As per media reports, Royal Dutch Shell plc RDS.A will start drilling for oil in the Arctic Ocean this month. Over the last two years, the integrated energy major has spent almost $3 billion for the contentious operation with expectations that the area has large reserves of undiscovered oil and gas.
Meanwhile, Shell officials stated that a fleet of 30 vessels which comprise large drilling rigs like Polar Pioneer and Noble Discoverer are getting prepared for the Arctic project. Initially two wells – located 40 meters under water in the Chukchi Sea off Alaskan coast − will be drilled. Depending on the findings from these wells, further exploratory operations will be carried on.
Shareholders and investors might question the feasibility of Shell’s expensive Arctic operation especially when the business scenario is not quite favorable with low oil prices. Shell is also facing strong opposition from the majority of environmentalists. Owing to these adverse factors, U.S. energy giant Chevron Corporation CVX has shelved its Arctic drilling plans. Moreover, companies owning leasing rights in the area like ConocoPhillips COP and Statoil ASA STO have no immediate plans of drilling.
However, Shell is willing to go ahead with the project as it believes that the Arctic region has huge undiscovered oil and gas reserves. In fact, many analysts opine that the area might possess more than 20% of the world’s remaining undiscovered reserves.
If the project begins per schedule, Shell is expected to initiate commercially viable Arctic oil production by 2030. By then, crude prices may also recover but again that is difficult to predict.
Currently, Shell − having diversified development projects − carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment