCQX) and Millennial.

Readers should not take for granted the fact that Millennial owns 100% of its project. By contrast, Advantage Lithium owns 75% of its flagship project, Argosy Minerals owns 77.5%, Lithium Americas owns 50%, and Orocobre owns 66.5% of their respective projects.

Owning 100% of Pastos Grandes, with a BFS and fiscal stability pact in place, greatly enhances management’s ability to fund construction. Selling a meaningful portion of the project could raise a substantial amount of capital. That, combined with debt financing and (possible) advance payments from offtake agreements, would minimize the need for excessive equity capital.

Important derisking events to continue in H1 2020
In speaking with CEO Farhad Abasov, he and his board believe that news on one or more parts of a funding package could come within three to six months. Management is speaking with global industrial companies, some of which have already done substantial due diligence.

A few interested parties would like to see a staged ramp-up to minimize capex, so instead of moving to 24,000 tonnes LCE/year by 2025–26, [the company would get] to 10,000 tonnes and remain at that level, only expanding if/when market conditions warrant. In that scenario, capex could be reduced from US$448.2 million to under US$300 million. Then, operating cash flow could be deployed to partially fund an expansion from 10,000 to 24,000 tonnes at a later date.

Also, a few prospective partners have lithium extraction/processing technologies, or access to technologies, that (if they work at commercial scale) could further optimize Millennial’s operating flow sheet, potentially enhancing project economics. In some cases, the need for evaporation ponds would be eliminated.

Giant auto and battery manufacturers can very comfortably afford to fund projects like Millennial’s, with capex requirements of around half a billion US dollars. Although we haven’t seen much of that yet, it’s coming. Look no further than Benchmark Mineral Intelligence’s running tally of lithium-ion battery mega-factories. Benchmark Mineral Intelligence has been tracking the number of global mega-factories for years. The number has soared, currently standing at 115.

Ranked by size, the top 10 global automakers—Volkswagen, Daimler, Toyota, Ford, BMW, GM, Hyundai, Tesla, Honda and Ferrari—have an average enterprise value (EV) of about US$135 billion. Any of these companies could fund even the largest lithium projects in the world. Yet, I estimate that fewer than ten new projects, brine, hard rock or clay-hosted, (>20,000 tonnes LCE/year) are likely coming online by 2025.

Lithium prices below US$10,000/tonne unlikely to last
One of the main reasons for such negative sentiment in the lithium junior space has been the decline in lithium prices from unsustainably high levels above US$20,000/tonne. However, now below US$10,000/tonne, prices may have overshot to the downside. Many analysts and pundits believe that 2020 or 2021 will mark a bottom in the three-year slide in prices.

In the chart below, Roskill demonstrates why prices are likely to improve. At current spot levels, all advanced-stage hard rock and brine projects in the pipeline come in at under a 16% internal rate of return (IRR). Some projects have negative IRRs; the average is closer to 5% than 10%.

Millennial is poised for a great decade, and the 2030s could be even better. Management expects Pastos Grandes to be next in line in Argentina after Lithium Americas/Ganfeng. Any project, anywhere in the world, that comes to market and ramps up over the next five years should enjoy strong demand for its lithium offerings.

A major global supply source (about 1/3 of the market) is experiencing unexpected bottlenecks, uncertainty and delays. In Chile’s Atacama salar, both Albemarle and SQM had planned massive expansions to lithium carbonate production, upward of a tripling, from 2018 to 2021. Two years into these expansions, annual production has hardly budged.

More uncertainty and caution is expected as local communities have convinced a Chilean environmental court to uphold claims of excessive water use by SQM and Albemarle, seriously threatening their expansion plans. Therefore, this news should be supportive of lithium prices in the mid-to-longer term.

Conclusion
Millennial Lithium has an excellent asset, more advanced (BFS-stage) than all but two or three global brine projects, with relatively low upfront capex compared to other mining and metals projects, producing a metal with expected annual demand growth of 15% (or more) over the next 10 years. Millennial has over $20 million in cash on its balance sheet.

Not many significant projects could possibly commence production by 2022—not many at all, besides Lithium Americas and Galaxy. No new operations are coming in Chile in the next three to five years, and only a small handful in North America (Bacanora Minerals Ltd., Standard Lithium Ltd. [SLL:TSX.V; STLHF:OTCQX]). If lithium demand really takes off, few companies on the planet are better positioned to capture that need than Millennial Lithium.

Adjusted for ownership interests in their respective flagship projects, all but Lithium Americas trade at similar valuations. Any of these companies that successfully advance toward production (secure cornerstone investor[s], offtake agreement[s], commencement of construction, etc.) offer the potential for significant share price gains. Notice that Lithium Americas’ valuation is about four times that of the others.

Millennial is trading at just one-fourth the valuation, but could be only 12–18 months behind Lithium Americas. Is this 75% discount warranted? Lithium Americas is fully funded on its 50% JV project and construction is well underway. Millennial owns 100% of its project, has ample cash liquidity, no debt, a BFS, four of five mining licenses have been granted, and has secured a signed federal fiscal stability certificate.

If one believes, like I do, that lithium prices will rebound, Millennial Lithium could be an excellent way to benefit from the rebound.

Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University’s Stern School of Business.

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5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Author’s Disclosures: The content of this interview is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Millennial Lithium., including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Millennial Lithium are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

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Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.

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)

BRENT Analysis: Expectations of US output increase bearish for BRENT

By IFCMarkets

Expectations of US output increase bearish for BRENT

On the daily timeframe #C-BRENT: D1 has breached below the 200-day moving average MA(200), which is declining. This is bearish.

We believe the bearish momentum will continue after the price breaches below the lower boundary of Donchian channel at 61.46. A level below this can be used as an entry point for placing a pending order to sell. The stop loss can be placed above 62.46. After placing the order, the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the expected profit/loss ratio to the breakeven point. If the price meets the stop loss level (62.46) without reaching the order (61.46), we recommend cancelling the order: the market has undergone internal changes which were not taken into account.

EIA forecasts US domestic crude oil output increase. Will the BRENT decline?

The Energy Information Administration forecast a monthly rise in US shale oil production of 22,000 barrels a day to 9.2 million barrels a day in February in the latest monthly report issued Tuesday. This followed another bearish sign for oil – Baker Hughes reported last Friday that the number of active US oil rigs rose by 14 to 673 this week. That is the first increase in four weeks. In the previous monthly report the Energy Information Administration forecast an oversupply of global petroleum relative to consumption. And trade group the American Petroleum Institute late Wednesday report indicated US crude supplies rose by 1.6 million barrels last week when a decline was expected. A spike in geopolitical tensions in Middle East is an upside risk for oil while output is seen rising in US.

 

Indicator VALUE Signal
RSI Neutral
MACD Sell
MA(200) Sell
Donchian Channel Sell
Parabolic SAR Sell
Fractals Sell

 

Summary of technical analysis

Order Sell
Buy stop
Stop loss > 62.46

Market Analysis provided by IFCMarkets

Renewable Energy MLP Announces Acquisition, Dividend Increase

The Energy Report

Source: Streetwise Reports   01/16/2020

The specifics of both moves are presented in an iA Securities report.

In a Jan. 13 research note, analyst Jeremy Rosenfield reported that iA Securities raised its target price on Brookfield Renewable Energy Partners L.P. (BEP.UN:TSX) to CA$47 per share from CA$44. This comes after the master limited partnership (MLP) announced two pieces of news: It intends to take over Terraform Power Inc., and it plans to increase its dividend by 5%. “The full integration of Terraform into the Brookfield fold would be accretive to our estimates and valuation,” Rosenfield noted.

He outlined the acquisition. Brookfield would purchase the remaining 38% interest in Terraform Power Inc. that it does not already own, for US$1.5 billion. It would be an all share arrangement in which each acquired Terraform share would get swapped into new Brookfield shares at an exchange ratio of 0.36 Brookfield unit:1 Terraform share.

“The transaction implies a value for Terraform of about US$17.31 per share (an approximately 11% premium to the January 10, 2020 closing price, prior to the announcement),” the analyst indicated.

If approved, the deal would close in mid-2020 with the Brookfield share distribution occurring at that time.

Rosenfield presented the implications of the deal. For one, it would result in an initial funds from operations contribution to Brookfield of about US$0.15–0.20 per unit, or a roughly 5–7% accretion, according to iA Securities estimates. Two, it would provide Brookfield with a larger footprint in the solar and wind markets in North America and Western Europe.

As for the MLP’s dividend, Brookfield plans to raise it to US$2.17 per unit from US$2.06. “The dividend increase is at the lower end of Brookfield’s 5–9% annual dividend growth target, in line with our forecast as Brookfield aims to create headroom versus its dividend payout target,” commented Rosenfield.

He concluded the report by highlighting Brookfield’s compelling aspects. They are its high-quality global renewable power platform, its elevated level of contracted cash flows, its long-term strategy for growth and its attractive income characteristics. IA Securities has a Hold rating on Brookfield.

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Disclosures from iA Securities, Brookfield Renewable Partners L.P., Research Update, January 13, 2020

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BRENT Analysis: Expectations of global oversupply bearish for BRENT

By IFCMarkets

Expectations of global oversupply bearish for BRENT

On the 4-hour timeframe the BRENT: H4 has fallen below the 200-period moving average MA(200) which is rising.

We believe the bearish momentum will resume after the price breaches below the lower boundary of Donchian channel at 63.12. A level below this can be used as an entry point for placing a pending order to sell. The stop loss can be placed above last fractal high at 64.16. After placing the order, the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the expected profit/loss ratio to the breakeven point. If the price meets the stop loss level (64.16) without reaching the order ( 63.12), we recommend cancelling the order: the market has undergone internal changes which were not taken into account.

Market Analysis provided by IFCMarkets