Royal Dutch Shell stands at a strategic crossroads. Its response to the reserves scandal in 2004 has been a global reserves replacement hunt through a programme of relentless capital expenditure, including an investment in US Arctic Ocean leases in the mid-2000s that dwarfed other companies’ spending. Shell’s US offshore Arctic plans have been a failure despite capital expenditure, to date, in excess of $5bn. Following a 2012 drilling season beset by multiple operational failings and a subsequent ‘pause’ in the company’s Arctic programme, Shell announced, on 30 January 2014, a forced reversal of its intention to return to the Chukchi Sea in the summer of 2014. The main factor cited by Shell for its decision to pause its offshore Arctic drilling programme yet again was a decision by the US Court of Appeals for the Ninth Circuit.
This report for Shell’s institutional investors explores the many operational questions that remain unanswered to the satisfaction of the US government and others, along with economic risks to Shell’s planned Arctic projects that remain unanswered to the satisfaction of financial analysts. These risks include:
• doubts over the level of commercially recoverable oil reserves when available public data suggests an uneconomical gas play;
• inadequate spill response capacity;
• concerns over contractor management; and
• ongoing litigation.
Alongside this report, ShareAction are launching an online action by pension-holders urging pension funds to call on Shell to abandon plans for high-cost, high-risk drilling projects in the US Arctic Ocean. Frozen Future is co-published by Platform, Greenpeace UK, ShareAction, Oceana, Oil Change International, and Pacific Environment.