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May 24, 2012
Investors Warned to Question Shell's Plans for Arctic
by Robert Kropp
Citing the likelihood that control of a spill in ice-covered waters will fail, and outlining
Shell's poor track record in the Russian Far East, Greenpeace advises investors to ask hard
questions about the risks to the company's financial health.
A new report from
Greenpeace focuses on the risks to investors of the oil and gas giant's plans to begin
exploring for oil in the Arctic this summer.
Last August, the US Department of the
Interior's Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) granted Royal
Dutch Shell the initial permits to begin drilling for oil in the Alaskan Arctic, which Shell has
said will begin in July. The company's plans to drill three exploratory wells in the Chukchi Sea
off the northwest coast of Alaska have been challenged by a coalition of nine environmental and
native Alaskan groups.
Furthermore, despite the approval earlier this year by the Interior
Department of Shell's spill response plan, concerns remain over its effectiveness. Greenpeace
reports that an executive in charge of Shell's spill response described the likelihood of a well
control problem as "very, very small." The company has admitted that it has "not assessed the
potential cost of a worst-case spill in the US Arctic," according to the report.
report also points out, "Current technology is ill equipped to deal adequately with a large oil
spill in Arctic waters." It quotes a letter from WWF-Canada, submitted last year to Canada's
National Energy Board, which stated, "A spill response in the Beaufort Sea would not be possible
more than half the time from June through September. By October, no response would be possible more
than four fifths of the time and no response is possible from November to May."
Shell's experience in drilling in ice-covered waters is limited to the Sakhalin-2 project in the
Russian Far East. "There are significant reasons to doubt" that the experience has been positive,
the report states. Cost overruns for the project have totaled more than 100% of initial estimates,
and environmental concerns have led to challenges to further funding of the project.
Furthermore, by entering into a global strategic alliance with Gazprom, a Russian company,
Shell has allied itself with a partner whose poor environmental, social, and corporate governance
(ESG) record includes the sinking of an oil rig last year that killed 53 workers. And Shell has
made no comment on whether it had recouped its initial investment in the project, raising concerns
about its transparency.
"Booking new reserves is a priority for Shell as it seeks to boost
its reserves replacement ratio," which has been on the decline for most of the past decade,
according to Greenpeace. But even the financial benefit of deepwater drilling in the Arctic should
be questioned by investors, dependent as it is on high oil prices and government subsidies.
Compounding the challenges for investors is "the potential environmental and financial impact
of any potential major oil spill," which, the report points out, "has not yet even been assessed."
Investors would do well to remember the financial impacts of the Gulf of Mexico oil spill, and
question whether Shell's Arctic exploration poses an equivalent risk to the company's financial
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