SHELL’S RISKS IN THE ARCTIC – OPINION PIECE FROM A REGULAR CONTRIBUTOR

John

This report is very interesting. It exposes Shell’s risk worldwide, not just in the US. And it discusses the poor record of Gasprom, Shell’s Russian partner. They violated regulatory rules, and had a drilling rig sink, killing over 50 people. It presents a case study of Alaska, and concludes what everyone already knows, Shell underestimates the risk for a major spill and the associated clean up costs. The USGS concludes that there is no method for cleanup of oil in sea ice. So, Shell wouldn’t be able to clean up an oil spill in seas covered with floating sea ice. The report also discusses the $12 bn cost overrun at Sakhalin 2 in 2006. (This appears to be the norm for the company world wide now. Massive cost overruns.)

It is a good report. You might want to post it for your readers.

[PDF] INVESTOR RISK IN SHELL’S ARCTIC EXPLORATION – FairPensions

The estimated reserves for the Burger prospect are 14 tcf of gas, or about 0.4 trillion cubic meters, and around 700 million bbls of gas condensate. This sells for a price somewhat higher than crude oil because it is a ‘naturally refined’ product that is almost market ready. The discovery was made in the 1989 drilling program.

It is clear from the discussion on Sakhalin 2 that Shell’s lost of majority interest cost them many $10’s of billions. (you are not a popular person in the Hague).

It is also clear Shell senior management are not being open and upfront with investors and shareholders about the financial risk they are incurring with these Arctic projects.

Recall Murphy’s Law (which Shell’s major projects recently demonstrate) – If it can happen, it will happen.

I think Shell’s hopes on the Arctic being a big part their long term reserve replacement plans (and financial salvation) are unrealistic given the massive amounts of shale gas and shale oil that are now being discovered and developed onshore around the world.

Arctic gas, in particular, looks to be a poor long term gamble because of all the new ‘cheap’ gas coming on the market. Witness Shell’s sale of its Mackenzie River onshore prospects in Canada. They amounted to almost 1 tcf of gas, and yet the development costs were too high to compete with cheap US shale gas. This would not have been thought a likely scenario 5 years ago.

My advice – Sell your Shell stock, and go by ExxonMobil stock.

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