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:

Shale Series Part 1 - Art Berman discusses recent WSJ article on shale production

The Wall Street Journal recently wrote an article stating that shale production was coming in at around 10% less than forecasted. Art Berman recently discussed this on Peak Prosperity. Art Berman is a geologist who is an oil expert. He's been saying for awhile that shale production was coming in lower than anticipated. Here some of his thoughts on the article:

1. He believes the gap is really greater than 10%.

2. This is based on what the definition of "average" means. He suspects that the data given to the Wall Street Journal was cherry picked. That is, they were coming up with the 10% based on the best locations. He's looked at total wells drilled and therefore is coming up with a much lower figure.

Venezuela: Thoughts on Protests

The LA Times has been covering the situation in Venezuela. (Here are a couple links: Jan 22 and Jan 25).

The current anti-Maduro protests appear to have started based on:

The march is coming at a critical moment, with Maduro seemingly off balance after several dozen mutinous national guard soldiers stormed a military post in central Caracas, seizing weapons and calling on other members of the armed forces for support. The government quickly put down the uprising, arresting 27 and dismissing it as an isolated incident.

From this, the president of the National Assembly, Juan Guaido, declared himself the leader of the country:

In his first public speech since Wednesday, when he proclaimed himself Venezuela’s legitimate leader in a massive protest march in the capital, Caracas, the 35-year-old president of the National Assembly tried to capitalize on discontent with the Maduro government while making the case that a better future was within reach.

Let's first remember that Venezuela had massive protests in 2017, which ultimately failed to over-throw Maduro. So what do I think the chances are for Guaido to force Maduro out of power?

Libya: Notes on what is going on in Tripoli

This post is an update about what is going on in Tripoli.

Back on Dec 12th, Reuters had an article up on the situation in Tripoli. It is filled with names and details so is a little hard to follow. Here's me trying to simplify:

Tripoli Revolutionaries Brigade (headed by Haithem Tajouri). Tajouri had left the country for a month and returned "dressed in blue Emirati robes." That led to speculation that he was aligned with the UAE, which just so happens to back Khalifa Haftar in the east.

Rada (headed by Abdulraouf Kara). Their base is at the airport and is linked to other militias outside the capital that hold ultraconservative religious ideology.

Sweden: a government is finally formed

Stefan Löfven of the Social Democrats won a second term as Prime Minister of Sweden. It took over 4 months for the Swedes to form a government. Why did it take so long?

Here's a summary of seat totals between the two major blocs (Centre-left and Alliance) and the Sweden Democrats.

Centre-left bloc parties (144 total seats):

Social Democrats (100 seats)
Left Party (28)
Green Party (16)

Alliance parties (143 total seats):

Moderates (70)
Centre Party (31)
Christian Democrats (22)
Liberals (20)

Sweden Democrats (62)

The problem is that in Sweden an alliance needs 175 votes to win a majority rule. Neither bloc had 175 votes and neither were willing to form a government with the far-right Sweden Democrats. Another option is the minority government, which is what happened.

So how was Stefan Löfven able to form a government? The Guardian provides the details:

Löfven’s second attempt was approved because although only 115 MPs voted in favour and 153 against, with 77 abstentions, there was no majority against him. Under Swedish law, prime ministers can govern as long as a majority in parliamentary do not actively vote against them. The former welder and trade union leader succeeded in peeling the Centre and Liberal parties away from their centre-right bloc by offering major concessions, promising notably to cut taxes, reform the rental housing market and relax Sweden’s strict employment laws.

WSJ: Shale estimates overly aggressive

The Wall Street Journal recently had an article that looked into projections by fracking companies between 2014 - 2017. Via Rystad Energy AS, WSJ came to the conclusion that actual oil and gas production would come in 10% lower than estimated. This excluded oil majors such as Exxon Mobil. Some of the interesting points from the article are:

1. The Journal’s findings suggest current production levels may be hard to sustain without greater spending because operators will have to drill more wells to meet growth targets. Yet shale drillers, most of whom have yet to consistently make money, are under pressure to cut spending in the face of a 40% crude-oil price decline since October.

2. Schlumberger Ltd. , the oil-field-services giant, reported in a research paper that secondary shale wells completed near older, initial wells in West Texas have been as much as 30% less productive than the initial ones.

3. One reason thousands of early shale wells aren’t meeting expectations is that many companies extrapolated how much they would produce from small clusters of prolific initial wells, according to reserves specialists. Some also excluded their worst-performing wells from the calculations, which is akin to eliminating strikeouts when projecting a baseball player’s batting average.

Venezuela: Maduro's new presidential term

Washington Post reports that this past Thursday, President Nicolas Maduro started his new six year term. To celebrate his new term, the opposition went after Maduro:

The opposition-controlled National Assembly — stripped of its powers by Maduro in 2017 — declared the president an “usurper” and called itself the country’s only “legitimate power.” The assembly’s newly named president, Juan Guaidó, said in a video statement that the body would work with foreign powers toward a political transition in Venezuela.

The article goes on to state that one of the problems with the opposition is that they can't put together a coordinated plan to dispose of Maduro. Also, Maduro has threatened to dissolve the National Assembly.

Al Jazeera makes the real points on why it will be difficult to get rid of Maduro even if "a recent survey by the country's most reliable pollster, Datanalisis, found that nearly 72 percent of people wanted Maduro to resign, rather than begin his second term."

Sweden: Post Christmas Election News

Sweden put discussions regarding forming a new government to the side until after Christmas. For those following Sweden political affairs, elections in September 2018 left both political blocs (Centre Left - Social Democrats, Left Party, Green Party - and Alliance - Moderates, Centre Party, Christian Democrats, Liberals) without enough votes to win a vote on the next Prime Minister. This is driven by the fact that the Sweden Democrats (a far right party) did so well in the elections and neither bloc (or at least a portion of the Alliance bloc) wishes to work with them. Sweden has already attempted two votes for Prime Minister. Both failed and there are two more votes schedules for January 16th and January 23rd. If the next two votes fail, a new election will be held.

The Local (3 January) had the following to say:

On Friday, the leaders of the centre-left Social Democrats and centre-right Moderate Party will meet the parliamentary speaker to update him on any progress made over the Christmas break. The three also spoke directly after Christmas, but a statement from parliamentary speaker Andreas Norlén merely said that he had "taken note of their respective assessments of the process of government formation".

The article also mentions that no one knows who will be running for Prime Minister on the January 16th vote.