September 18, 2014
Oceana Magazine: Arctic Assets
Earlier this year, Oceana released a report, “Frozen Future: Shell’s ongoing gamble in the U.S. Arctic,” that detailed Royal Dutch Shell’s involvement with Arctic offshore drilling. This magazine feature takes a close look at this report, and asks ten questions investors should be asking to determine if drilling in the Arctic is best for shareholders. This article was originally published in the summer 2014 issue of Oceana magazine.
Arctic Assets
A new Oceana report helps shareholders assess Arctic drilling.
These days, savvy energy investors need to brush up on their science. Royal Dutch Shell remains committed to risky oil and gas exploration in the U.S. Arctic Ocean, despite a series of setbacks. The company’s well-documented failures to mitigate risk, oversee contractors, and comply with the law have contributed to growing skepticism among investors and shareholders about the operational and economic feasibility of offshore Arctic drilling. With high risks and uncertain returns, it’s time for investors to examine whether trying to drill in the Arctic is in the shareholder’s best interest.
To help ask the right questions, Oceana released “Frozen Future: Shell’s Ongoing Gamble in the U.S. Arctic.” This report details the company’s investments, risks to the environment and company from Arctic drilling, and the history of Shell’s failed efforts in the U.S. Arctic Ocean. It also contains a list of questions that investors can use to assess whether Shell has adequately weighed the various risks vs. returns of Arctic offshore drilling.
So, if your stock portfolio includes a few shares of RDS-A, you should ask Shell these 10 questions before placing another stock order.
Economic Risk
1. What is the company’s anticipated total capital expenditure for the lifetime of the company’s offshore U.S. Arctic projects?
2. When does Shell expect any of its offshore U.S. Arctic projects to begin extraction?
3. What is Shell’s assumed break-even oil price for U.S. Arctic projects?
Litigation Risk
4. Did Shell anticipate the Ninth Court of Appeals ruling upholding a challenge to the supplemental environmental assessment? And who at a senior management level is overseeing potential legal threats to Shell’s Arctic plans?
Spill Risk
5. Has the company carried out an analysis of the environmental and financial worst case spill scenario and, if so, will it be publicly available?
6. Given that in previous large spills, mechanical recovery has only resulted in removal of 3 to 8 percent of a spill, what is the basis for Shell’s assumption that it would capture half of the oil at the surface in a worst case scenario?
7. Given the remoteness of the Chukchi Sea drilling sites — the lack of an airport with jet capacity and access to a major road system within a radius of several hundred miles, the distance of approximately 1,000 miles to the nearest U.S. Coast Guard station, and the lack of accommodation for responders to a spill — what are Shell’s specific plans for managing the logistics of a response to a major spill?
Management Risk
8. Cost overruns are typical for Arctic oil and gas projects with long lead times. What is Shell doing to avoid this given Shell’s experience with Sakhalin II, where costs more than doubled?
9. What steps or procedures has Shell adopted to ensure that similar problems to those that occurred with the towing of the Kulluk will not be repeated in the future? Regulatory Risk
10. What impact would a reduction in subsidies and fiscal incentives currently available to the company have on its U.S. Arctic operations?
Read the full Frozen Future report here, including the complete list of 35 investor questions.
This work was funded by a grant from the 444S Foundation.