Update On Kashagan -- February 5, 2019

At the bottom of the blog there is a tag for Kashagan.

Today, Eurasianet / oilprice have a very nice update on this oil play. I don't think there was necessarily anything new, but simply an update.

Some data points:

• sulfurous oil: CPC Blend, a Kazakhstan-specific product
• one of several crudes coming from the area
• Tengiz, second-largest oilfield in Kazakhstan, northwester Atyrau region
• Karachaganak, farther north
• Filanovsky field, operated by Russia's LUKoil
• name derives from the pipeline built in 2001; 1,500 km pipeline
• the Caspian Pipeline Consortium:
• Transneft (Russia): 31%
• Kazakhstan state govt: 19%
• rest of consortium (US, Russia, Italy, UK): 50%
• Black Sea terminal: Novorossiysk, southern Russia
• problem: CPC Blen is a light grade of crude with one particularly nasty feature -- contains foul-smelling and corrosive mercaptans
• mercaptans: rotten egg odor; very, very strong, very, very rotten egg
• high levels of hydrogen sulfide
• also, incredibly corrosive to the pipeline that carries it
• partly because of these mercaptans, bringing Kashagan oil to market was catastrophically late
• was supposed to have come on line in 2013
• didn't come on line until 2016
• finally came on line at cost of almost $6 billion
• current capacity: 1.45 billion bopd
• Asia buying more of this oil each year
• may benefit from Iranian sanctions

Whiting Sells Two NG Plants In North Dakota; Vietnam Cancels Two Nuclear Power Plants -- Coal Is Much, Much Cheaper -- November 22, 2016

Breaking news: Trump will not investigate Ms Clinton's "server" issue. 

Coal: Vietnam's National Assembly halt plans to build 2 multi-billion-dollar nuclear power plants with Russia and Japan, parliament delegates say, citing lower demand, rising costs and safety concerns - Reuters, Breaking News.

This comes on the heels of the UN climate scam in disarray and the decision to delay implementation of the new climate plan scam by a full year.

Kashagan oil field begins commercial output. Reuters.

OPEC meeting: Production freeze (Russia, Iraq, Iran) vs production cut (Saudi Arabia).

Developer says DAPL will not be re-routed. This is a re-print of an earlier story. One wonders if the recent news report that Sunoco will acquire ETP changes things?

Russian Northern Fleet: no change; remains off the coast of Syria. Most recent ping, 18 minutes ago. Tug at 8.8 knots, heading south. If it's heading anywhere, it's heading back to Tartus.

Global warming: for those paying attention to the weather over the past ten years, three things stand out:

• NOAA keeps "re-adjusting global temperatures;
• the weather has really settled down; fewer big storms ("no" historic hurricanes in over a decade; very quiet summer tornado seasons); and, 
• earlier winter snowstorms and more snow earlier

Today: Tokyo sees "first November" snow in 54 years. Link here.

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Back To The Bakken

Active rigs:

	11/22/2016	11/22/2015	11/22/2014	11/22/2013	11/22/2012
Active Rigs	38	65	191	184	183

RBN Energy: more lessons learned from five years of crude oil, natural gas, and NGL forecasts.

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Whiting Sells Midstream Assets in the Bakken

Zeit's take on Whiting's divestiture over at SeekingAlpha.

• Whiting has brought to fruition another important deleveraging initiative, further reducing the risk of financial distress
• The price received - ~6.4x-7.0x estimated 2017 EBITDA - is somewhat disappointing, but represents an outcome of a broadly marketed auction
• The news gives certainty with regard to a long anticipated divestiture
• Overall, the announcement is likely to have neutral to modestly positive implications for the stock

Over at Seeking Alpha: Whiting's midstream assets -- selling the Belfield and Robinson Lake gas plants.

• Sale of Whiting's remaining 50% interest in Belfield and Robinson Lake gas plants announced. $700M in total proceeds, Whiting to receive $375 million
• A potential sale was discussed at the recent Bank of America Merrill Lynch Conference.
• Sale proceeds can be used to repay portion of 2018 Notes, and reduction of interest expense relieves pressure on financial covenants in 2017
• Whiting Petroleum presented at the Bank of America Merrill Lynch Global Energy Conference on Thursday, November 17, and the presentation touched on many topics

One, in particular, piqued our interest. We've known for a while now that Whiting has been preparing its two natural gas processing plants in North Dakota for sale, the Belfield plant in the Pronghorn field and the Robinson Lake plant in the Spanish field. The Robinson Lake plant has a 130 mmcf/d capacity, whereas the Belfield plant has a 30 mmcf/d capacity.

Whiting has a 50% interest in each of the plants, having sold the other half in Robinson Lake in 2009 and Belfield in 2012.

Lo and behold, four days later, Whiting announces the sale of the plants for $700 million to an affiliate of Tesoro Logistics Rockies, LLC. Whiting's share of the sales proceeds will total $375 million.

Last year, Oppenheimer estimated that together the two plants generated close to $50 million in EBITDA, and at the BAML Conference, Michael Stevens, Whiting CFO, stated that a fair multiple would be 8x-10x. As such, we believe the likely increase in value was due to Whiting's efforts to reconfigure its contracts with third-party producers.

Whiting shares soared 12%. 

Update On Kashagan -- October 23, 2014

Rigzone is reporting (some figures rounded):

Kazakhstan expects annual oil output to reach as high as 100 million tonnes after 2020 when the giant Kashagan oilfield resumes pumping compared with less than 82 million this year.

Kazakhstan, already the second-largest oil producer after Russia among the former Soviet states, aims to produce 90 million to 100 million tonnes of oil starting in the third decade of this century

The Kazakh government expects output to total 82 million tonnes this year and next.

Kazakhstan produced 81.7 million tonnes in 2013.

For January to September, output fell to 60 million tonnes from 60.5 million in the same period of 2013.

Production at the Kashagan reservoir, the world's biggest oil find in recent times, started in September last year but was halted just a few weeks later after the discovery of gas leaks in the pipeline network of the $50 billion project. Replacing the pipelines at the oilfield, which lies in the Caspian Sea off western Kazakhstan, will cost another $1.6 billion to $3.6 billion.

Mirzagaliyev confirmed earlier official estimates that Kashagan's production could restart in the second half of 2016.

The conversion factor varies based on the specific gravity of the particular petroleum under discussion, but as a rough approximation there are 7 boe in one metric tonne.

100 million tonnes * 7 = 700 million boe annually / 365 = 2 million bbls/day.

Note: I often make simple arithmetic errors. If this information is important to you, go to the linked source.

The delta between current production of about 80 million tonnes now and 100 million tonnes when Kashagan comes on line is 20 million tonnes, or about 140 million boe, about 400,000 boe/day.

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Global Warming

Climate Change

Extreme Weather

Whatever

The (London) Express is reporting:

John Coleman, who co-founded the Weather Channel, shocked academics by insisting the theory of man-made climate change was no longer scientifically credible. 

Instead, what 'little evidence' there is for rising global temperatures points to a 'natural phenomenon' within a developing eco-system.

In an open letter attacking the Intergovernmental Panel on Climate Change, he wrote:

• "The ocean is not rising significantly.

• "The polar ice is increasing, not melting away. Polar Bears are increasing in number.

• "Heat waves have actually diminished, not increased. There is not an uptick in the number or strength of storms (in fact storms are diminishing).

• "I have studied this topic seriously for years. It has become a political and environment agenda item, but the science is not valid."

I don't think this story is particularly new; I've seen variations of this story for some time now, I believe.

No Oil From Kashagan This Year

Reuters via Rigzone is reporting:

French major Total said no oil production was to be expected from the troubled Kashagan project in Kazakhstan this year and it was not likely to yield much next year either.

"What is clear is that no production can be expected in 2014, and in 2015 ... it will be probably little," Yves-Louis Darricarrere, head of exploration and production, told a conference on Tuesday.

Production at the offshore deposit, the world's biggest oil find in 35 years, started in September but was halted in early October after the detection of gas leaks in the $50 billion project's pipeline network.

The Bakken, Eagle Ford, and the Permian look better and better every day. EOG has a huge play in each of these plays and surged today, perhaps on news that the Kashagan will not produce anything this year. Likewise, Libya is having its problem. Iraqi exports are up, but not exactly the most stable exporter in the world. Russia? "Who knows?" he asked rhetorically.

Putting The Bakken Into Perspective Again -- High Development Costs -- Remember When The Bakken Was All About The Expense? A $10-Million Well Is Now Considered A Bargain

The WSJ-linked article below is a must-read, to help put the Bakken into perspective. 

A reader was kind enough to send me a long response to the long, meandering post on projected productivity of the Bakken vis a vis the Bentek study. He brought up so many points, it will be awhile to get to all of them. Much appreciated.

The reader sent this WSJ link which I can't remember if I've posted before but it helps put things in perspective: triple-digit oil prices needed to sustain oil production.

Underneath their swagger and bravado, global energy chiefs gathered here for their annual U.S. conference expressed a palpable sense of dread over the soaring costs of their signature oil and gas projects.

"All of us are facing new realities and pressures," John Watson, chairman and chief executive of Chevron Corp., told a hotel ballroom jammed with an international assortment of men in suits and the occasional woman.

"Labor and capital costs have doubled over the last decade." To pay for the rising price of extracting fossil fuels, the industry needs triple-digit oil prices, Mr. Watson warned. "The $100 barrel is the new $20," he said—a sobering statement since global oil prices haven't been in the $20 range since 2002.

Look at the Kashagan debacle. 

On the other hand, as more and more infrastructure is completed in the Bakken, which, hopefully, will help contain costs there.

And there it is, here in the WSJ-linked article:

While the big projects provoke the most angst, there is widespread recognition that the small scale—especially around the U.S. shale boom—has had significant impact. The one place where cost inflation wasn't at the forefront of discussions was shale energy development and how it has benefited the U.S. To drill and hydraulically fracture a well in Pennsylvania or North Dakota costs $10 million, at most. 

So, $10 million/well is now considered cheap? Wow. 

A Never-Ending Story: The Kashagan

Background

Over the years, much has changed with regard to the Kashagan (see original post; compare those notes with the Diplomat link, October 17, 2106. Data points:

• consortium: Eni, Shell, XOM, Total, CNPC (China), Inpex, and Kazakhstan-state oil company
• at the end of the 20th century, the Kashagan was the largest oil discovery in a generation
• production had begun in late 2013 but immediately suspended due to faulty pipes
• back on-line late 2016
• now very cautious optimism
• early production (late 2016 when brought back on-line): 90,000 bopd (compare with 1 million bopd from North Dakota, mostly the Bakken)
• costs continue to be a headache
• behind schedule; significantly over-budget
• since contract signed in 2000, costs have surpassed $53 billion
• below $100/bbl, the companies running the North Caspian Operating Consortium will incur losses
• it is estimated that production costs at Kashagan exceed $50/bbl
• despite that, the government directed that Kashagan go back on-line
• first phase: in a couple of years, at its peak, Kashagan projected to yield 370,000 bopd; pretty puny in the big scheme of things (at $60 oil, if the full $60 was profit [and, of course it isn't] it would take almost seven years of producing at its peak of 370,000 bopd to pay off the $53 billion)
• second phase: no timeline yet -- hope to get to 1 million bopd
• government is anxious about the project getting through its first winter (2016 - 2017)

Updates

May 24, 2022: production comes to complete stop for several months for routine maintenance.

March 24, 2022: major storm severely damages export terminal on Black Sea.

October 22, 2019: Kashagan lives up to its name. Kashagan? It's done. Put a fork in it.

December 6, 2018: Kashagan -- apparently still alive and kicking.

March 24, 2018: legal issues hound Kashagan. Google Kashagan oil Moldovia.

February 19, 2018: production goals fell short again.

May 11, 2017: the EIA provides an update. 

October 20, 2016: analyst's note. 

October 15, 2016: Kashagan back on line. 

March 13, 2015: Rigzone is reporting --

Production from Kazakhstan's giant Kashagan oilfield is expected to resume in 2017, more than three years after being suspended due to a pipeline leak, stake holder Royal Dutch Shell said. Operations at the major field, expected to reach production of 300,000 barrels of oil equivalent, started in September 2013 and were halted a month later due to gas leaks from the sour gas pipeline.

October 1, 2014: Rigzone is reporting --

Kazakhstan expects its oil production to stay around 2013 levels until 2016, when it hopes to restart the giant Kashagan oilfield halted by an industrial accident, a senior Kazakh official said on Wednesday.

The Central Asian nation aims to produce 81.8 million tonnes (1.64 million barrels per day) of crude this year, Deputy Energy Minister Magzum Mirzagaliyev told reporters on the sidelines of an international oil and gas conference.

"Next year production is expected to be at the 2014 level," he added.

The second-largest ex-Soviet oil producer after Russia raised its oil output to 81.7 million tonnes last year from 79.2 million tonnes in 2012. A further increase in production after the 3 percent rise last year has been thwarted by delays at the giant Kashagan oilfield in the Caspian Sea.  

Original Post

 

This never-ending story really is a never-ending story.

The WSJ is reporting: the Kashagan oil development in the Caspian Sea off Kazakhstan is years late and more than $30 billion over budget.

$30 billion over budget.

Both sides are straining to understand what went wrong. They complain about an unwieldy management structure. Western oil executives say the Kazakh government has held up decisions and imposed onerous requirements for employing local workers. The Kazakhs say the companies made mistakes that included underestimating the challenge of corrosive gas, making plans that needed frequent revision and not doing the welding right.

Eni Chief Executive Paolo Scaroni said his company's relationship with the government "has been excellent" considering the years of trouble. A senior official of Kazakhstan's state-owned KazMunaiGas, or KMG, disagreed. "It's a marriage that is made in hell," he said.

The Kashagan project's travails—reconstructed from interviews with some 40 people involved in it—come at a time when relationships between Western oil companies and resource-owning governments are more important than ever. To replace what they pump, oil companies need to collaborate with state-owned companies that control 90% of the globe's remaining oil reserves, by a World Bank estimate. But governments often give foreign oil companies access only to the hardest-to-develop acreage. Kashagan's large-scale stumble shows how collaborations in these difficult fields can go sour for both sides.

Within Kazakhstan, an earlier and smaller oil project has fared better. Tengiz, about 80 miles east of Kashagan, has helped the country raise its oil production through the years to over 1.6 million barrels a day. But Tengiz didn't have several rival oil companies with equal shares jousting for position—Chevron Corp. is the dominant partner—and it is on land, not offshore.

As much as Kashagan's costs have risen, they don't necessarily mean the project can't someday be profitable, given that oil prices have also climbed sharply since it began. The costs of $50 billion or so—about $42 billion for development plus $8 billion spent toward the second, production phase—have been paid by all of the oil companies involved, including state-owned KMG. The deal gives most production to the oil companies until their development costs are recovered. 

Okay, let's put that that bit into perspective. Repeating, from the story:

As much as Kashagan's costs have risen, they don't necessarily mean the project can't someday be profitable, given that oil prices have also climbed sharply since it began.

Didn't Barron's just report, this weekend, that oil was headed sharply down over the next five years? [Posted in early 2014. In late 2014, Saudi announced its plan to maximize production in an attempt to kill US shale. Oil prices plunged. US shale did not fold. Saudi's attempt failed. By end of 2016, Saudi said they would cut production in an attempt to get the price of oil back up. By early 2018, WTI was back up to a 2-year high.]

Monday, March 31, 2014 -- The Last Day Of 1Q14

Top story in North Dakota today? Watch for weather-related announcements and area school cancellations due to more global warming. 2014: the year without spring. The entire southwest north Dakota is under a blizzard warming. Local readers tell me "everything" west of the Missouri River is "closed" today in North Dakota.

Active rigs:

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RBN Energy: RBN Energy's school of energy goes on-line.

The Wall Street Journal

Top story: talks fail to ease crisis in the Crimean. 

The Kashagan debacle: I've blogged about this story often; this will probably be a stand-alone post later

Something odd happened this year when the Federal Reserve started easing back on the policies that keep interest rates low: interest rates moved lower.

I saw this story earlier; not impressed. But it is what it is. "Rig count" offers new clues on natural gas.

Heard on the street: playing Russian roulette with sanctions and oil prices.

Enacting sanctions against a country supplying 12% of the world's oil sounds like a one-way ticket to a price spike. But that ignores Russia's other role as an oil consumer.

Over the past five years, Russia has accounted for 11% of the world's growth in oil consumption. And sanctions look more likely to affect that than the supply side.

The Los Angeles Times

9.5 million are newly covered by ObamaCare.  I didn't read the article. All I know is that the number was 6 million three days ago, and it took six months to get to the first 6 million and only two weekend days to add another 3.5 million. Oh, I guess I knew this also: most of "newly" insured had insurance prior to ObamaCare, at least when the number was 6 million. Regardless, this is great news for corporate America, cost shifting health care from the CEO to the employee.

"Frozen" passes "Toy Story 3" as top grossing animated movie.

The Dickinson Press

"Regulators" say oil companies have been withholding information on data regarding crude oil shipments out of North Dakota. I sort of doubt that. My hunch is the operators provide the information they are required to report. The big question is this: if this is accurate -- that operators have been withholding information where have the regulators been since 1951 when oil was first discovered in North Dakota, and or certainly in 2007 when the boom began? The regulators need to take a page from Ronald Reagan's playbook: trust but verify.

Glad to see the Richardton folks burning a food source to make fuel for Rush Limbaugh's SUV.  Not only that, they're using genetically-modified corn for corn by-products which are then sold as feed to cattle which is then consumed by humans. The company currently runs on coal to produce the ethanol, but plans to switch to natural gas to be more politically correct. The energy balance? 1 unit of energy input equals 1.3 energy units of corn ethanol energy -- the most optimum estimates; others say it is closer to 1:1. Some say it is as low as 1:1.06. Whatever. It makes us all feel good. Unless you live in the Sudan and wonder why America burns corn to make fuel for SUVs. Sugarcane ethanol produced in Brazil is much more favorable, 1:8. And so it goes.

News You May Have Missed -- Just Catching Up -- Nothing Important -- For The Archives

The Wall Street Journal is reporting:

According to the data, Texas saw the largest influx of well-heeled households moving into the state last year, consistent with move trends overall. South Carolina and Florida also posted net gains.

On the flip side, Illinois and Pennsylvania saw more high-value households move out of state than in, according to the data. California saw the biggest net loss of heavy-weight moves.

Last year, California had a net loss of 49,259 people to other states, according to the U.S. Census. California markets also have seen some of the strongest year-over-year price growth in the U.S., says Ellen Haberle, economist at real-estate brokerage Redfin.

"For the average buyer, it's not that California was affordable to start with—it's just getting even harder," she says.

Texas had the highest net gain in terms of domestic migration—113,528 more people moved into the state than out last year, census data show. Job opportunities are home-buyers' top reason for relocating to Texas, according to a Redfin survey last month of 1,909 customers and website users.

It's not just the numbers of folks leaving California; it's the demographics of those leaving -- the higher income/higher taxed.

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Shale (really) is different -- BP. Rigzone is reporting: 

BP has belatedly recognised there is not a good cultural fit between shale buccaneers and the petroleum engineers and MBAs in the rest of the organisation.

Interestingly, ExxonMobil seems to have known this from the start, and maintained its XTO shale unit as a separate business with a separate headquarters after buying it in 2010. 

XTO operates as a separate entity in North Dakota, though it is a wholly-owned subsidiary of XOM.

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We've discussed the Kashagan numerous times. It's in the news again. Rigzone is reporting:

Kazakhstan is suing foreign oil majors developing its huge Kashagan oilfield in the Caspian Sea, a tactic similar to those that secured the government large stakes in two of the three multinational energy projects on its territory.

Repeated delays at the 13-year-old project, targeted to produce as much oil as OPEC member Angola from a reserve almost as big as Brazil's, have infuriated the Kazakh government. The consortium, led by Exxon, Royal Dutch Shell, Total and Eni as well as Kazakh state oil firm KazMunaiGas, may face Kazakhstan seizing a bigger stake in Kashagan or refusing to reimburse a big chunk of the $50 billion spent on bringing it onstream.

The latter option is written into the Kashagan contracts. Production at Kashagan, the world's biggest oil discovery in 35 years, began in September but was stopped just weeks later after gas was found to be leaking from its pipelines.

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FlexGen brings portable power to remote drilling sites. Rigzone is reporting:

FlexGen Power Systems is a branch of U.S.-based military power supply provider Earl Energy, and its FlexGen Solid State Generator, while new to the oil and gas sector, has been in use by the military worldwide, including Afghanistan and Iraq for several years, Steven Jones, FlexGen’s director of communications told Rigzone.

The company was started by former military personnel who knew first-hand what the shortcomings of typical generators were out in the field and decided a new approach was called for, Jones explained. While the power systems were developed by the military, the company realized there were other applications, such as the oil and gas industry, where the power systems could offer significant advantages over existing products.

Thursday; The Kashagan Debacle Is Making ObamaCare Website Look Good; Seth Sees Dow Hitting 20,000 By 2018; Young Won't Support ObamaCare -- Critical If ObamaCare Is To Survive As We Know It

Young folks support Obama; won't support Obamacare. 

Mounting opposition to ObamaCare among young adults is creating a new crisis for the White House.

While the federal enrollment website HealthCare.gov appears to be improving by the day, polls show the “young invincibles” key to making the law work are becoming less likely to enroll.

Younger people were skeptical of the healthcare reform law even before its troubled rollout, despite their support for President Obama.

Medicaid is latest health-site victim. Yes, it's a trainwreck, also. We're gonna see the same thing come January 1, 2014, for ObamaCare. Reporting in today's Wall Street Journal:

States are refusing to process Medicaid enrollments from people who signed up through the troubled HealthCare.gov site, citing incomplete information. Thousands who thought they got insurance may not have it.

Active rigs:

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RNB Energy: Part 3 on the "painful" situation in western Canada.

Expanding Western Canadian Oil Sands production is currently butting up against pipeline constraints to move the crude to markets in the US and beyond. The result is painful price discounts for producers and an increased inventory of crude in storage at the Edmonton and Hardisty hubs in Alberta. New storage capacity is being added in both hubs to handle the growing volume. Today we detail TransCanada and MEG Energy expansion plans in Edmonton.

Observation for the day: the NSA can track 5 billion cellphone locations per day, Amazon can ship over a million line items per hour, and Healthcare.gov can accommodate (maybe) 50,000 people at any one time. Apparently in general, the state health exchanges are in worse shape, and the Oregon website is not even up yet.

The Wall Street Journal 

Drug-cost surprises lurk inside new health plans.

Americans with chronic illnesses—who are expected to be among the biggest beneficiaries of the health law—face widely varying out-of-pocket drug costs that could be obscured on the new insurance exchanges. 

Under the law, patients can't be denied coverage due to existing conditions or charged higher rates than healthier peers. The law also sets an annual out-of-pocket maximum of up to $6,350 for individuals and $12,700 for families, after which insurers pay the full tab.  [As far as I know, this is the ONLY unlimited liability any non-government entity has in the United States. I don't think folks have given this much thought.]

But depending on the coverage they select, some patients on expensive drug regimens could reach that level fast. Some medications for conditions including hepatitis, rheumatoid arthritis, HIV and cancer can retail for thousands of dollars a month, and some plans require patients to pay as much as 50% of the cost.

 Early interbreeding more widespread than thought. This is really, really exciting, coming on heels of James Shreeve's 1995 The Neandertal Enigma: Solving the Mystery of Modern Human Origins. Yes, it's an old book, and I don't generally care for his writing style, but it brought me up to speed regarding human origins. Now this fascinating article comes along. From The Journal:

Researchers analyzing DNA found in ancient bones from Spain discovered a stranger in the mix, suggesting that interbreeding between human species in Ice Age Europe was more widespread than suspected, according to research published Wednesday.

Geneticists led by Matthias Meyer at the Max Planck Institute for Evolutionary Anthropology in Germany extracted the oldest known human DNA—dating back more than 300,000 years—from a fossil thigh bone preserved at the bottom of a cave shaft called Sima de los Huesos—the pit of the bones—in northern Spain, where remains of 28 early humans belonging to an unknown species have been discovered.

By the appearance of their bones, these primitive precursors to modern humankind likely looked most like stocky, barrel-chested Neanderthals. But the genetic analysis reported in Nature showed that their maternal DNA, drawn from special cell structures called mitochondria, was different than that of Neanderthals and also unlike that of more modern humans. It was most closely related to a mysterious species called the Denisovans.

The Denisovans themselves were unknown to science until 2010, when their DNA was first identified from the fingertip of a young female discovered in a cave in Siberia. Her remains dated to about 40,000 years ago, offering evidence that Neanderthals, anatomically modern humans and Denisovans coexisted at that time.

CBR under attack by Sierra Club; they were late on fracking; they won't let the CBR issue get away from them.

I'm beginning to think there's only one story worse than the Healthcare.gov website and that's the Kashagan debacle. Today The Journal reports:

Operators of the giant Kashagan oil field in Kazakhstan are homing in on microscopic cracks in a steel pipeline as they race to understand the cause of dangerous gas leaks that have forced them to halt output indefinitely and could result in hefty repair costs.

Members of the NCOC consortium running Kashagan fear the stoppage could extend well into next year if a technical investigation, launched in October after leaks were detected for the second time in three weeks, concludes that a poisonous mix of hydrogen and sulfur contained in the crude oil has done extensive damage to the pipeline system in the $40 billion project, people familiar with the matter said.

 Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or think you may have read here. 

The Journal is reporting:

When Seth Masters, chief investment officer at Bernstein Global Wealth Management, first predicted the Dow Jones Industrial Average would hit 20,000 by the end of this decade, he said he was ridiculed as a "starry-eyed optimist." 

That was June 2012, not long after the worst of the euro-zone debt crisis. The Dow Jones Industrial Average was at 12,500, some 3,500 points lower than today, a rally of nearly 27% for the blue chips. Now, with the Dow at 15,889, Mr. Masters isn't just sticking by his call, he is moving it up. 

He reckons the Dow could reach 20,000 by 2018, a 26% gain from Wednesday's level. The Dow is up 21% in 2013. "We are actually ahead of schedule," said Mr. Masters, whose firm manages $69 billion in assets.

Saturday: Kashagan Is No Cash-Haven

Note: scroll down for the Kashagan story.

Original Post

The Wall Street Journal

The jobs data and the GDP data will put pressure on the Fed.

Iran talks strain mideast alliances. When I was biking into Starbucks this a.m. at 4:45 in the morning, I thought about that. Israel is furious, but the country that has to be most concerned: Saudi Arabia. the continent that needs to be most concerned: Europe. Again, Americans can be spectator, sending troops and drones in when the spirit moves us, but other than that, a spectator sport for most Americans. [Update: yup. On November 17, 2013, The Sunday Times (London) was reporting:

Once they were sworn enemies. Now Israel’s Mossad intelligence agency is working with Saudi officials on contingency plans for a possible attack on Iran if its nuclear programme is not significantly curbed in a deal that could be signed in Geneva this week.

Both the Israeli and Saudi governments are convinced that the international talks to place limits on Tehran’s military nuclear development amount to appeasement and will do little to slow its development of a nuclear warhead.

As part of the growing co-operation, Riyadh is understood already to have given the go-ahead for Israeli planes to use its airspace in the event of an attack on Iran.

Both sides are now prepared to go much further. The Sunni kingdom is as alarmed as Israel by the nuclear ambitions of the Shi’ite-dominated Iran.]

US private colleges face declining enrollment.

ObamaCare continues to unravel. A federal appeals court blocked a provision of the health-care law requiring employers to provide birth-control coverage in employee insurance, ruling it imposed a 'substantial burden' on religious rights of two firms.

ObamaCare costs to scare insurers.  Five years after Congress required insurers to cover mental-health and medical problems equally, the Obama administration on Friday issued regulations on how the law should be implemented. It looks like the president will use "ObamaCare" the way he uses the EPA -- executive orders.

Texas prosecutor gets 10-days jail sentence for misconduct that sent an innocent man to prison for nearly 25 years. It sounds like the misconduct continues. Ten days. Maybe that's a typo.

Job watch: best of WSJ blogs.

US stocks "soar."

Boeing warned that it could look to build its planned 777X jetliner outside Washington state, amid signs of union resistance to a proposed contract. [Update: the union later voted 2-1 against the Boeing contract, adding speculation that Boeing could build the 777X elsewhere.]

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Wow, this story never quits. I think I started blogging about this story some years ago. Giant oil field in Kazakhstan faces long delay. 

Oil production at Kazakhstan's huge Kashagan field, halted since mid-October because of a dangerous gas leak, won't resume before next year, according to people familiar with the matter, casting a cloud over one of the world's biggest energy projects.

Equipment needed to inspect a leaking pipeline connecting the field in the Caspian Sea to an onshore processing unit won't arrive on site before mid-November, the people said. The inspection will determine how much of the pipeline must be replaced, and once it is completed a preliminary report on how to conduct repair work won't be submitted to Kashagan operators before late December, they said.

NCOC, the consortium of oil companies operating the field, said it was too early to say when production—which exceeded 75,000 barrels a day at the time of the shutdown—might restart. "No prediction can be made," a NCOC spokesman said.

The stoppage at Kashagan after barely a month of production is another setback for the NCOC consortium, which has invested an estimated $40 billion over more than a decade to develop one of the largest hydrocarbon discoveries of the last 30 years.

Ramping up production to 370,000 barrels a day in 2015, and later to a projected plateau of 1.5 million barrels, is crucial for some members of the consortium, such as Total SA, which are relying on crude oil from Kashagan to help offset output declines in other parts of the world. Similarly, Kazakhstan, a thinly populated country of desert steppe, is counting on Kashagan to transform itself into a mighty petro state.

In the past I was often criticized for posting non-Bakken stories on a "Bakken-all-the-time site" but this story puts the Bakken into perspective. Development of this field in Kazakhstan has been going on for years, costing upwards of $40 billion, and it looks like "they" still have nothing to show for it. Before the latest setback, developers were hoping for 315,000 bopd. The Bakken, four counties in western North Dakota, is doing twice that much as significantly less cost, less frustration, less risk.

Kashagan: cash-hole. 

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 All I have time for, now.

Putting The Bakken Into Perspective -- Again

Do you remember that giant Kashagan oil project in the Caspian Sea that I've mentioned several times before? Just how expensive is it? The Motley Fool is reporting. Some data points:

• largest oil discovery in 30 years (with some saying the Bakken is a trillion-bbl reservoir, that may be a factoid)
• supposedly has just begin producing this week after seven years of delays
• current bill: $48 billion; no cash flow
• how much oil: 375,000 bopd divided among seven companies
• Bakken: 875,000 bopd; still early in the development phase

Back in 2011, one headline: Kashagan is turning out to be a bust.

China Signs Deal For Stake In Huge Kashagan Oil Project; US Meanders And Dithers

Reuters is reporting:

Chinese President Xi Jinping struck a deal with Kazakhstan on Saturday giving China a stake in its giant Kashagan oil project, a highlight of his tour of Central Asia to secure hydrocarbons for the world's largest energy consumer.

The $5 billion deal further increases China's rising clout in post-Soviet Central Asia, once Russia's imperial backyard, and blocks an attempt by global rival India to get a stake in the oilfield, the world's largest oil discovery in five decades.

"The two countries have agreed on China's shareholding in the development of the Kashagan deposit," Xi told a news briefing after talks with Kazakh President Nursultan Nazarbayev. "The two governments hail and support this agreement."

Oil and gas deals, including on building an oil refinery in Kazakhstan, are among 22 agreements worth some $30 billion reached during Xi's visit, Nazarbayev said.

Meanwhile, the US continues to dither on a) meaningful oil and gas energy policy; b) the Keystone XL; and, c) the Arctic.

The US will move ahead with Federal fracking regulations to slow down / stymie US oil and gas industry.

On the other hand, the Kashagan hasn't turned out all that successful to date.  Maybe the Chinese will have better luck.

Friday Morning Links

Updates

April 22, 2013: it looks like the Obama government knew more about the Islamic terrorists (Boston Marathon, April 15, 2013) than first told (?). 

According to The New York Times, the terror suspect's application, presented on September 5, also prompted the FBI to do 'additional investigation' of him this year. They didn't reveal how far the probe had gone or what it covered.

Tamerlan's papers were submitted just days after his brother, Dzhokhar A. Tsarnaev, 19, had his own citizenship application approved. According to the Times, officials with Homeland Security contacted the FBI late last year to learn more about its interview with the terror suspect and the agency reported its conclusion that he did not present a threat.

However, immigration officials did not move to approve or deny the application, choosing instead to leave it open for 'additional review.'

Original Post

First, with regard to the Boston Marathon Bombing: it should be noted that the suspect on the run in the Boston area can feel pretty safe knowing that most law-abiding non-law-enforcement citizens do not have any guns. It should make him feel much safer if he gets outside the cordoned-off area. Just saying. Something tells me the gun law that was voted down this past week would not have made much difference. Unless the gun control bill also included a ban against pressure cookers and terrorists agreed to turn in their pressure cookers. Even a CNBC talking head suggested the same thing (with regard to a Bostonian feeling a bit safer if he/she had a gun while hunkering "down in place").

Along that same line, Senators need to read the fine print in the immigration bill in light of new events. The bill contains 400 waivers, exceptions, and exemptions.

And finally, the decision to allow Arab terrorists the opportunity to test expedited entry into the US seems a bit ill-timed.

But I'm probably over-reacting.

Something tells me this offers the opportunity for law enforcement agencies to really shake down the entire terrorist network in the Boston area.

WSJ Links

Will require subscription, though I have discussed google access before.

Section M (Mansion): I don't read.

Section D (Arena):

Section C (Money & Investing):

• Schlumberger: black gold's blue chip.

The world's largest oilfield-services provider by market value shed around a tenth of its value in the past two months as crude prices retreated. After all, Schlumberger's share price, like its peers', is highly correlated with oil in the short run. If the way down for energy prices is deep and dark, then look out below.

But Schlumberger has a vaunted spot in its industry, not just because of its size but also its sophistication. It spends more on research and development than all of its competitors combined and is more geographically diversified, too. This creates the impression that it is better-insulated from a downturn.

Schlumberger's first-quarter earnings, due Friday, should be encouraging. It is seen reporting $1.00 a share, up from 97 cents a year earlier.

In-Play says SLB beat by 2 cents.

Section (Marketplace):

• FAA expected to end grounding of Boeing 787. [Update: July 12, 2013 -- perhaps not so fast.]

• $30 billion black hole in the Caspian Sea? Great update. I've followed this story for some time. Sounded like a disaster shortly after initial excitement. 

For more than a decade, the promised bonanza from Kazakhstan's giant offshore Kashagan oil field has been a costly mirage for its developers. And the wait still isn't over.

The companies backing the project—which include Exxon Mobil Corp., Eni Spa, and Royal Dutch Shell PLC—in March missed the startup date Eni predicted last year. And now, after a decade of work and more than $30 billion in expenses, it isn't clear when one of the world's biggest untapped fields will produce its first drop of oil.

Eni CEO Paolo Scaroni said last month the operators "are going to begin production in June." A spokesman for the North Caspian Operating Company BV, which represents all of the oil companies in the project, says "we are confident that we will deliver oil in the course of this year," though he said he isn't sure when. A person close to KazMunaiGas, or KMG, the Kazakh state oil company that owns close to 20% of Kashagan, said it may be 2014 before significant amounts of oil flow.

Delays beyond Oct. 1 could subject the companies to new financial penalties on top of tens of millions of dollars worth of concessions they have already given the Kazakh government for missing earlier deadlines and cost overruns, according to energy consultancy IHS CERA. Setbacks could also heighten tensions with a frustrated Kazakh government, say several people close to the project—and will make it difficult for the firms to make more than a marginal profit from their investments.

• Affidavit unsealed in probe of Pilot Flying J. 

An affidavit filed in federal court in Knoxville, Tenn., asserts employees of truck-stop giant Pilot Flying J conducted a scheme to deceptively withhold diesel-fuel price rebates and discounts from Pilot Flying J customers without those customers' knowledge or approval.

The purpose of the alleged scheme, described in detail in the 120-page document, was designed not only to increase sales commissions, the affidavit says, but also to boost profitability of Pilot Flying J, the largest chain of truck stops in North America.

Pilot generally agrees to pay its trucking customers rebates based on volume purchases and other variables. The affidavit asserts that Pilot employees didn't pay the companies the full amounts they were owed.

• Why jet owners don't want to be tracked. 

Section A:

• Factory overtime cranks up 

Factory workers are racking up more overtime than they have in years, a trend that reflects strengthening demand in the U.S. economy and could eventually lead to more hiring.

Production and nonsupervisory employees in the U.S. manufacturing sector worked 41.8 hours a week on average in March, down slightly from February's 41.9 but still at a level rarely seen in recent times. Similar work hours were notched amid the economic boom of the 1990s and, prior to that, during the World War II-related production jump in 1945, according to the latest data from the Labor Department. 

Companies often boost hours of existing employees rather than hire new ones when they are worried an upturn in demand may be temporary—and tend to bring in new workers only when the outlook improves. While this is bad news for unemployed workers, the existing workforce often welcomes the chance to fatten their paychecks.

Eric Stamper, a married father of a 9-month-old in Dayton, Ohio, said he is now working 15 hours of overtime many weeks—more than the roughly 10 hours of overtime that are typical for him. That is helping him save up to buy a new house and car.

There may be more to this story. Think ObamaCare.

• Make it as painful as possible -- the Obama administration -- air delays loom as cuts kick in.

The Federal Aviation Administration has laid out final plans for implementing federal spending cuts at the nation's airports that could cause delays and cancellations affecting thousands of flights a day.

FAA officials told airline-industry executives this week that the cutbacks, due to start Sunday, could delay as many as 6,700 flights a day at 13 of the nation's biggest airports, people familiar with the briefing said.

The projected delays, which are more detailed than any the government has so far provided, are mainly the result of furloughs for air-traffic controllers that will require them to take one day off without pay for every 10 work days. Nearly a third of the more than 23,000 daily U.S. flights could be affected.

The FAA has told airlines that on average each day, the furloughs could delay twice as many flights as during the most heavily storm-disrupted days last year.

Hmmmm. Sounds like the FAA got a telephone call asking why there haven't been any delays yet. Sounds like you want to take a non-stop, and you want to have internet access at the airport. Think Apple iPad.

• Book review: foxhole conversion, but discomforting. A cancer diagnosis leads a poet to rediscover his Christianity, but belief occasions in him not comfort but continual unease. My Bright Abyss: Meditation, Christian Wiman. 

Another Crude-By-Rail Story in the Bakken -- Tesoro Refinery to Ship ND Crude to Its Washington State Refinery

Link here.

U.S. Sen. John Hoeven says Tesoro is planning a $60 million rail shipping project to move Bakken crude oil from western North Dakota to its refinery in Anacortes, Wash.

Data points:

• To be completed in the second quarter 2012
• Tesoro to ship oil to either its Mandan refinery or its refinery at Anacortes, Washington
• Tesoro announced earlier this year a $35 million expansion project at Mandan; increase capacity from 10,000 to 68,000 bbls daily
• The amount of oil from North Dakota to the Anacortes facility will increased from 2,000 bopd to 30,000 bopd
• An unloading facility will need to be built at Anacortes; 12 months to complete; $50 million
• Oil loading facility in Williams County; owned by Rangeland Oil, LLC
• Connected to Tesoro's High Plains Pipeline System
• 20 new permanent jobs will be created at the Mandan refinery (that's 20 more jobs than the president created today -- considering he killed the Keystone XL pipeline, he's got quite a ways to go to get back to even)

I believe the new proposed diesel refinery at Trenton, North Dakota, will have capacity of 20,000 bopd.

**********************

Folks periodically suggest all this activity has all the earmarks of a boom and bust story when they see the stories on NBC's "Rock Center with Brian Williams" or the nightly news. But when I see another company spending $50 million on one project directly tied to the Bakken, I can only assume these guys have done their homework.

I think of the Kashagan story: "After 11 years and $39 billion of investment, ExxonMobil, Royal Dutch Shell, and their partners have yet to sell a drop of oil from what was touted as the world's biggest discovery in four decades......$15 billion over budget .... 8 years behind schedule ... and the project may never even be profitable ...

"The prize for the five main partners is as much as 252,000 barrels of crude a day each from peak output once the second phase is running. That kind of production is growing harder to find worldwide as existing fields age and governments in the Middle East, Russia and Latin America reserve control for state companies."

Did you catch that? 252,000 bopd WITH COMPLETION OF THE SECOND PHASE. And there is no stomach for starting the second phase now! One wonders what production will be in the first phase. Certainly significant less.

To put that into perspective, 5 x 252,000 --> 1.26 million bopd. Folks are predicting as much as 1.5 million bopd from the Bakken in less than ten years, and unlike the Kashagan, the Bakken is already providing a cash flow for the drillers, and a profit.

Let's say, the first phase is half -- 600,000 bopd, and North Dakota is within that target, easily.

Update on News From Around the Bakken (Not All Bakken Stories)

The City of Williston and the State of North Dakota are fighting over mineral rights under the river and the lake in the Williston area. Can't we all just get along?

Update on North Dakota cattle flying to Kazakhstan. It turns out the cows will get frequent flyer miles which can be transferred to their bovine friends left behind. Black-out dates will apply, and the total number of miles will only get them from Bismarck to Minot. The cattle filled out their menu selections before takeoff; most ordered vegetarian, although several had chicken ("Eat More Chicken") and a few went kosher, thinking kosher, Kashagan, and Kazakhstan had a nice ring to it.  [Original posting here.]

[Update, February 3, 2011: Fortune magazine on the Kows to Kazakhstan story.]
[Update, November 13, 2010: the cows got to Kazakhstan in fine shape.]

The Minot Daily News has a nice update on the water level of the river.  This is really something for North Dakota. It seems so many of the years I was growing up in Williston, the water level was getting lower and lower as I got older and older.

Kashagan Oil Field (Not About the Bakken)

Update

November 9, 2013: still looks like a bust.

September 16, 2013: still looks like a bust. 

November 17, 2011: one of the world's largest oil field is turning out to be a bust.  Reminds us again, how fortunate we are to have the Bakken. Squabbling partners; oil 2.6 miles underground; poisonous sour oil.

Original Post

The story in the Dickinson Press about North Dakota sending 2,000 head of cattle (by plane) to Kazakhstan piqued my interest, especially with the story about the governor of North Dakota visiting Kazakhstan back in 2006 looking for trade opportunities. [Update here.]

One of the world's largest oil fields ever discovered was the Kashagan field in and around the Caspian Sea and under control of Kazakhstan. The field was discovered in 2000.

Anyone trying to sort out future price of oil needs to take this field into consideration. This story dated August 29, 2010, brings you up to date. For those bullish on the Bakken, this is welcome news. A January 21, 2010, Forbes story reviewed the ten largest oil fields in the world. The Bakken is not listed.