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Shell’s future in the Arctic looks doubtful

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Published: Dec 23, 2014 at 12:38 pm EST

There is a large question mark on whether Royal Dutch Shell (ADR) (NYSE:RDS.A) will continue a new round of drilling in the Chukchi Sea and the Beufort Sea in the Arctic or not. The company earlier filed a lawsuit against a group of environmentalists to avoid any legal challenges in the future. The lawsuit sparked criticism from authorities and posed several problems for the Dutch oil giant.

Shell acquired the leases in 2008, after receiving approval from the Bureau of Ocean Energy Management (BOEM). But a lawsuit was filed blaming BOEM for taking arbitrary estimates which were not reliable. BOEM as a result revised its assessment and issued a supplementary environmental statement, which revealed that around 4.4 billion barrels of crude oil could be pumped compared to the previous estimate of one billion barrels.

But the boost in production also came with more risk as the revised estimates also proposed that the chances of an oil spill in the region have also increased from 40% to 75%. The revised results came on October 31. The new reports which show increased oil recovery from the region have sparked questions among those speculators who claim that BOEM is colluding with Shell and trying to help approve its exploration programs in 2015.

According to some sources, the alleged collusion between Shell and the Bureau existed even before the environmental statement had been finalized. While BOEM does not have the authority to approve exploration programs, the interior department agency is still allowed to process agency paperwork. Despite the alleged collusion, Shell and the Bureau will face criticism from environmentalists over air pollution issues and could result in more problems for Shell. Moreover, the increased probability of oil spills will also not be favorable for Shell.

Here are several other problems that Shell faces: Crude oil prices have gone down more than 45% since June, the US benchmark for crude oil, West Texas Intermediate, is trading at 56.03, and the global benchmark for crude oil the Brent Crude oil is trading at $60.94. The lower prices pose significant challenges for Shell because the cost of drilling in the Arctic which has severe weather conditions and has high cost of production compared to other regions due to its remote location is much higher.

According to estimates by some analysts, crude oil prices would have to be in the range of $80 per barrel to $90 per barrel in order to allow these companies to break even. Some analysts say that even a price of $110 per barrel would not be enough.

This is why some energy companies like ConocoPhillips (NYSE:COP) and Chevron Corporation (NYSE:CVX) have dropped their plans for drilling in the Arctic region due to strict regulatory requirements and higher cost of production.

Shell has so far spent $6 billion on its operations in the Arctic, the most of any company. Even after spending so much the company has not made significant new discoveries in the region. And with the pressure from environmentalists, the company’s future in the Arctic looks doubtful.

Vice president of Shell in Alaska, Peter Slaiby, has stated that further obstacles could result in Shell’s pulling back, and if this happens, the Arctic region will be deprived of drilling for many years to come.



The Motley Fool: Short, Sharp Shock Could Be Good For Royal Dutch Shell

Imagine the life of a Premiership footballer: however much money you spend, cash just keeps pouring in. It’s been a bit like that for big FTSE-listed oil producers like Royal Dutch Shell in recent years. However wild and extravagant their expenditure — Shell has spent nearly $6bn on its failed Arctic drilling programme — the cash just kept pouring in, thanks to oil’s long run above $100 per barrel. I reckon that the oil industry got too comfortable at $100 per barrel. After all, it was easy money. Soaring costs weren’t a huge problem, except for shareholders, who saw their firms’ profits fall, despite stable revenues. That era of easy money is now over…

OILPRICE.COM: If Shell Backs Out, Arctic Oil Off the Table for Years


The next several months may be pivotal for the future of oil development in the Arctic.

While Russia has proceeded with oil drilling in its Arctic territory, the U.S. has been much slower to do so. The push in the U.S. Arctic has been led by Royal Dutch Shell, a campaign that has been riddled with mistakes, mishaps, and wasted money.

Nearly $6 billion has been spent thus far on Shell’s Arctic program, with little success to date. Now, 2015 could prove to be a make or break year for the Arctic. Shell may make a decision on drilling in the Chukchi and Beaufort Seas by March 2015. If it declines to continue to pour money into the far north, it may indefinitely put Arctic oil development on ice (pun intended).

FuelFix Article: Shell collaborating with regulators over Arctic drilling


WASHINGTON — Newly released documents suggest federal regulators are collaborating closely with Shell as the company pursues a new round of Arctic drilling next summer, even though an underlying sale of the region’s oil leases is still in legal limbo. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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