JANUARY 26,2012
ENERGY REVIEW The Diapason Capital Markets Report
Key economic data this week Chart of the Week: High oil price shift rigs from Gas
• FHFA house price index highest since 2005
• Dec pending home soften slightly, still firm
• Dec existing home sales still trending higher
• FOMC extends low rate guidance till 2014
• Initial claims plummet the most since 2005
• Eurozone flash PMIs surprise to the upside
• German IFO survey rise for third month straight
• Belgian business confidence rise a second month
Is the Natural Gas rebound sustainable? Perhaps not yet at this time
• Natural gas prices hit their lowest price levels since 2002 during the current decline at $2.289 in the March contract but
has recovered by as much a 18.5% since Monday after Chesapeake Energy Corporation (the US’ second largest natural
gas producer) said it will reduce dry gas drilling activity and production with immediate effect.
• The price reversal looks dramatic, but what can we reasonably expect for natural gas prices development from here? The
answer is not straight-forward, but net-net, Chesapeake's cutbacks is a very good start, and this may indeed the begin-
ning of a stability for natural gas, but much more has to be done by producers to prevent prices from sliding further.
• There remains no clue as to when balance will be back in this market, so there are other good reasons to be cautious
about the recent large rebound in prices in the U.S. We do not believe that we have seen the bottom in gas prices this
year. Stabilization, yes, but absolute trough -- perhaps not yet. Conditions for gas investment may be better by mid-year.
• Other companies may announced drilling cuts in the coming months if prices do not rebound to more healthy levels
(around $4 per million Btu). Encana, the U.S. fifth largest producer, is likely to be the next to announce drilling cuts.
For important Disclaimers and Disclosures, please refer to the last two pages of this publication
JANUARY 26,2012 ERGY Y VIVI
E N E N E R GR E R E E WE W
The Diapason Capital Markets Report
Is the Natural Gas rebound sustainable? Perhaps not yet . . .
Further cuts and new regulations may however balance the market sometime in H2 2012
By Robert Balan and Alessandro Gelli
Natural gas prices hit their lowest price levels since 2002 during the current
decline at $2.289 in the March contract but has recovered by as much a 18.5%
since Monday after Chesapeake Energy Corporation (the US’ second largest
natural gas producer) said it will reduce dry gas drilling activity and production
with immediate effect.
The price reversal looks dramatic, but what can we reasonably expect for natu-
ral gas prices development from here? The answer is not straight-forward, but
net-net, Chesapeake's cutbacks is a very good start, and this may indeed the
beginning of a stabilization process for natural gas, but much more has to be
done by producers to prevent prices from sliding further. We hope to explore in
this report the avenues open to producers in defending gas prices.
The obvious rationale for lower natural gas prices is an oversupply in the U.S.
As supply exceeds demand for natural gas, prices are pushed lower as the
market swings in favor of gas buyers. Nonetheless, there will be a time when US Rigs Count by Type
production will get reduced to the demand level that will improve the market 2'500 70%
Vertical Rigs (lhs) Sources: Diapason, Baker Hugues
prices for natural gas. What also complicates the issue is that this high produc- Directional Rigs (lhs)
Horizontal Rigs (lhs)
tion growth comes amid weak demand. The uncertainty is the timing of the Share of Horizontal Rigs (rhs)
60%
2'000
supply-demand correction, but we hope to draw a timeline which could help
50%
pinpoint the likely period when market balance returns.
1'500
Chesapeake ready to cut production by up to 1.0 bln cubit ft 40%
Chesapeake Energy Corp. (the US’ second largest natural gas producer), one of 30%
1'000
the oil and gas producers at the origin of the current natural gas supply glut,
said it will reduce drilling activity this year by approximately 50 percent and 20%
will cut 8 percent of its production (0.5 billion cubic feet/day)-- while gas-well 500
10%
completions will be deferred as much as possible. After drilling more U.S. gas
wells in recent years than any other company, Chesapeake, based in Oklahoma 0 0%
City, announced it was cutting capital spending as natural gas prices had unex- Jan-01 Nov-01 Sep-02 Jul-03 May-04 Mar-05 Jan-06 Nov-06 Sep-07 Jul-08 May-09 Mar-10 Jan-11 Nov-11
pectedly reached its lowest levels in a decade. "An exceptionally mild winter to
For important Disclaimers and Disclosures, please refer to the last two pages of this publication 2
JANUARY 26,2012 ERGY Y VIVI
E N E N E R GR E R E E WE W
The Diapason Capital Markets Report
Is the Natural Gas rebound sustainable? Perhaps not yet . . .
date has pressured U.S. natural gas prices to levels below our prior expecta-
tions and below levels that are economically attractive for developing dry gas
plays in the U.S., shale or otherwise," said CHK Chief Executive Aubrey K.
McClendon. Chesapeake also said that it is prepared to double the reduction of
its production to as much as 1.0 billion cubic feet per day.
Natural gas prices jumped after the announcement, with the market hoping
that this message will resonate with other natural gas produces who may de-
cide to cut production as well. Eventually, if gas production is reduced across
the producers, the price of natural gas will recover. For now that remains a
mere hope. But the market has been taking some of its cue from a repricing
which happened in September 2009, when natural gas prices soared from circa
$2.40 in the front month to well above $6.00 by late January 2010.
The Sept 2009 gains however were initially triggered by other factors which
only have superficial resemblance to the current conditions. It was sparked
mainly by the Energy Department’s weekly data that showed a “smaller-than-
forecast” increase in U.S. stockpiles. Though the news did not really change lower natgas prices means contribution to economic growth. The
the overall supply and demand picture then, it did send traders scrambling to petrochemical and plastics industry benefitted from the low
buy back previously sold positions. Not too long after, a colder than usual win- prices. Access to lower-cost natural gas liquids feedstocks has
ter season pushed prices almost three-times fold at its peak on January 2010. boosted export competitiveness in products such as ethylene and
Gas producers may have to wait for a while before getting that kind of relief. polyethylene. European producers, in contrast, which rely on
heavier crude oil-based feedstocks such as naphtha and vacuum
Problem of gas producers benefitting industry gas oil, continue to see a feedstock cost disadvantage.
Chesapeake Energy Corp. was not the first to curtail production. Earlier, small The fact is low natural gas prices is providing a huge tailwind to
gas producer EQT also announced it is shutting down its production line in the the U.S. economy right now. The glut means new industries
Huron natural gas basin. Production shutdowns from EQT and Chesapeake in- which would hire, and users of gas have big economic advantages
clude wells in the Appalachia region where drilling is most economic for drillers, over competitors in other countries. The U.S. could stay a manu-
reflecting easier and cheaper production costs. facturing powerhouse: low prices on key inputs mean competitive
The travails of the producers are, of course, benefitting other segments of the exports, and exports growth means jobs created. How long this
economy. Pipeline constraints in some areas may keep some household con- industry-friendly conditions will last is hard to fathom at this time.
sumers from seeing lower natgas prices in their bills, but for industrial users of Given that demand for natural gas in the U.S. is rather somewhat
gas these are heady days. The glut can be worked off, but meantime, the inelastic (at least until there’s some kind of initiative to have more
For important Disclaimers and Disclosures, please refer to the last two pages of this publication 3
JANUARY 26,2012 ERGY Y VIVI
E N E N E R GR E R E E WE W
The Diapason Capital Markets Report
Is the Natural Gas rebound sustainable? Perhaps not yet . . .
industries using it), focus has to continue on the production and storage fig- US and UK Natural Gas Futures Price 2010-2011
ures. There remains no clue as to when market balance will be back, so there $12
are good reasons to be cautious about the recent large rebound in prices in the UK Nat Gas Futures Price
US Nat Gas Futures Price
U.S. At this point, we do not believe that we have seen the bottom in natgas $10
prices this year. Stabilization, yes, but absolute trough -- perhaps not yet. To
show why it is so, requires a broader perspective on the natural gas market. $8
Dollars per Million Btu
The culprits for low natural gas prices are strong production growth amid
weakening demand because of relatively warm weather. Actually the warm $6
weather did not affect the US alone: since the end of October 2011, UK natural
gas prices (the only other pure market-driven natural gas price) fell by 18% $4
because of warmer than normal temperature. Likewise, US natural gas prices
fell by 35%, driven by strong production growth. Indeed, according to prelimi- $2
nary data from the EIA, US dry natural gas production grew by 4.5 bcf/d y/y in
2011, the largest annual increase ever recorded. US natural gas production has Sources: Diapason, EIA
$0
outpaced the previous production level’s record high of 1973. Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12
There is a shift to oil and liquids from gas
Strong production growth amid declining natural gas prices is the result of the U.S. Dry Natural Gas Production 1900-2011
70
confluence of several factors. First, some companies needed to drill to hold on Sources: Diapason, EIA
to gas property leases) acquired before the price collapse in 2008. Usually 60
companies have 3-4 years to drill before losing the lease.
50
Furthermore, strong cash flows from M&A activity driven in big part by foreign
Billion Cubic Feet per Day
entities contributed to funding of a multitude of projects. According to Ernst & 40
Young, shale gas and oil dominated the largest M&A transactions: BHP Billi-
ton's acquisition of Petrohawk Energy for $15 bn, Marathon Oil's acquisition of 30
Hilcorp Resources' Eagle Ford shale properties for $3.5 bn and Noble Energy's
20
purchase of 50% of Consol Energy's undeveloped Marchellus shale acreage for
$4.1 bn. These transactions account for a large share of the $76.0 bn in total 10
upstream deal value in the US for 2011, slightly down from $77.2 bn in 2010.
-
However, relative to 2010, there is now a qualitative shift in M&A acquisitions
00
04
08
12
16
20
24
28
32
36
40
44
48
52
56
60
64
68
72
76
80
84
88
92
96
00
04
08
toward plays with more oil and liquids, because of the larger spread between
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
For important Disclaimers and Disclosures, please refer to the last two pages of this publication 4
JANUARY 26,2012 ERGY Y VIVI
E N E N E R GR E R E E WE W
The Diapason Capital Markets Report
Is the Natural Gas rebound sustainable? Perhaps not yet . . .
oil and gas prices. Moreover, the US shale oil success has proven to be a more the US government, specifically to President Barack Obama.
profitable working model to replicate for foreigners because of the lower
Pres. Obama’s fracking play
amount of infrastructure needed (oil can easily be transported by trains, trucks
or barges, while gas needs to be processed and transported by pipeline to cus- The Obama's State of the Union Address has reflected concerns of
tomers or LNG terminals) and the higher value of oil relative to gas. hydraulic fracturing on the environment as he asked all compa-
nies to disclose the chemicals they use. Furthermore, he said that
The large spread between oil and gas prices has therefore prompted gas pro-
"America will develop this resource [natural gas] without putting
ducers to increase their oil exposure at the expense of gas. Still, the move to-
the health and safety of our citizens at risk", suggesting that fur-
wards liquid-rich and oil plays reduce natural gas production growth by only so
ther regulations on hydraulic fracturing could be implemented.
much as associated gas will still be produced. A well could earn around $4.3
This approach has been supported by the Environmental Protec-
per million Btu by producing 40% of oil and 60% of gas (using WTI oil price as
tion Agency (EPA) for some time.
benchmark because the oil produced is usually very light and sweet).
In December, the EPA released a draft over findings of aquifer
Higher oil prices exacerbate the gas glut
contamination by hydraulic fracturing operations. The final report
Thus, high oil prices also contribute to higher natural gas production, by mak- will be completed in 2014, while preliminary results will be
ing profitable gas wells which produce a certain amount of liquids. This also
explains why the Eagle Ford Shale in South Texas is the most popular shale as US Natural Gas Inventories
the oil price there would be closer to Brent price than WTI (which could had 4500
$0.3 per Million Btu to a 40/60 oil/gas mix). Chesapeake clearly said that it will 4000
US Natural Gas Inventories
stop drilling activity only on dry gas projects, meaning wells that produce none
or a negligible amount of oil (as opposed of wet gas which has high liquids 3500
content), while drilling for wet or liquid-rich wells will continue.
3000
Other companies may announced drilling cuts in the coming months if prices
B illion C ubic Feet
do not rebound to more healthy levels (around $4 per million Btu). Encana, the 2500
US' fifth largest gas producers, encountered difficulties last year because of its 2000
high exposition to dry natural gas, forcing the CEO to announce plans to move
to oil and liquids-rich areas, while the company used to be proud to be called a 1500
"pure" gas player. This company, which still have important assets in dry gas
1000
areas, is likely to be the next big producers to announce drilling cuts.
500
Price fundamentals on the short run improved for natural gas because of the
announced production cuts. However, the situation remains depressed because 0
Sources: Diapason, EIA
of the weak demand. Nevertheless, the situation could change soon, thanks to Dec-09 Aug-10 Apr-11 Dec-11
For important Disclaimers and Disclosures, please refer to the last two pages of this publication 5
JANUARY 26,2012 ERGY Y VIVI
E N E N E R GR E R E E WE W
The Diapason Capital Markets Report
Is the Natural Gas rebound sustainable? Perhaps not yet . . .
published in 2012. The early release of the draft was clearly a way to head off 12-month rolling US Power Generation by Sources
400'000 58%
objections to the proposed rules. The adopted timeline suggests to us that the Sources: Diapason, EIA
EPA is building a case against hydraulic fracturing. 350'000 56%
A moratorium on hydraulic fracturing would have a significant impact on oil 300'000
54%
and gas projects. According to a IHS Global Insight’s report in 2009, the elimi- 52%
Million Kilowatt-hours
250'000
nation of hydraulic fracturing would lead to a 45% decline in natural gas pro- 50%
duction by 2014 relative to the reference case (no change in policy), while fluid 200'000
restrictions would decrease natural gas production by 22% during the same 48%
150'000
period. Because of the rapid development of fracking since 2009, these figures 46%
could be raised. Now almost 60 percent of oil and gas fields use horizontal 100'000
44%
drilling which usually goes hand in hand with fracking. Coal (lhs) Natural Gas (lhs)
50'000
Other Fossil Fuel (lhs) Nuclear (lhs) 42%
EPA regulations will impact natgas prices Renewables (lhs) Share of Coal (rhs)
0 40%
Furthermore, new regulations from the EPA are likely to have an impact on 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
natural gas demand. The final standards for emissions standards for power
plants were released in December. This rule referred to as the utility Maximum these new regulations. The higher impact on demand will proba-
Achievable Control Technology (MACT) rule is likely to harm the profitability of bly begin by mid-2012. This is when we believe market balance
heavy polluters such as coal-fired power plants, while clean gas-fired plants are will come back into the natural gas market.
likely to benefit from this rule. According to Crédit Suisse, about 60 GW of coal Low natural gas prices compared to coal should also encourage
capacity (17.6% of total nameplate capacity) will be closed between 2013 and power plants to substitute coal for cheap gas. However, the sub-
2017 in response to EPA rules. Furthermore, another 100 GW will require a sig- stitution can be limited in the short term. Indeed, coal-fired power
nificant amount of investments to meet EPA emission rules. The first plants to plants need to have access to gas supplies and hence need to be
close will be the older ones: 33% of the US coal plants (112 GW) is over 40 connected to a gas pipeline. Second, the power plant’s generator
years old and 70% (238 GW) is over 30 years old. needs to be able to switch fuel or the power plant needs to have
Thus, natural gas-fired power plants could gain in two ways: It would first re- a gas-fired generator in order to switch to natural gas. Finally,
place the retired coal-fired plants and could also play an important role during coal shipments to power plants are usually made through long
the retrofitting period. Indeed, it is extremely easy for gas-fired plants to term contracts and so this gives little flexibility for power plants to
change output rapidly, while solar, wind and nuclear plants have little flexibility switch fuel.
in controlling output. Thus, gas-fired plants could easily boost output while In summary, it is probably too soon to punt for a sustained rise in
nearby coal-fired plants are installing environmental controls systems. Between natural gas in the U.S, as a detailed look at the excessive inven-
2012 and 2017, US natural gas demand is expected to gain between 4.9 bcf/d tory picture will show this condition may persist for a while. None-
and 10.1 bcf/d (+7-15% of US gas consumption) from the implementation of theless, we believe market balance will return by mid-year.
For important Disclaimers and Disclosures, please refer to the last two pages of this publication 6
JANUARY 26,2012 ENERGY REVIEW
The Diapason Capital Markets Report
EIA Weekly Report: Natural Gas
US Natural Gas Net Injections
150
100
The last EIA report showed that US natural gas inventories fell by 192 billion 50
cubic feet (bcf) w/w but remained extremely high at 3098 bcf (+21.9 percent 0
B nc b fe t
illio u ic e
y/y), 3.78 standard deviations above the 2004-2008 average (compared to -50
4.27 the week before). Storage utilisation fell to 70.6 percent, significantly -100
higher compared to the 5-year average of 56.4 percent. Storage capacity -150
concerns are arising. -200 2004-2008 Average
2009
2010
2011
Warmer than normal temperatures are expected and are likely to keep US -250 2012
Sources: Diapason, EIA
natural gas demand weak. -300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
US Working Natural Gas Storage Utilisation
100%
US Working Gas Storage Utilisation 2004-2008 Average
90% 2009
2010
80%
6-10 day Temperature Outlook (Red: above normal/Blue: below normal) 70%
60%
50%
40%
30%
Sources: Diapason, EIA
20%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
US Natural Gas Inventories Standard Deviations
from 2004-2008 Average
7.0
STDEV 2009 (lhs)
STDEV 2010 (lhs)
6.0 STDEV 2011 (lhs)
STDEV 2012 (lhs)
5.0
4.0
3.0
2.0
1.0
Sources: Diapsons, EIA
-
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
Source: NOAA
For important Disclaimers and Disclosures, please refer to the last two pages of this publication 7
JANUARY 26,2012 ENERGY REVIEW
The Diapason Capital Markets Report
Thinking in Essentials - Energy Markets Dynamics
Natural Gas Market Dynamics US Natural Gas Demand and Supply (Billion cubic feet per day)
Demand: Demand 2010 2011 2012 2013
• The EPA recently finalised the new rule on emissions that is likely boost Residential Sector 13.12 13.19 13.49 13.45
natural gas demand from the power sector. However, this will only have Commercial Sector 8.5 8.78 8.84 8.85
an impact by mid-2012 or 2013.
Industrial Sector 17.86 18.48 18.64 18.89
• Current warmer than normal temperature in the US is reducing demand Electric Power Sector 20.24 20.73 21.4 22.03
for natural gas. Other 5.42 5.74 5.86 5.92
• In 2012, the power sector is likely be a more important contributor to US US Natural Gas Consumption 65.14 66.92 68.23 69.14
natural gas demand growth, thanks to low gas prices compared to coal y/y Change 3.8% 2.7% 2.0% 1.3%
and new regulations on emissions.
Supply 2010 2011 2012 2013
Supply: Total Dry Production 58.44 62.97 63.51 64.68
• Chesapeake announced an important cut of dry gas drilling activity. Pro-
LNG Gross Imports 1.18 0.93 0.69 0.69
duction will be immediately cut by 0.5 Bcf/d or 8 percent of its produc- Pipeline Gross Imports 9.07 8.45 8.1 8.12
tion. Production could be cut further by another 0.5 Bcf/d, if necessary. Gross Exports 3.11 4.26 4.46 4.48
• Supply growth is expected to slowdown in 2012 (+1.3 percent y/y com- Net Imports 7.13 5.12 4.33 4.32
pared to +2.3 percent y/y in 2011) because or reduced drilling plans for Net Withdrawals from Inventory -0.02 -1.00 0.34 -0.12
natural gas. Gas supply growth is hence expected to be lower than gas Supplemental Gaseous Fuels Supply 0.18 0.17 0.18 0.18
demand growth, leading to a slight deficit. US Natural Gas Supply 65.73 67.26 68.36 69.06
• The EIA decreased unproved technically recoverable resource from the y/y Change 4.3% 2.3% 1.6% 1.0%
Marcellus shale from 410 trillion cubic feet to 141 trillion cubic feet (-66
percent!).
Balancing Item (Consumption - Supply) -0.59 -0.34 -0.13 0.08
* Foreast Source: Diapason
Inventories:
• US natural gas inventories are declining but remained higher than previ-
ous years for the season.
• Colder than normal temperatures are therefore required to reduce inven-
tories back to normal level.
For important Disclaimers and Disclosures, please refer to the last two pages of this publication 8
The Diapason Capital Markets Report
Contact Information
Diapason Commodities Management S.A Diapason Commodities Management UK LLP
Malley Lumières 18 Upper Brook Street
Chemin du Viaduc 1 5th floor
Case Postale 225 London
1000 Lausanne 16 W1K 7PU
Switzerland United Kingdom
+44 207 290 2260
+41 21 621 13 10
www.diapason-cm.com
www.diapason-cm.com
Sales Team _________
Salvatore Miserendino Mark McDonnell Waleed Albahr Sébastien Max Chiharu-Claire Nishida Xavier Gendre
Head, Marketing & Business Sales Sales Sales Sales Sales
Development Tel: +44 207 290 2263 Tel: +44 207 290 2262 Tel: +41 21 621 13 15 Tel: +41 21 621 13 14 Tel: +41 21 621 13 12
Tel : +44 207 290 2260 mark.mcdonnell@diapason-cm.com waleed.albahr@diapason-cm.com sebastien.max@diapason-cm.com chiharu-claire.nishida@diapason-cm.com xavier.gendre@diapason-cm.com
salvatore.miserendino@diapason-cm.com
Research Team __________________________________
Sean Corrigan Robert Balan Alessandro Gelli Marion Megel
Chief Investment Strategist Sr. Market Strategist Fundamental Research Fundamental Research
sean.corrigan@diapason-cm.com robert.balan@diapason-cm.com alessandro.gelli@diapason-cm.com marion.megel@diapason-cm.com
Edouard Mouton Fabien Espic Victor Neamtu
Quantitative Research Quantitative Research Quantitative Research
edouard.mouton@diapason-cm.com fabien.espic@diapason-cm.com victor.neamtu@diapason-cm.com
The Diapason Capital Markets Report is published and edited by Robert Balan, Senior Market Strategist
Robert Balan has more than 3 decades of experience in the financial markets. Education in mining engineering and computer science led to a commodity analysis career during the commodity
boom of the early 1970s. Robert made a switch to global macro focus in the early 1980 when the commodity bull market waned, with specialization in foreign exchange. Robert wrote a very
high profile daily FX analysis while Geneva-based in the mid-1980s (the first FX commentary with a real global readership, "most accessed" in the Reuters and Telerate networks from 1988 to
1994). He worked for Swiss Bank Corp and Union Bank of Switzerland (precursors of today’s new UBS) as head of technical research and proprietary trader in various major finance centers
(London, New York, and Toronto) from late 1980s to mid-1990s. A stint at Bank of America as head of global technical research (London, New York) followed in late 1990s to early 2000s. He
returned to Switzerland in 2004 as head of technical research and strategy, and FX market analyst for Swiss Life Asset Management in Zurich. He joined Diapason Commodities Management
in 2008 as senior market strategist utilizing macro-economic drivers and structural/technical data in modeling asset price and sector movements. Robert wrote a book on the Elliott Wave Princi-
ple in 1988, hailed by the London Society of Technical Analysts as best book ever written on the subject. Robert is a member of the National Association for Business Economics (NABE), USA.
© Diapason Commodities Management SA 2012
Any disclosure, copy, reproduction by any means, distribution or other action in reliance on the contents of this document without the prior written consent of Diapason is strictly prohibited and could
lead to legal action.
For important Disclaimers and Disclosures, please refer to the last two pages of this publication 9
The Diapason Capital Markets Report
DISCLAIMER
General Disclosure
This document or the information contained in does not constitute, an offer, or a solicitation, or a recommendation to purchase or sell any investment instruments, to effect any transactions, or to conclude any
legal act of any kind whatsoever. The information contained in this document is issued for information only. An offer can be made only by the approved offering documentation. The investments described
herein are not publicly distributed. This document is confidential and submitted to selected recipients only. It may not be reproduced or passed to non-qualifying persons or to a non professional audience. For
distribution purposes in the USA, this document is only intended for persons who can be defined as “Major Institutional Investors” under U.S. regulations. Any U.S. person receiving this report and wishing to
effect a transaction in any security discussed herein, must do so through a U.S. registered broker dealer. The investment described herein carries substantial risks and potential investors should have the requi-
site knowledge and experience to assess the characteristics and risks associated therewith. Accordingly, they are deemed to understand and accept the terms, conditions and risks associated therewith and are
deemed to act for their own account, to have made their own independent decision and to declare that such transaction is appropriate or proper for them, based upon their own judgment and upon advice from
such advisers as they have deemed necessary and which they are urged to consult.
Diapason disclaims all liability to any party for all expenses, lost profits or indirect, punitive, special or consequential damages or losses, which may be incurred as a result of the information being inaccurate
or incomplete in any way, and for any reason. Diapason, its directors, officers and employees may have or have had interests or long or short positions in financial products discussed herein, and may at any
time make purchases and/or sales as principal or agent.
This document may contain statements that constitute "forward looking statements". Any forward looking statement is based on Diapason’s predictions and expectations about numerous factors and is inher-
ently uncertain and difficult to predict. While these forward looking statements may represent Diapason’ judgment and future expectations, a number of risks, uncertainties and other important factors could
cause actual developments and results to differ materially from Diapason’ expectations which may in turn significantly affect expected results. Actual results may differ materially from those projected or im-
plied in these forward-looking statements. Consequently, any prediction of gains is to be considered with an equally prominent risk of loss. Moreover, past performance or results does not necessarily guaran-
tee future performance or results.
Any forward-looking statement contained in this document speaks as of the date of this document. Diapason is under no obligation to (and expressly disclaims any such obligation to) revise or update or alter
its forward looking statements whether as a result of new information, future events, or otherwise.
Trademarks
All rights reserved. “DIAPASON COMMODITIES INDEX”, “DCI”, “DIAPASON COMMODITIES MANAGEMENT” and “DIAPASON” are trademarks and service marks of Diapason. “BNP Paribas” and
“BNPP” are trademarks and service marks of BNP PARIBAS, “DJ-UBS” are trademarks and service marks of UBS, and “SP GSCI” are trademarks and service marks of the McGraw-Hill Companies Inc. .
All proprietary rights with respect to the DCI belong to Diapason, with respect to the DCI BNP Paribas Enhanced Index to Diapason and BNP PARIBAS, with respect to the DJ-UBS to UBS, with respect to the
SP GSCI to McGraw-Hill Companies Inc. (the DCI, the DCI BNP Paribas Enhanced Index, the DJ-UBS, the SP GSCI, individually an “Index”, collectively the “Indexes” and each of their owners, an “Index
Owner”).
The Index Owners do not sponsor, endorse, sell or promote Diapason products by this documentation and make no representation or warranty, express or implied, nor accept any responsibility, regarding the
accuracy or completeness of this presentation, or the advisability of investing in securities or commodities generally, or in Diapason products or in futures particularly. Diapason assumes sole responsibility for
this documentation which has not been reviewed by the other Index Owners.
Any third party product based on or in relation to the Indexes may only be issued upon the prior written approval of their respective owners and upon execution of a licensing agreement between those parties
and the party intending to launch a product.
The Index Owners disclaim any liability to any party for any inaccuracy in the data on which their respective Index are based, for any mistakes, errors, omissions or interruptions in the calculation and/or dis-
semination of such Indexes, or for the manner in which they are applied in connection with the issue and offering of a product. The Index Owners make no warranty, express or implied, as to results to be ob-
tained by owners of products, or any other person or entity from the use of their respective Index, any data included therein or products based thereon. The Index Owners do not make any express or implied
warranties, and expressly disclaim all warranties of merchantability or fitness for a particular purpose or use with respect to their respective Index and any data included therein. Without limiting any of the fore-
going, in no event shall the Index Owners have any liability for any lost profits or indirect, punitive, special or consequential damages or losses, even if notified of the possibility thereof.
Electronic Communication (E-mail)
In the case that this document is sent by E-mail, the E-mail is considered as being confidential and may also be legally privileged. If you are not the addressee you may not copy, forward, disclose or use any part
of it. If you have received this message in error, please delete it and all copies from your system and notify the sender immediately by return E-mail. The sender does not accept liability for any errors, omissions,
delays in receipt, damage to your system, viruses, interruptions or interferences.
Last update on 9 February 2011
For important Disclaimers and Disclosures, please refer to the last two pages of this publication 10