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Russian Lukoil Halts Oil Supplies To Ukraine Odessa Refinery

Tyler Durden's picture


A few days ago we reported that the Ukraine decided to call Russia's "trump card" bluff - that would be everyone else's reliance on Russian gas supplies - when it drastically cut imports of Russian gas by 80% in February, seemingly to demonstrate its energy independence from Puting. Now Russia has decided to take the Ukraine to task, by announcing it has halted oil deliveries to the Ukraine Odessa refinery. Hopefully the Ukraine, whose foreign currency reserves tumbled from $17.9 billion on February 1 to $15 billion currently, has alternative means of supplying itself with energy from benevolent sources, particularly those who are willing to provide the country with oil in exchange for goodwill.

From Itar-Tass:

Russia’s oil company LUKOIL has stopped oil supplies to the Odessa refinery in Ukraine.


“The last tanker was sent on December 29,” a company official said on Wednesday, February 26.


Ukrainian media reports said earlier in the day that police had sealed oil tanks at the Kherson refinery. Oilnews quoted eye witnesses as saying that police had blocked all exits from the Odessa refinery in the morning of February 25.


On February 24, the refinery’s Director Valery Chakheyev tendered resignation; executive Director Sergei Kuznetsov and other top managers also walked out of the enterprise’s offices.


Media reports also said that the refinery would soon stop operation as it gets no more oil from the Sintez Oil transshipment centre that has stopped supplies to the enterprise because of its debts.


The refinery has also been notified about the coming termination of power supplies from February 27 because of the unpaid debts.


Telephones at the Odessa refinery do not answer. Sintez Oil officials told ITAR-TASS they “have no information."

Ukraine may have gotten its indepdence from Russia. One wonders how much it likes being independent of heating and energy too.


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Wed, 02/26/2014 - 11:45 | 4480116 ebworthen
ebworthen's picture

The Russians obviously have a plan to protect their Eastern border, and interests.

Not so sure about the EU and the U.S. other than bankster skullduggery.

Western Ukraine should ask the Greeks how they feel about the EU.

Wed, 02/26/2014 - 11:51 | 4480149 Flakmeister
Flakmeister's picture

But you agree that the Western Ukrainians have a right to choose?

Wed, 02/26/2014 - 12:08 | 4480239 Occident Mortal
Occident Mortal's picture

Told you,


I spotted this guy earlier in the week.

Wed, 02/26/2014 - 12:11 | 4480263 PR Guy
PR Guy's picture

They'll be OK without gas. They got democracy to keep em warm now.


Wed, 02/26/2014 - 12:24 | 4480336 BandGap
BandGap's picture

Apparently a lot of tires to burn, too.

Russia is just going to take the game to them rather than let any fires start in Mother Russia.

Wed, 02/26/2014 - 12:26 | 4480343 quintago
quintago's picture

The morons couldn't wait till summer.


-Cold Ass Honkey

Wed, 02/26/2014 - 12:33 | 4480374 Manthong
Manthong's picture

Sochi pretty much kept their northern friends quiet.

But don't think for a moment that the logistics guys got to watch much of the games.

Wed, 02/26/2014 - 12:58 | 4480498 Oh regional Indian
Oh regional Indian's picture

It really does look like a mini-skirmish between two heavies coming up this mid-march....say 21st or so maybe? Naval incident? 

Too many fires lit all over the globe...


Wed, 02/26/2014 - 13:07 | 4480545 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

The Ukraine will soon be too poor to afford oil, NG or anything from the Soviets, I meant Russia.

Wed, 02/26/2014 - 13:25 | 4480643 CrashisOptimistic
CrashisOptimistic's picture

Did some reading.  It's not seasonal.

44% of Ukraine electricity comes from nat gas, and Ukraine produces internally less electricity than it uses.  The rest comes from the Russian grid.

So not only may they be chilly, they'll be dark, too.

Wed, 02/26/2014 - 13:47 | 4480747 Flakmeister
Flakmeister's picture

OM. an apropos image indeed....

Did anyone ever doubt that Putin would put the screws to the Ukraine? Do you think that he'll do the same to NordStream?

Wed, 02/26/2014 - 12:17 | 4480259 earnyermoney
earnyermoney's picture

They're "free" to choose a regime backed by the West; otherwise the answer is no. Who's the crook that came to power in the "Orange" revolution? Given Barry's track record, Ukraine will resemble Syria and Libya in 6 months.

Wed, 02/26/2014 - 12:19 | 4480308 ptolemy_newit
ptolemy_newit's picture

LOL Flak!  The US foreign policy is the root cause of the death in Ukraine, EVERYONE knows it.

Can you imagine if that Clinton lady won the presidency (scary)

Wed, 02/26/2014 - 12:55 | 4480485 NotApplicable
NotApplicable's picture

"What difference does it make?"

Wed, 02/26/2014 - 15:30 | 4481305 Jack Burton
Jack Burton's picture

Since we are on good terms Flak, I will answer. Yes, I support West Ukraine's right to join the EU and to host NATO. In fact, that is best for long term peace. You know how I feel about Russian Ukraine and Crimea. A NATO attempt to absorb that, in my opinion, is just cause for war by Russia. You can only press them into the corner for so long and they will lash out. The NATO folks, if they believe in peace, ought to settle for the take over of West Ukraine.

Wed, 02/26/2014 - 16:55 | 4481787 Flakmeister
Flakmeister's picture

And for that reason any settlement that comes out this will no doubt cede that point to Putin. Do you really think NATO is so stupid to push a dangerous man like Putin into a corner?

All this is assuming Putin doesn't just roll in, put a new puppet in charge and Ukraine becomes the equivalent of totalitarian Soviet satelllite circa 1970. Which is entirely possible....

I predict that if he does, he will have a real uprising on his hands... 

The cat is out of the bag, people know what is out there in the big wide world. Just about the only place where it isn't is N. Korea and that is getting dicey even there...

Wed, 02/26/2014 - 16:06 | 4481498 Kirk2NCC1701
Kirk2NCC1701's picture

@Flakmeister: "But you agree that the Western Ukrainians have a right to choose?"

Do you mean the kind of Fully Informed, Non-Manipulated, Non-Lobbied "choice" that is not funded by secret donors from NGOs?  IOW the kind genuinely democratic choice that we have in the US?  /sarc

(I added the 'sarc' tag for your benefit)

Wed, 02/26/2014 - 17:06 | 4481747 Flakmeister
Flakmeister's picture

Do you think the real world is a fairy tale? Seriously...

If a Ukrainian is in doubt about who is selling them a bill of goods, they just have to look at Poland. They know full well that between them and the Poles they barely had  a pot to piss in 20 years ago...

Unless you are saying the Ukrainians are stupid and should just be happy with what they got? Which I really don't think you are...

Wed, 02/26/2014 - 17:09 | 4481901 Flakmeister
Flakmeister's picture

Based on the votes, 5 up 20 down, 80% of you do not believe that Western Ukrainians do not have a right to choose...

Absolutely incredible...

Wed, 02/26/2014 - 20:45 | 4482747 StychoKiller
StychoKiller's picture

Hmm, let's see:  go with a warm, comfortable but corrupt dictatorship, or go with a bunch of insolvent bureaucrats with no way of keeping warm...Is there a third choice available???

Wed, 02/26/2014 - 21:36 | 4482973 Flakmeister
Flakmeister's picture

That is not the question....

The question is whether they have a right to choose...

Unless they call in Tony Blair, there is no third way :-)

Thu, 02/27/2014 - 04:24 | 4483719 spacewiz
spacewiz's picture

Definitely, they can choose to stay in their forest and eat their salo... They don't have and never had any other options... well, I guess I might be wrong seeing how hard they fight to become cheap low-skilled laborers in the EU...

Wed, 02/26/2014 - 11:58 | 4480156 LawsofPhysics
LawsofPhysics's picture

Correct.  AS usual it will come down to the soldier to sort all this out for the banksters.

same as it ever was...

Wed, 02/26/2014 - 12:05 | 4480224 Ghordius
Ghordius's picture

"Western Ukraine should ask the Greeks how they feel about the EU." how do they feel about the EU? do polls count? for example those where the question is about the EUR, where 65% still want to keep it?

oh, I forgot, this is the month were "Fuck the EU" is a hashtag or something

Wed, 02/26/2014 - 12:48 | 4480446 nightshiftsucks
nightshiftsucks's picture

And how are you certain that those numbers aren't manipulated ?

Wed, 02/26/2014 - 14:41 | 4481025 frenzic
frenzic's picture

What with the election being only months away now. They have shifted up alright.

Wed, 02/26/2014 - 12:23 | 4480327 Quinvarius
Quinvarius's picture

The bankers never have a realistic plan due to the fact that their only goal is to make people use their brand of monopoly money in real life.  Their goal is not reality based and it does not account for political conseqences beyond, "Oops! Failed here! Next country!  Someone else can clean up this mess we made!"  It is like having your house robbed by a pro.  When you come home the place is destroyed and they took what they could carry before the heat arrived.

Wed, 02/26/2014 - 12:58 | 4480499 NotApplicable
NotApplicable's picture

When your only play is to "destroy competition and steal all of their loot, while maintaining a compassionate facade" what else could one expect?

Wed, 02/26/2014 - 11:46 | 4480122 max2205
max2205's picture

Your move Barry

Wed, 02/26/2014 - 11:50 | 4480140 Flakmeister
Flakmeister's picture


Barry does not have to do shit....

It's up to Vlad to get Humpty back together again...

Wed, 02/26/2014 - 11:52 | 4480155 TahoeBilly2012
TahoeBilly2012's picture

Barry is going to send in Miley Cyrus or maybe even Madonna if he really needs to bolster our presence. 

Wed, 02/26/2014 - 12:05 | 4480225 Manthong
Manthong's picture

He could threaten to send the First Wookie in to kick ass and take names.

Hillary could have her back with a truck load of lamps and ash trays.

Wed, 02/26/2014 - 12:26 | 4480344 BandGap
BandGap's picture

Worse than nukes.

Wed, 02/26/2014 - 11:56 | 4480171 Muddy1
Muddy1's picture

He's golfing today, and John "I served in Viet Nam" is windsurfing.

Wed, 02/26/2014 - 11:48 | 4480138 Taint Boil
Taint Boil's picture

No problem … Don’t we have more oil than the Saudis ROFL.

Wed, 02/26/2014 - 11:53 | 4480159 Flakmeister
Flakmeister's picture

I've been told theres a trillions barrels in the form of Tater tots buried deep in Colorado and Utah... 

Wed, 02/26/2014 - 12:07 | 4480235 Dr. Engali
Dr. Engali's picture

No Tater tots in Idaho? Must be peak Tater.

Wed, 02/26/2014 - 12:18 | 4480303 Cygnus Nigri
Cygnus Nigri's picture

Only problem is it will take another trillion barrels worth of energy to cook it out. Oh yeah and water, LOTS of water... no problem with that right now  /s


Wed, 02/26/2014 - 12:42 | 4480410 post turtle saver
post turtle saver's picture

"You caught me! You caught the Tater!"

Wed, 02/26/2014 - 20:48 | 4482757 StychoKiller
StychoKiller's picture

Quick, someone airlift some coopuns to the Ukrainians... :>D

Wed, 02/26/2014 - 11:57 | 4480160 Muddy1
Muddy1's picture


Yep, and we will transport the crude right down to the Gulf for shipping to Ukraine via Keystone, errr wait I mean the railroads.

Wed, 02/26/2014 - 11:49 | 4480139 Max Damage
Max Damage's picture

Why supply when you are in danger of attack, and the customer cannot afford to pay. Back to the western banksters!!!

Wed, 02/26/2014 - 11:51 | 4480148 LawsofPhysics
LawsofPhysics's picture

Who runs barter town?

The liabilities are what they are.  Interesting times indeed.

Wed, 02/26/2014 - 11:52 | 4480157 ParkAveFlasher
ParkAveFlasher's picture

Gold, bitchez! 

Wed, 02/26/2014 - 11:57 | 4480177 LawsofPhysics
LawsofPhysics's picture

You still need energy (calories) in order to mine and refine PMs.

Wed, 02/26/2014 - 12:02 | 4480195 RSloane
RSloane's picture

To take your advice, we're still going long sharecroppers. If business keeps up for the Spring, we're going to have to clear new lots and expand the parking area. To build a refreshment stand or not to build, that is the question.

Wed, 02/26/2014 - 12:05 | 4480219 LawsofPhysics
LawsofPhysics's picture

Good plan.  I need to stop blogging and go speak to a person about another well on one of our properties.

Wed, 02/26/2014 - 12:49 | 4480456 Dollarmedes
Dollarmedes's picture

There's always money in the banana stand.

Wed, 02/26/2014 - 12:32 | 4480366 I Am Not a Copp...
I Am Not a Copper Top's picture


Wed, 02/26/2014 - 11:52 | 4480154 sgorem
sgorem's picture

i invision ALL of the gas station owners furiously sending their minimum wage slaves out to the pumps to jack up the price of petrol across the country as i type. no? 2 gouge, or not to gouge?.......not to worry, CONgress will get a committee up to investigate this crime against the Amerikan Sheeple Flock. wtf......

Wed, 02/26/2014 - 13:05 | 4480187 A. Buttle
A. Buttle's picture

Cue the NG pipelines in flames. And an increasingly more desperate Western Ukraine. Of course, the actual people's lives do not even figure into the equation.

Wed, 02/26/2014 - 12:02 | 4480193 ThisIsBob
ThisIsBob's picture

Maybe the 'west" will ride to the rescue,  but its going to get very, very expensive for it to keep poking its little old stick in the Russian bear.

Wed, 02/26/2014 - 16:15 | 4481523 Kirk2NCC1701
Kirk2NCC1701's picture

If you were to add "Bullish for USDs and USTs" to your comment, then you'd really be cooking (with oil).

As I recall from a recent ZH article, wasn't it... Brussels -- of all players -- who recently bought USTs that nobody else wanted?  Interesting times indeed.

Wed, 02/26/2014 - 12:05 | 4480220 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Pyhrric victory for NATO/EU if Russia plays this right. Costs the NATO/EU more money pumping into the place to extract the gas than it would cost to just buy it from the Russians. If the place gets Cyprus'd and/or Greeced at the same time that is a lot of broken windows to replace first before you can even start siphoning off the resources.

Wed, 02/26/2014 - 12:17 | 4480292 swmnguy
swmnguy's picture

Pyhrric indeed.  And eventually, no victory at all.  Putin just sits and waits until Ukraine revolts against being bled dry by the Western banks.  IMF/DB/GS and the others would be glad to get Ukraine on the same treadmill as Greece.  Should Ukraine decide to go Iceland and beg for cover from Putin, game over.  Putin doesn't have to do a thing but guard what's Russian in Ukraine, and wait.

Wed, 02/26/2014 - 12:34 | 4480379 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

You know what this kind of reminds me of when a little kid pushes his parents too much about wanting to be a big boy before they are ready while they are at the store and parent goes okay and leaves them alone in the store. It never fails after 5 to 10 minutes you see that small kid crying their eyes out screaming for their parents.


We are going to find out if the Ukraine can wear the big boy pants real quickly at this rate or just be a dog looking for the moar benevolent master to hold their leash.

Wed, 02/26/2014 - 13:09 | 4480560 swmnguy
swmnguy's picture

Good analogy.  I'm a parent of teenagers.  I get it.

Wed, 02/26/2014 - 16:19 | 4481567 Kirk2NCC1701
Kirk2NCC1701's picture

After all this time as ZHers, all you guys who focus on the "Cost" side are missing the whole Strategic Intent:  It's all about CREATING DEMAND for USDs/USTs.

As long as King Fiat is King, the whole world gets to pay its creation and spending process.  Sheesh!

Wed, 02/26/2014 - 12:11 | 4480264 RaceToTheBottom
RaceToTheBottom's picture

Who is this Puting the article mentions?  Some new pro golfer?  Oblama's new golf instructor?

Wed, 02/26/2014 - 20:51 | 4482776 StychoKiller
StychoKiller's picture

sumtimz, thoose keyss get reel slippppery!

Wed, 02/26/2014 - 12:11 | 4480266 geno-econ
geno-econ's picture

Economic warfare precedes military warfare. Difference is people die slowly by starvation and freezing in economic warfare whereas in military warfare death is quicker.
One has to ask who started this mess, for what purpose and for who's benefit ? Greed, corruption, old rivalries, empire domination, as well as tribal/ cultural/ religious differences are all on the rise !
De-escalation can begin with some changes in the State Dept. and reducing influence of NeoCons who started this mess in ME.
We need leadership in Washington--- not foolish games that undermine world stability.

Wed, 02/26/2014 - 12:15 | 4480268 swmnguy
swmnguy's picture

This just shows how stupid Neo-Cons are despite (= "because of") the best education.  The idea clearly was that Putin wouldn't do anything during the Olympics, so the opportunity was there to change the facts on the ground and make it impossible for Russia to openly invade.  OK, fine.  Russia doesn't have to openly invade.  They have all the cover in the world to protect their bases; they can just say it's normal troop movement rotating out the buildup around Sochi.  Maybe it even is the normal course.  Then there's nothing to stop energy executives from quitting.  And Ukraine hadn't been paying its bills for a long time anyway, so eventually every deadbeat gets cut off.  Oh, by the way, all the natural gas Europe depends on flowing through Ukraine?  No way Ukraine, in its current mess, can ensure pipeline safety, so it's the most reasonable thing in the world to shut off the flow of gas for "safety concerns."

The stupid Neo-Cons are infatuated with James Bond movies and Harry Turtledove alternative military historical fiction.  They don't realize that very few of the world's problems are really military problems, so very few problems can be solved by military and cloak-and-dagger means.  Insisting on those means only puts more stress on the completely abstract and fictitious finance system they think has tangible weight and responds to natural laws.  No wonder nobody talks about Iceland in the MSM; they proved the whole system is fiction, and they got away with it.  No, they want everybody to look at Greece or Latvia, and hold up Libya and (they hoped) Syria and Iran as cautionary tales.  But Syria is defending itself and Iran is working with Turkey, China and India instead.

Besides, the Neo-Con strategy is simply to create violent chaos all around Russia and China, to keep them pre-occupied, while the Western finance cartel carts off everything of value.  Except the "value" they prize so much is all abstract and fictitious in the end.  If Ukraine were to pay the proposed IMF "aid" package with wheat, the IMF wouldn't be having it.  They want to get Ukraine on the derivatives teat, like they did Greece and the others, and that way get control over the tax system to bleed the country white.  All it takes to overthrow that is to repudiate it, because the West isn't going to invade Ukraine.  That tends to go badly.

Putin will guard what's Russian in Ukraine.  The tanks etc. aren't there to attack Ukraine; they're to pen the Ukrainians in while the whole thing collapses.  Have a nice party, Yats.  Enjoy Vicky Noodleman's cooky handouts while they last.  There's a lot of winter left in that part of the world.  Dress accordingly.

Wed, 02/26/2014 - 12:24 | 4480333 general ambivalent
general ambivalent's picture

You're trying to tell me that Angry Birds are fictitious? I just purchased and downloaded the Limited Edition Super-Dove. Do I need to post the inevitable new high score for you to believe in hope?

Wed, 02/26/2014 - 13:10 | 4480564 swmnguy
swmnguy's picture

No, what you need to do is max out all your assets (credit cards, HELOC, PM's) and buy Pogs at Mt. Gox.  Then you've got some Hope worth talking about.

Wed, 02/26/2014 - 20:55 | 4482786 StychoKiller
StychoKiller's picture

The Ukrainians reeeallly need a plan B right about now!

Wed, 02/26/2014 - 12:25 | 4480277 Debugas
Debugas's picture

interesting coincidence

Ukranian Naftogaz (importer and reseller of russian Gazprom natural gas in Ukrain) company authorities report that their safes with the documents have been lost during the night from 24th to 25th of february


among other things it means poeple that worked in the company (maybe even their whole lives) will not be able to prove that they actually did to claim the pensions when they become pensioners

Wed, 02/26/2014 - 20:56 | 4482792 StychoKiller
StychoKiller's picture

Hmm, all right you jerks, coffee time's over, back on yer heads!

Wed, 02/26/2014 - 12:47 | 4480435 Rising Sun
Rising Sun's picture

Russia doesn't give a fuck about lost revenue - Russia is going to apply as much pain to Europe (the importer) as possible.


Nanny state Europe will be at a loss - Russia is much more resilient.


Wed, 02/26/2014 - 16:33 | 4481626 Kirk2NCC1701
Kirk2NCC1701's picture

Again, it comes down to Currency Wars and who is King Fiat.  ALL else is a result of that.  A point that 90% here keep missing.

If Russia wants to mess with the Dollar (stop the creation of New Demand for USTs!), then all it has to do is to keep the EU and Ukraine to trade in non-Dollar currencies.  Note from a recent ZH article** as to who was the major non-US buyer of USTs:  Belgium!  IOW:  "Brussels". 

The US (Fed+MIC) is simply scared shitless/witless of this deadly trend, and needs to act (a) Fast, and (b) Decisively, to Front-Run these scary developments.



Wed, 02/26/2014 - 20:58 | 4482806 StychoKiller
StychoKiller's picture

Methinks that the EU is gonna have to let go of their end of the rope, or keep tugging and have Russia demand new gas contracts, denominated in Au/Ag Tonnes!

Wed, 02/26/2014 - 13:01 | 4480515 NotApplicable
NotApplicable's picture

Surely the ECB will just print more crude?

Wed, 02/26/2014 - 20:59 | 4482811 StychoKiller
StychoKiller's picture

The EU is fighting a tarbaby all right...

Wed, 02/26/2014 - 13:05 | 4480537 Azannoth
Azannoth's picture

Ukrainians are a sub-human-species to the EUcrats, and they will feel it on their skins soon enough how much EUrope cares for them.

Wed, 02/26/2014 - 13:07 | 4480549 Yttrium Gold Ni...
Yttrium Gold Nitrogen's picture

That refinery was halted in 2010, due to a conflict between Lukoil (who was the owner of that refinery until July 2013) and Ukrtransneft, the owner of the pipelines which transported oil to that refinery from Russia. In July 2013, Lukoil sold that refinery to VETEK, a group owned by Sergei Kurchenko, nouveau millionaire, unknown in Ukraine until 2012 (IIRC), presumably with close ties to Yanukovich's family. According to Lukoil, latest delivery of oil to that refinery was delivered by tanker on December, 29th, 2013.

So, this news is no news at all, as Ukraine imports most of its fuel, not crude oil, and almost all refineries are halted, because they are not competitive, as most of them still haven't been upgraded from soviet technology, and are therefore highly inefficient.

Thu, 02/27/2014 - 00:29 | 4483459 Flakmeister
Wed, 02/26/2014 - 13:08 | 4480553 dark pools of soros
dark pools of soros's picture

Hmmm Odessa did seem like the likely port that wold be handed over to the western side even though most there rather say they are Russian..


Odessians pack your bags to Crimea if you want to keep being Ruskie


Wed, 02/26/2014 - 13:20 | 4480614 americanspirit
americanspirit's picture

There are at least 60 days of winter left, so lots of people freezing. Then comes time for spring planting but - oops - no petrol for the tractors. Harness up the wife and get plowing. Hungry? Head on down to the store - sorry, closed. Well at least I can read a book - by candle-light, of course. Hey - democracy is great, and our friends in the EU are on the way. Be here any day now with water, food, fuel and money. What - me worry?

Wed, 02/26/2014 - 21:01 | 4482824 StychoKiller
StychoKiller's picture

Dem broke bitchez in the EU are gonna be too busy burning up their own furniture to keep warm.

Wed, 02/26/2014 - 14:18 | 4480882 Flakmeister
Flakmeister's picture

Sort of an aside.... 

Given the action in NG this week, the BOA guy (and yours truly) is looking pretty good

Wed, 02/26/2014 - 15:06 | 4481181 Flakmeister
Flakmeister's picture

Since we are on a roll, I had to post this, absolute gem posted by Calhoun over at Dawinian's Blog. Enjoy!


Ron made a reference to this article (Wells That Fizzle Are a ‘Potential Show Stopper’ for the Shale Boom) which contains the new meme for the LTO companies — software! Yes, software to the rescue. Here are some choice tidbits.

“The oil patch needs more brain for its brawn.” Hmmm…I see, the problem all along has been too many bulked up geologists who spend their time at the gym instead of studying.

“The reason is enough to give pause to anyone enjoying the benefits of cheap, abundant energy produced in the U.S. “ Oh, man, have I ever been enjoying that cheap abundant energy. Just had a cheap, abundant energy party down in my man cave last week. Woo hoo.

“New wells are fizzling out in their first year, threatening the 3-year-old oil boom.” Dude, did you have to bring me down? Is there an answer? There must be some really really smart people working on this problem.

“The challenge is forging alliances between two groups who previously rarely needed to work eyeball to eyeball — the people who know rocks and the people who poke holes in rocks.” Huh? What the hell are you talking about man? Are you talking about drillers and geologists? WOW! And all this time I thought the drillers and geologists worked together. How could they have missed such an obvious opportunity?

“Halliburton engineer Ron Dusterhoft, who was charged with marshaling a SWAT team of experts to tackle the problem, can now see a solution using artificial intelligence software dubbed Cypher. One Texas well that the team studied for months should have been drilled deeper, at a different slope, to really hit the sweet spot for oil.” Yeah Baby! I love SWAT teams. So these dudes flew in on black helicopters and used artificial intelligence (the best kind of intelligence I’m told) and they hit a sweet spot on one well. Go SWAT, Go SWAT!

“A lot of these wells aren’t performing well because they just haven’t been put in the right place,” he said. So THAT’S why they aren’t performing! Guys, come on! Put down the barbells and start putting the wells in the right spots!

“Just when the nation is hastening its march toward energy independence, the industry is concerned about crummy rock causing shale wells to sputter, some dropping as much as three-quarters of their output in the first year. That forces drillers onto a hamster wheel: They have to drill more wells, faster, to keep production up and satisfy investors, who in turn see costs rising and profits suffering.” Much as I would pay to see drillers forced onto a hamster wheel, I wouldn’t want to do it if it means investors not being satisfied.

The industry has so far been able to live with the decline curve problem because operators have been able to scratch out better initial production in wells, Stark said. “If you don’t have that improvement, then you get stuck after a while and have to drill more and more wells just to stay even,” Stark said. OK, OK, I know this is the big build up. Things are looking bad but there’s an answer, right?

Now, energy companies including Halliburton and Schlumberger Ltd. are realizing they need to buttress their efforts with brains before brawn.

Dusterhoft was charged with assembling a SWAT team of engineers and geologists at Halliburton — something new in shale drilling where the two disciplines traditionally minded their own tasks: geologists found the oil, and engineers figured out how to drill the well.

Understanding the peculiarities of shale rock requires bringing both into the same room for the first time. Yeah, let’s get those geologists and drillers into the same room. Sounds like a start. Why the heck didn’t they think of that before?

Before the hunger for more science and technology, the industry was essentially drilling wells blindly, said Peter Duncan, a former geophysicist at Royal Dutch Shell Plc who founded Microseismic Inc. Operators originally viewed shale rock in the “layer cake” model, thinking all of the rock was the same. Real-world experience showed that’s not the case, he said. Silly operators. I’m getting hungry for more science and technology, how about you?

Commingling the expertise of their scientists through a software program Schlumberger calls “U-ROC” has led to an almost 30 percent increase in production in some wells in the Eagle Ford, Cordes said. U-ROC! I love it! It has a cute name! I want in on some of that U-ROC magic, where do I send my money?

They’re starting to figure it out. Laredo Petroleum Inc. shares doubled in the five months after it talked on a call with investors in May about working with Halliburton on well-spacing and by using a “science-based approach” in West Texas’ Permian basin. Oh Baby, do they ever have it figured out. Shares double after a call to investors? It’s like printing money. It’s better than printing money!

By August, Laredo said it had its best-ever results in the Permian and that it was “among the best” of all peers working there. The well’s success was attributed partly to Laredo’s own internal efforts to pump more time and money into the science of drilling and production, said Ron Hagood, a spokesman at Laredo. And oil company executives never lie or exaggerate, so it must be true. But exactly what does “among the best” mean? And what does “of all the peers working there” mean? And what does “attributed partly” mean? Could you please be a little more specific? No? No way in hell you say? Shut up you say?


Ultimately, Dave Dunlap, chief executive officer at Superior Energy Services Inc., said he doesn’t ever see the decline curve challenge going away entirely.


“We’ve drilled all the good stuff,” he said. “These are very poor quality formations that I don’t believe God intended for us to produce from the source rock.” Man, and I was just starting to feel good. You’re a bummer. And if God didn’t intend us to produce from that rock how come we’re doing it? Are you saying God is wrong?


Wed, 02/26/2014 - 16:21 | 4481534 tickhound
tickhound's picture

Nice takedown from start to finish. You actually highlight a broader fundamental problem. What matters first is money cycles and sequences... As if money is the actual commodity itself. No sort of "peer review", particularly one based on science, at least not initially.

What matters is supporting consumption and the rate of consumption, all else be damned, no matter the social impact, the waste, or how destructive or even eco-genocidal the process to this end may be.

What is never in question is how to bring equilibrium to any of this. Sustainability or balance or preservation aren't "profitable" other than to our overall life system, so we address these issues generally by not addressing them at all. Politics only pretends to "work" the problem... It can't, other than use the topic to fund raise on behalf of itself. No one wants to address the core of causality.

So, inevitably, as God is asked to address the issues by imposing the "guilt" most humans inherently feel... The process just continues to move at greater speeds from one "economic" boost to another... Despite any consequences to our overall well-being.

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