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With Shell's Failure, U.S. Arctic Drilling Is Dead
Submitted by Nick Cunningham via OilPrice.com,
Arctic Drilling in the U.S. is dead.
After more than eight years of planning and drilling, costing more than $7 billion, Royal Dutch Shell announced that it is shutting down its plans to drill for oil in the Arctic. The bombshell announcement dooms any chance of offshore oil development in the U.S. Arctic for years.
Shell said that it had completed its exploration well that it was drilling this summer, a well drilled at 6,800 feet of depth called the Burger J. Shell was focusing on the Burger prospect, located off the northwest coast of Alaska in the Chukchi Sea, which it thought could hold a massive volume of oil.
On September 28, the company announced that it had “found indications of oil and gas in the Burger J well, but these are not sufficient to warrant further exploration in the Burger prospect. The well will be sealed and abandoned in accordance with U.S. regulations.”
After the disappointing results, Shell will not try again. “Shell will now cease further exploration activity in offshore Alaska for the foreseeable future.” The company cited both the poor results from its highly touted Burger J well, but also the extraordinarily high costs of Arctic drilling, as well as the “unpredictable federal regulatory environment in offshore Alaska.”
Shell will have to take a big write-down, with charges of at least $3 billion, plus another $1.1 billion in contracts it had with rigs and supplies.
Shell’s Arctic campaign was an utter failure. It spent $7 billion over the better part of a decade, including an initial $2.1 billion just to purchase the leases from the U.S. government back in 2008. The campaign was riddled with mishaps, equipment failures, permit violations, and stiff opposition from environmental groups, including the blockading of their icebreaker in a port in Portland, OR this past summer. The FT reports that Shell executives privately admit that the environmental protests damaged the company’s reputation and had a larger impact than they had anticipated.
However, low oil prices were the nail in the coffin for the ill-fated Arctic drilling program. Oil from the Chukchi Sea is far from profitable when oil prices are at $50 per barrel. The costs to drill are exceptional, with unique challenges that aren’t found elsewhere. Drillers have to avoid sea ice. Offshore Alaska occasionally experiences hurricane-force winds (Shell had to briefly pause this summer’s drilling because of bad weather). The drilling season is short, with federal guidelines only allowing drilling for a few months out of the year. Even worse, there is inadequate infrastructure – the closes deep-water port is 1,000 miles away.
All of this made it absolutely crucial that the company found vast volumes of recoverable oil. Even a sizable find wouldn’t be enough; Shell needed billions of barrels of oil. Justifying his decision to move forward to skeptical investors, Shell’s CEO Ben van Beurden said in July that its target in the Arctic “has the potential to be multiple times larger than the largest prospects in the U.S. Gulf of Mexico, so it’s huge.” It could have been 10 times what Shell has cumulatively produced in the North Sea to date.
In the end, it apparently isn’t enough. “[T]his is a clearly disappointing exploration outcome,” Marvin Odum, Director of Shell Upstream Americas, said in a statement. To wary shareholders, the more than $4 billion in potential write-downs might be a price they are willing to pay to get the company out of the loss-making Arctic.
Other companies had been eyeing the Arctic, including Statoil and ConocoPhillips. Both companies also bought leases to offshore tracts, but they had been taking a more cautious approach. They previously put their Arctic work on hold, waiting to see the results of Shell’s efforts. Now that Shell has spent billions of dollars and has come up empty, the chance of them moving forward at any point in the next few years is essentially zero.
“Hopefully, this means that we are done with oil companies gambling with the Arctic Ocean, and we can celebrate the news that the Arctic Ocean will be safe for the foreseeable future,” Lois Epstein of The Wilderness Society, said in response to Shell’s announcement.
To be sure, there are other drilling projects in the Arctic elsewhere around the world. Italian oil company Eni is expected to bring a well online in the Barents Sea in the near future, which could produce around 100,000 barrels per day. Gazprom is also producing from one site in the Arctic. The Prirazlomnoye produced just a few thousand barrels per day in 2014, although Gazprom is slowly ramping up production. Meanwhile, it is looking increasingly likely that Russia’s Rosneft won’t return to exploration in the Arctic until the 2020s. Last year, the Russian firm made a discovery with ExxonMobil, but western sanctions forced Exxon to pull out.
Shell had not expected first oil to come online until 2030 at the earliest. But, at this point, even that looks optimistic. For now, oil development in the U.S. Arctic appears to be dead.
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I bet if oil goes to $75...they will remember where they didn't "find" any oil. There is no law saying they have to tell you anything
You mean they might have <gulp>.... lied?
Surely not. Tobacco companies might lie, but not a big oil company. No way.
There are laws that say they cannot lie in public disclosures, just as there are laws that say US companies cannot bribe foreign officials. But to paraphrase the Queen of Mean and Hitlery- Laws are for little people. Big oil isn't little people, and they routinely break laws without consequence. Membership in the club has its privileges.
The price better go back up before those leases expire or Shell may not be able to cash in the return of their memory. In fact, $75 may not be enough to turn a profit up there.
Um, I had no idea Shell did such short term leases ... WTF were they thinking ... ?
(SOURCE) http://www.eenews.net/stories/1060024647
Regards,
Cooter
EDIT: The leases were dated back to 2008 and expire in 5 years, so they just ran out of time as the market turned against them.
Limitations on resource leases, like limitations on mining claims, are made to encourage exploration and exploitation--NOW. Otherwise, anyone could purchase the leass or file the claim and just sit on the resource. There's nothing unusual at all about short resource leases.
Peak oil production is when prices crash. Becuase nobody wants to burn these toxic, earth-warming dinosaur fossils anymore. Remember me in 20 years.
This is no good. How will the enviro-nazis sell their agenda of dead Polar Bears and baby Harp Seals now?
Simple: More cartoons of drowning polar bears to mentally scar the children. It's proven successful thus far.
Now I need a hug and a cuddly room.
going to side with the nazis on this one. the worst thing that could have possible happened to the arctic was if shell found copious oil up there. guaranteed disaster. inevitable unmitigated clusterfuck. this from an oiled upbringing.
Yeah, good thing oil appears as if by magic at our gas pumps, with no potential risks whatsoever.
i'm guessing that i know that way better than you
damn, with global warming I thought those waters off Nome are the next cabo or honeymoon bay? can't have oil rigs screwing with my beach views. according to AGW posters here any ice up there is only in my margarita.
+1 the ice is transitory lulz
?? Eviro wise ?
You are aware that the Soros socialists use the enviroment as a political weapon right ?
Funny how the US's main reason for purchasing Alaska was for energy reserves. Yet internal politics keeps it from getting the low hanging fruit in Anwar.
i hate that frikken soros and in no wise am i an agw wacko
Agree. I still think the Russians will try - and create a huge environmental disaster up there sooner or later.
There are some really great seal-clubbing photos online (if you want one for a screensaver).
Polar bears are mean, nasty creatures. Oh sure, they look all nice and cuddly from afar. But those bastards will eat you in two bites, leaving your private parts for their Cubs.
I hate polar bears. Especially those fucking Coca-cola polar bears.
"Shell had not expected first oil to come online until 2030"
Translation: Shell realized WW3 would wipe out humanity well before 2030.
or
Translation: Shell realized Social Security would be wiped out before 2030 and America's demand for oil would plummet.
Build Keystone XL! LOL...
meanwhile, the Russians discovered new islands in the arcitc recently and continue to develop new tech to get all sorts of shit out of the ground.
http://maritime-executive.com/article/russia-discovers-nine-arctic-islands
oh the sanctions have fucked them short term
http://maritime-executive.com/editorials/op-ed-the-week-in-review-russia
But the longer term is a very different story - with or without Geman, Nrowegian and/or Chinese help.
Didn't some commenter on ZH say the cost of extracting oil was practically zero?
It is.
All costs are passed on to the consumer.
If the company goes bankrupt all costs are passed off to the taxpayers.
TBTF.
Interesting point. Wrong, but interesting. I have a perpetual motion machine I want to sell. Interested?
Sub $50 oil isn't the culprit. there is still money to be made at that price. Your reason is right here:
The drilling season is short, with federal guidelines only allowing drilling for a few months out of the year.
Are you going to spend billions of dollars to mothball your operations for most of the year?
We should of already ran out of oil based on crisis actors.
There is the potential for lots of oil on Mars, if we accept the notion that 2 billion years ago Mars sustained great varieties of life.
Just sayin'
Volunteer to explore. Don't expect us to send you back home. During your travel, jump on a astroid to give us the percentage of carbon extraction based in cubic meters.
Obama is looking at taxing via interspace transportation
What is the Temperature of Mars? - Space.com. He always forgets to thank the taxpayers support. Without robbery, he wouldn't have a dime to spare.
But water is more valuable than oil on Mars.
Soon on Earth too, a gift from Fuckushima.
Having explored about ten square miles of Mars, we have no idea what is there. Of course the aliens have been mining He3 on the moon for centuries, so we know to stay away from that.
Some say oil is a-biotic.
OT:
Any notice how quiet the whole Budget Debate is lately?
Usually, when things are quiet, that is when one should be concerned.
Shit, shat, Shelled...!
We came, we saw and IT died!
Drilling ice core samples doesn't pay the bills.
I'm currently playing the world's tiniest violin, just for the oil addicts.
Another $7 billion down the drain. Gee, that couldn't have been spent trying to develop alternatives to oil, could it have?
No. Not in 'Merka. Now watch this drive.
And history repeats: look up the Mukluk project from the 1980's.
Short version: six or seven oil companies (I was working for Texaco at the time) went together to explore a prospect in north Alaska. The geologists were certain that oil was there, the sonics showed a classic oil trap formation under a couple hundred feet of water. They had to haul in enough gravel to build an island to drill from; millions were spent just to get ready to drill.
The geologists were right, sort of; there were traces of oil in the formation, but the cap rock had cracked, and the oil flowed out, probably thousands of years previously. All that money, down the drain; nobody ever said that oil exploration was a perfect thing.
Shell: "The increasing ice in the Arctic will make future drilling operations unfeasible."
Nailed it.
shh! Not suppose to talk about that damnit!
http://motherboard.vice.com/blog/russian-oil-behemoth-rosneft-has-unlock...
You know that it was the Russians that drilled through to that Antarctic lake, right?
Anyway - what increasing ice?
http://nsidc.org/arcticseaicenews/
spare me the global warming political yammering which people who aren't scientists, let alone climate scientists love to engage in - facts are facts - there's less ice over the surface than 20 years ago.
That parts of say the greenland ice sheet is thicker has fuck all to do with ice around the siberian islands.
I know this because Tyler knows this.
What better way for Shell to put other drillers 'on hold'. Seriously, with today's oil exploration and location finding technology - there is no way they would sink billions into this and come up with a dry hole. They saw oil long before they spent money on the rig. Watch to see if they abandon or sell their lease. Better yet - offer them $100 for their lease. If they accept, then it's a dry hole. If not...
Putin strikes again - somehow ALL the oil in the Arctic is in Russian territory!
Fracking is simply drawing blood from a turnip. How much oil can you extract from your Pet Rock?
There is plenty of oil up there. it is just going to cost more than $60 a barrel to extract. Even if Shell had a free hand (which they absolutely don't) it wouldn't be viable at current prices, with the EPA's restrictions, they probably need in the $80-90 per barrel range just to break even. Their losses thusfar on the whole fiasco are in excess of 9 billion, not 7.
Good. Let's keep bleeding the ME of it at $40/bbl. Suck it dry sooner so that we leave that fucking place alone.
Petrodollar recycling
Recycling Petrodollars - Federal Reserve Bank of New York
why leave it alone? Do you plan on living there?
Amen
It makes no fucking sense..The oil companies could cut their production by only 10%,and oil prces would double,overnight.Something here doesn't pass the smell test,and it aint me...
yes drilling offshore in the ocean above 50' is a good idea?
apparently most people here don't understand how unbelievably punishing the ocean and atmosphere are at high latitudes.
drilling up there is just purely stupid with current technology. once we have everything unmanned, the equation changes...
Or Shell's decision interpreted another way.
Shell is convinced environmental conditions, like more ice and snow, are going to deteriorate in the future.
Refusal to cut production is based almost entirely on the premise that Russia will suffer most. Iran situation is a little cloudier. I believe there's been a side agreement between Iran/US regarding pricing and supply which is likely a stealthy inclusion (wink wink) into the nuke agreement. Cheap supply to US and allowing for partial sales (gold ) and barter (food)
US is willing to sacrifice shale. Big Oil got the heads up.
Saudis are shitting their pants right now and US will bargain from a position of strength.
Trump is correct. Let Russians deal with Syria. We'll make nice with Iran and protect those Saudi pussies cause it's in our interest. AND it slows Russias opportunities w/ Saudi.
The Saudis will be history within twenty years, so we'd BETTER nice up to somebody else with a steady suppy of black gunk. The monarchy is tottering and probably won't survive transition from the sons of Ibn Saud to the grandsons.
The light bulb came on after $7 Billion down the drain.
Screw the oil then (until prices rise to $80) but please tow some of the ice down to California right away. Thanks.
Let's take a looksie. The U.S. completely folds in Syria thus essentially walking away looking as foolish, childish, and ridiculous as Obozo and Bieber snuggling each other taking a selfie. Why did they throw in the towel? Why did Boehner "resign"? Why did the Chairman of the Joint Cheifs "resign"? Now we see more evidence of drilling in the U.S. or thereabouts ceasing along with what is well known to ZHers that the "Shale Oil Miracle" is long gone. Why? They are just gonna give up like that? It sure looks to me like something is changing within the power structure of those pulling the strings globally from behind the scenes.
Perhaps, and I'm aware of the risk of being too optimistic, but perhaps maybe there is progress being made towards eliminating the Cabal. Fed's been handcuffed aside from jawboning for a year now. No changes to the debt limit because it doesn't mean jack shit anyways. Potentially more cooperation with regions that truly can supply more oil at the lowest cost. I don't see the Bankster Cabal just giving up voluntarily so just maybe they are being forced to do so.
Tried to start a war in the Ukraine and in Syria. Failed miserably on both accounts. AIIB and alterantives to SWIFT being lined up not to mention a warmer attitude towards Bitcoin. This is all just a coincidence, right?
Putin is the one that is crying right now..he thinks there is a bunch of oil up there for Russia..looks like it might be a big dry hole...a very big and expensive dry hole ...
got a lot of experience with big and expensive dry holes, handsome?
You shouldn't talk about his wife that way.
OH, Yeah, Russia has 11 time zone and there isn't any oil anywhere else.
simple
no
opec
no
profit
They aren't going after expensive oil while oil is dirt cheap? No shit, Sherlock.
Was this a Shell game all along then?
CANADA owns the Arctic, BuckO.
Stay out, America, or else!
The local BP station on Spanish River Rd is offering 87 octane at $2.46 in Boca Raton, Fl. Competitive BP licensed stations are selling gas @ $2.09. That's definitely a Jew owned station.
/truth, i'll take a picture tomorrow.
long TSLA