Saturday, January 18, 2014

Shell Finds Arctic Operations Expensive

Shell’s costs in attempting to drill for oil in the Arctic Ocean were large enough to put a dent in its 2013 profits. The Guardian story has inside information and thoughtful speculation on Shell’s problems:

The costs of a trouble-prone drilling programme in Arctic waters off Alaska have contributed to Shell being forced to issue a shock profit warning . . .

Arctic observers regarded the Shell exploration as inept from the beginning (in 2012). When the initiative launched, Shell’s ships inexplicably arrived north of Alaska weeks late in an area that only offers a few weeks per year of safe operation. Then, the planning and equipment appeared not to have made concessions to the Arctic Ocean climate, which is hostile even in comparison to the North Sea and other more familiar cold-weather offshore drilling sites. Even getting in and out of the Arctic through the Bering Strait proved more difficult than anticipated. People knowledgeable about Arctic conditions are easily found, but Shell was somehow operating on limited or inaccurate information. Yet the poor planning and preparation do not explain the high costs Shell apparently incurred. According to the information coming out of Shell, Arctic operations are simply more expensive than the company had budgeted for. Shell still has not decided if it will return to the Arctic Ocean in 2014. It could easily decide to wait until global oil prices rise.