Shell to revive plans to drill in the Arctic

2015-01-30 08:36
(File, AFP)

(File, AFP)

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London - Royal Dutch Shell plans to resume drilling in Alaska this year even as it plans to cut spending by $15bn over the next three years because of the drop in oil prices.

Chief executive officer Ben van Beurden said the Western Chukchi Sea had the potential to produce billions of barrels of oil.

"We're planning on drilling in Alaska in 2015 subject to getting the permits and legal clearance," van Beurden said on a conference call with reporters.

The company, which suspended operations in Alaska in 2013 after one of its oil rigs ran aground, plans to spend about $1 billion in Alaska this year, even as it holds global capital investment at 2014 levels.

"We always said we were going to just pause the programme. And we paused it last year and the year before," van Beurden told the BBC.

"But at the same time we didn't abandon all the infrastructure, logistics that we had in place because you cannot, for such a complex and large operation, just scale down and scale up whenever you want. So we have been preparing all this while for an eventual return to this year."

Environmentalists criticised Shell for resuming operations in Alaska even as it cuts spending elsewhere.

"Shell is taking a massive risk, doggedly chasing oil in the Arctic, not just with shareholder value but with the pristine Arctic environment," Charlie Kronick, a campaigner at Greenpeace, said in a statement.

"A spill there will be environmentally and financially catastrophic. It's time for investors to recognise that it's impossible for Shell to justify its continued pursuit of offshore Arctic oil."

Oil prices

The pledge to drill comes even as the company said it would hold the line on spending. Shell is the first major energy company to report earnings, so its quarterly update was watched for hints on the performance of the wider industry.

Europe's largest oil company by market value said fourth quarter net income fell 57% to $773m due to the steep decline in oil prices. The price of Brent crude, an international variety of oil, dropped about 50% last year.

Not counting the impact of changes in the oil price on inventory, the company said its quarterly earnings rose 93% to $4.2bn.

Van Beurden said efforts to balance growth and returns had positioned the company to handle the decline in oil prices. While lower oil prices and divestments last year are likely to reduce cash flow in 2015, the company must be careful not to "over-react."

Shell plans to cap spending at 2014 levels and may "further reduce spending should market conditions warrant that step," van Beurden said in a statement.

Shell abandoned plans to spend $6.5bn on a petrochemical plant in Qatar. The company, which employs 90 000 people in 70 countries, said the cost of the plant was not commercially feasible in the current economic climate.

Shell shares fell 4.3% in London trading as earnings missed analyst estimates.

"The numbers are below forecast, with the news providing a difficult start to the oil majors' results season," said Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers, who nonetheless noted the company's determination to respond.

The company is one of the most widely held stocks on the London FTSE stock index — prized for its reliability in producing dividends. Analysts note that van Beurden described the dividend as being iconic, and seem willing to look past disappointing results as long as that remains core.

"The big question is whether this dividend is safe in this new environment," said Garry White, the chief investment correspondent at Charles Stanley.

Shell drilled Alaska's first offshore oil wells in 1963. The company halted exploration in 1991 to focus on the Gulf of Mexico, but acquired a number of leases in the Beaufort Sea in 2005 and in the Chukchi Sea in 2008.

Read more on:    shell  |  alaska  |  environment

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