Royal Dutch Shell Arctic Assessment Understated, Say Environmental Groups

Royal Dutch Shell Arctic Assessment Understated, Say Environmental Groups

Bidness Etc discusses why environmental groups want Shell to reassess the risks for drilling in the Arctic, and that the previous report undermined the drilling risks involved

By: MICHEAL KAUFMAN: Apr 28, 2015

Major oil companies to safeguard themselves from the lower crude oil prices are cutting back on investments and spending. Royal Dutch Shell plc (ADR) (NYSE:RDS.A) is no different and is planning to undertake similar spending plans when it announces earnings on Thursday.

Cuts in capital spending are vital for Shell. Shell recently acquired BG Group plc (ADR) (OTCMKTS:BRGYY) for $70 billion. In addition, the company plans on spending $1 billion for drilling in the Alaskan Arctic. These investments mean that the company would need to make substantial cuts in order to sustain a favorable cash position.

As reported by the Wall Street Journal, according to the poll of ten analysts at Dow Jones Newswires, Shell’s earnings from the last quarter are expected to be 60% lower compared from the same period last year. The analysts expect a 7% decline in the company’s production.

The deal with BG would strengthen Shell’s position as a global LNG producer. In addition, the acquisition would give Shell an access to BG’s assets in Brazil, East Africa, and Australia. If Shell’s deal with BG closes then it is expected to sell $30 billion worth of assets.

Although Shell executives have indicated that its Arctic prospects would not be impacted by the merger, it faces a lot of opposition from the environmentalists. Two environmental groups, namely, Oceana and Abrams Environmental Law Clinic at the University of Chicago Law School, sent a report to the US Securities and Exchange Commission claiming that the company has understated the risks of working in the Arctic.

The environmentalists have pointed out the fact that if a spill were to incur in the area, it would be difficult to treat the spill. Though Shell has indicated the risks of an oil spill in the area, the report by Oceana has shown that Statoil ASA(ADR) (NYSE:STO) has given more detail regarding the risks involved in Arctic exploration.

The letter disclosed by Oceana states: “Shell has improperly failed to disclose the amount or nature of its potential liabilities.”

Oceana further pointed out that due to the significant risks present for Arctic Drilling, oil companies should quit operating in the area. In response, Shell has indicated that it satisfies all relevant reporting requirements.

Although the costs of production for operating in the Arctic are high, there are many advantages for operating in the area. The Arctic region has huge oil reserves which if tapped effectively could help the company sustain production.

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