• 11 hours Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 11 hours Oil Gains Spur Growth In Canada’s Oil Cities
  • 12 hours China To Take 5% Of Rosneft’s Output In New Deal
  • 13 hours UAE Oil Giant Seeks Partnership For Possible IPO
  • 13 hours Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 14 hours VW Fails To Secure Critical Commodity For EVs
  • 15 hours Enbridge Pipeline Expansion Finally Approved
  • 16 hours Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 17 hours OPEC Oil Deal Compliance Falls To 86%
  • 1 day U.S. Oil Production To Increase in November As Rig Count Falls
  • 1 day Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 2 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 2 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 2 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 2 days Aramco Says No Plans To Shelve IPO
  • 4 days Trump Passes Iran Nuclear Deal Back to Congress
  • 4 days Texas Shutters More Coal-Fired Plants
  • 5 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 5 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 5 days Chevron Quits Australian Deepwater Oil Exploration
  • 5 days Europe Braces For End Of Iran Nuclear Deal
  • 5 days Renewable Energy Startup Powering Native American Protest Camp
  • 5 days Husky Energy Set To Restart Pipeline
  • 5 days Russia, Morocco Sign String Of Energy And Military Deals
  • 5 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 6 days China Set To Continue Crude Oil Buying Spree, IEA Says
  • 6 days India Needs Help To Boost Oil Production
  • 6 days Shell Buys One Of Europe’s Largest EV Charging Networks
  • 6 days Oil Throwback: BP Is Bringing Back The Amoco Brand
  • 6 days Libyan Oil Output Covers 25% Of 2017 Budget Needs
  • 6 days District Judge Rules Dakota Access Can Continue Operating
  • 6 days Surprise Oil Inventory Build Shocks Markets
  • 7 days France’s Biggest Listed Bank To Stop Funding Shale, Oil Sands Projects
  • 7 days Syria’s Kurds Aim To Control Oil-Rich Areas
  • 7 days Chinese Teapots Create $5B JV To Compete With State Firms
  • 7 days Oil M&A Deals Set To Rise
  • 7 days South Sudan Tightens Oil Industry Security
  • 7 days Over 1 Million Bpd Remain Offline In Gulf Of Mexico
  • 7 days Turkmenistan To Spend $93-Billion On Oil And Gas Sector
  • 7 days Indian Hydrocarbon Projects Get $300 Billion Boost Over 10 Years
Alt Text

Is The Aramco IPO On The Brink Of Collapse?

Conflicting news suggests that Saudi…

Alt Text

Who Are The Biggest Buyers Of U.S. Oil?

Exports of U.S. petroleum and…

Alt Text

Draw In Crude Inventories Lifts Oil Prices

Oil prices reversed course on…

If Shell Backs Out, Arctic Oil Off the Table for Years

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).

The crossroads comes at an awful time for Shell. Oil prices, hovering around $60 per barrel, are far too low to justify Arctic investments. To be sure, offshore drilling depends on long-term fundamentals – any oil from the Arctic wouldn’t begin flowing from wells until several years from now. That means that weak prices in the short-term shouldn’t affect major investment decisions.

Related: Is The Arctic Dream Dead?

Unfortunately, they often do. Just this week Chevron put its Arctic plans on hold “indefinitely,” citing “the level of economic uncertainty in the industry.” Chevron had spent $103 million on a tract in the Beaufort Sea in Canadian waters, but weak oil prices have Chevron narrowing its aspirations.

This development is illustrative of the predicament facing major oil companies. They need to spend billions of dollars now to realize oil output sometime next decade. However, they also must conserve cash in the interim. Oil companies across the world are slashing spending in order to shore up profitability.

And Arctic oil is expensive oil, some of the most expensive in the world. It is on the upper end of where prices need to be in order to be profitable. By some estimates, oil prices would need to be in the range of $80 to $90 per barrel for Arctic oil to breakeven; other estimates say as high as $110 per barrel.

That means that even before the oil price drop, Arctic oil development looked tenuous. Statoil and ConocoPhillips had already scrapped their plans to drill in the Arctic, even when oil prices were nearly double where they are now, because of high costs. And when oil prices drop, these marginal projects get the ax.

Shell is now the only one left standing, still mulling its next move. Shell’s CFO said during a conference call on October 30 that the company is “planning and hoping” to drill in the Arctic in 2015.

Despite Shell’s perseverance, it is facing some significant obstacles, several of which, are out of the company’s control.

Shell is awaiting a court decision on the 2012 approval by the federal government of Shell’s oil spill response plan, which environmental groups have sued to invalidate. There are other regulatory hurdles as well. The Bureau of Ocean Energy Management still has to approve Shell’s drilling plans. And BOEM also has to finalize the revised environmental assessment, one that revised upwards the chances of an oil spill, potentially complicating regulatory approvals. These events must be completed before Shell can begin drilling.

Related: Shell Needs Five More Years In The Arctic

The bureaucratic mess threatens to push Shell’s development plans past the expiration date for many of its leases. Seeing the writing on the wall, Shell earlier this year asked for a five-year extension on its leases, many of which begin expiring in 2017.

“Despite Shell’s best efforts and demonstrated diligence, circumstances beyond Shell’s control have prevented, and are continuing to prevent, Shell from completing even the first exploration well in either area,” Shell’s Vice President in Alaska, Peter Slaiby, wrote in a letter to regulators on July 10, 2014.

The obstacles are piling up.

According to Platts, a decision on whether or not Shell plans to proceed with drilling in 2015 will be made by March. And if they turn their back on drilling, it could mean closing the doors on the Arctic for years to come.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News