Pensions: Illinois' solution

Via MSN we learn the plan that Governor J.B. Pritzker hopes to implement to resolve the Illinois' pension problem.

The potential solutions:

1. Graduated income taxes versus their current flat tax.

2. Allowing more time to get to 90% funding -- shifting the target from 2045 to 2052.

3. Selling state assets.

Venezuela: Fleeing Oil Workers

The Associated Press has an article up regarding fleeing Venezuelan oil workers. The first wave of fleeing oil workers occurred in 2003 after a strike and crackdown by Maduro and has since continued. Some interesting quotes:

While the most-talented engineers left long ago — many contributing to a production boom in neighboring Colombia — there’s still demand for labor throughout the industry. “We’re still in a talent-short market, especially with people willing to go into hardship locations — like Kurdistan,” said Dane Groeneveld, CEO at California-based PTS Advance, an oil industry recruiter, referring to Iraq’s Kurdish region.

Reuters, back in late December, had an article about Venezuela's oil sector. Per the article, Venezuela's PDVSA employed 152,072 in 2014. It estimates around 106,518 were employed as of 2018. That's a 40,000 drop.

Venezuela: International Affairs

Bloomberg has an interesting opinion piece about the international affairs surrounding Venezuela. This largely revolves around the US, China and Russia:

All this constitutes the backdrop to the Venezuelan crisis. The growth of Russian and Chinese influence in Latin America broadly, and Venezuela specifically, is a key reason the Trump administration has so uncharacteristically taken up the banner of human rights and democracy. By imposing harsh economic sanctions, calling for the military to desert Maduro, and backing the political opposition led by the Juan Guiadó, the Trump administration is seeking to deprive Moscow, Beijing and Havana of a critical partner in Latin America. And while Russia and China have responded very differently to this crisis, both are working, in their own ways, to protect that partner.

This is basically why I'm skeptical that Maduro will be forced out of power. Or if he is, he will simply be replaced with someone who is supported by China and Russia. This leaves out Guiado who is supported by the US and other countries excluding China and Russia.

Pension Tidbits

With the stock market having taken a nose dive in December and then bouncing straight up in January, it is interesting to read news on the situation around pensions.

Here's three articles that I found interesting:

This one is rather minor, but being from California and reading about the situation around PG&E, I had to read this article from The Sacramento Bee:

The California Public Employees’ Retirement System, which manages about $350 billion in investments, owned about 1.8 million shares of PG&E Corp. at the end of November, according to the latest figures available from the fund. At the time, the shares were worth about $47 million. CalPERS also owned Pacific Gas and Electric Co. securities worth about $35 million, according to the fund.

At the end of November, the stock price was around $26. At the end of January, it was around $13. If CalPERS still own the stock, it would equate to a loss of around $23 million. Not even a 0.1% hit to the fund. But then I guess when you're trying to hit a 7% return, even 0.1% counts.

Pensions: CalPERs returns

Pensions & Investments reported the following regarding 2018 and prior trends:

CalPERS earned -3.9% in the year, 6.3% for the three years and 5.1% for the five years ended Dec. 31, CEO Marcie Frost told the board for the $348.7 billion pension fund at its meeting Tuesday. The 10-year return ending Dec. 31 was 7.9%.

In his first presentation to the board, newly named Chief Investment Officer Yu Ben Meng said that based on performance, CalPERS is currently 65% or 66% funded. By comparison, the Sacramento fund was an estimated 71% funded as of June 30.

So the -3.9% 2018 performance also hit the funded amount pretty hard.

I want to key in on the 10-year return of 7.9% as short term variances can always be expected. With that said, Chief Investment Officer provides some additional information:

Libya: El Sharara oilfield

Brief info on Libya before going into my blog:

The UN backed government in Tripoli is called the Government of National Account (GNA).

There is a rival government in Benghazi called the Libyan National Army (LNA). Khalifa Haftar is the leader of that government.

Okay . . .

I've briefly mentioned the El Sharara oilfield in my blog. Back in late 2017, there were protests at the oilfield around allocation of oil money to South Libya.

Fast forward to 2019. Reuters reported January 15th that the LNA "launched a military operation in southern Libya to secure oil and gas facilities and fight extremists, a spokesman said on Tuesday, a move that may alarm the authorities in Tripoli in the west."

The article goes on to explain that Haftar had sent troops to the city of Sabha. This was not the first time the LNA sent troops to Sabha. In March 2018, I wrote a post about how LNA troops were fighting in the city.

Shale Series Part 3 - 2019/2020 production forecasts

OilPrice.com has an interesting article up that highlights comments from Schlumberger's CEO Paal Kibsgaard.

Here are some quotes:

Kibsgaard said that spending from the shale industry could be flat or down this year relative to 2018.

Companies working through DUCs (drilled but uncompleted wells) could keep production aloft even as drilling slows, but output would likely fall relative to 2018, while decelerating further in 2020.

From a conference call with analysts: “It is also worth noting that with the continued growth in U.S. shale production, an increasing percentage of the new wells drilled are being consumed to offset the steep decline from the existing production base,” Kibsgaard told shareholders and analysts on Schlumberger’s earnings call. “The third party analysis shows that in 2018, this number was 54% of total CapEx and is expected to increase to 75% in 2021, clearly demonstrating the unavoidable treadmill effect of shale oil production.”

Shale Series Part 2 - Constraints: water and money

Recently, the Wall Street Journal discussed the fact that shale forecasts are over-stated by 10%.

What are some other interesting facts about the future of shale?

OilPrice.com has an interesting article up on constraints. Water constraints to be specific:

Water already accounts for about 15 percent of the cost of a shale well, according to analysts at Morgan Stanley. “In the Permian, total spending on water is expected to double over the next 5 years, to $22B, with E&Ps on avg using 50 barrels (bbls) of water for each lateral foot completed,” the investment bank wrote in a new report . . . Last year, Wood Mackenzie said that the rising cost of water disposal alone would increase the breakeven price in the Permian by between $3 and $6 per barrel, potentially shaving off future Permian oil production by around 400,000 bpd by 2025.

That's an interesting constraint that to some degree shale producers can't control. For example, oil pipelines are an issue, but that can be resolved by just building out pipelines. One really can't control the rain. Should there be a significant drought that hits the shale region, it could cause problems for shale production.

Another constraint out there is capital. Continental Resources chief executive Harold Hamm argued that US shale growth could come in at 50% less than the growth at the start of the year due to difficulty in raising capital: