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Why Do Investors Put Up With Oil and Gas Madness?

Screen Shot 2013-11-01 at 09.31.18Royal Dutch Shell just announced that it had a terrible 2013, but management wants to assure you that this year will be better. Shell announced that it was backing away from its absurd plans to return to Alaska’s Chukchi Sea to revive its Arctic drilling activities. That’s good, because watching Shell try to get back to the Chukchi was like watching a train wreck in slow motion. It was a comedy of errors, and cutting its losses was the only possible call for Shell to make.

Royal Dutch Shell just announced that it had a terrible 2013, but management wants to assure you that this year will be better.

Shell announced that it was backing away from its absurd plans to return to Alaska’s Chukchi Sea to revive its Arctic drilling activities. That’s good, because watching Shell try to get back to the Chukchi was like watching a train wreck in slow motion. It was a comedy of errors, and cutting its losses was the only possible call for Shell to make.

Ben Van Beuren, Shell’s new CEO, said the company planned in 2014 to focus more on profitability, rather than on increasing oil and gas output. That’s welcome news, especially since Shell had a reserve replacement ratio of 131% in 2013, which means the company has a strong asset base to support it. Van Beuren said that Shell would work to enhance capital efficiency in 2014, with “hard choices on new projects, reduced growth investment, and more asset sales.”

ExxonMobil and Chevron had disappointing results, too..

All three companies are pushing ahead with other megaprojects that smack of desperation. Here’s a little taste:

  • The Gorgon: If you’re picturing some freaky, snake-headed sisters turning onlookers to stone, well, that wouldn’t be far off. The Gorgon is a 15 million-ton-per-year liquefied natural gas plant on Australia’s Barrow Island. Chevron owns 47%, and Shell and ExxonMobil own about a quarter each. Its cost overruns are the stuff of nightmares. The project is 75% completed, and more than 45% over budget.
  • Caspian Islands: Exxon and Shell are part of a consortium that aims to pump oil from man-made islands in the Caspian Sea. The project could cost $40 billion, where it was originally budgeted for $10 billion.

FULL ARTICLE

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