Shell Pulls Out of Arctic Exploration

The Arctic gamble isn’t quite working out as expected for Shell. Lured in by the same optimism and promise of untapped natural resources that has captivated many other international players in government, business and the maritime industry, the company has shelled out billions of dollars and faced down negative public opinion and confrontational environmental groups to fight for its place in the region. But late this September, their Arctic adventure comes to an end, with the announcement that they would be ceasing oil exploration activities for the foreseeable future.

 Risk vs. Reward. Pressure to cease Arctic drilling can come from several fronts. Conservationists, for example, fear detrimental effects of incidents like oil spills to an otherwise pristine environment (see related article, “Rough Weather ‘Kicks Out’ Greenpeace Activists”) – this could lead to lawsuits and its associated costs, on top of project delays. Some shareholders may also fear the high costs of the project, especially given the risks involved and even as oil prices fall. Others yet feel uncertain about the future of federal regulations in the region.

Many business ventures have risks, of course, but these have to be weighed alongside opportunities. Even the biggest risks could be justified by the promise of greater success in the future. Unfortunately for Shell, they found that oil and gas indicators in their exploratory well did not merit further exploration. They primarily cite the technical results in their decision to pull out, though analysts say the other risk factors may have also impacted the company’s direction in the Arctic.

The financial hit the company might take from this ultimately unproductive endeavor could be in the $4 billion range. Shell backing down is not a first for the Arctic. Statoil of Norway postponed its Arctic project earlier this 2015, and in 2012, Gazprom, Total and Statoil had also ceased projects in the Barents Sea. ConocoPhillips has also delayed action on their drilling rights off the coast of Alaska, and postponements have also been seen from Chevron and Rosneft.

Is it fair then, to say that the so-called “Cold Rush” ushered in by greater accessibility to the Arctic regions waning? Even with the project suspensions and the high costs and risks, the answer might still be ‘no’ in the long run. The Arctic, after all, is still believed to hold 20% of the planet’s untapped resources, and there are still many things that could change with the climate, government regulations, and oil prices, that could affect how businesses weigh the risks and rewards of returning here in the future.

For more articles on oil, the marine environment, and other topics related to the maritime industry, check out Kemplon Engineering’s blog. We endeavor to keep it updated and full of content that would be interesting to our marine and industrial customers.

To learn more about us and the engineering services we provide – including welding and fabrication, precision machining, pipe fitting, laser cutting, and more – explore our website, or contact us for queries and quotes at info@kemplon.com, or by phone at (877) 522-6526. We have been in business since 2005, and would love the opportunity to work with you on your projects and ideas.

References

Barnato, Katy. “‘Last man standing’: Why Shell axed its Arctic push.” CNBC, 29 Sep 2015. Web. 05 Oct 2015. http://www.cnbc.com/2015/09/29/why-last-man-standing-shell-axed-its-arctic-push.html

Montgomery, Scott L. “What Shell’s latest move says about Arctic drilling myths.” Fortune, 01 Oct 2015. Web. 05 Oct 2015. http://fortune.com/2015/10/01/shell-arctic-oil-drilling-myths/

“Shell Stops Alaska Oil Drilling.” World Maritime News, 28 Sep 2015. Web.05 Oct 2015. https://worldmaritimenews.com/archives/172519/shell-stops-alaska-oil-drilling/

“Shell Withdraws from Arctic Exploration.” MarineLink.com, 28 Sep 2015. Web. 05 Oct 2015. http://www.marinelink.com/news/exploration-withdraws398516.aspx

Smith, Geoffrey. “Shell abandons Arctic drilling after poor test results.” Fortune, 28 Sep 2015. Web. 05 Oct 2015. http://fortune.com/2015/09/28/shell-abandons-arctic-drilling-after-poor-test-results/

 Image “Dollar On Sea” courtesy of Stuart Miles at FreeDigitalPhotos.net