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Shell Pauses Arctic Drilling

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Integrated energy firm Royal Dutch Shell plc (RDS.A - Free Report) has decided to halt its exploration and drilling operations at Alaska’s Beaufort and Chukchi Seas this year. The company will resume its activities once it is ready with all its equipment for drilling in Alaska.  

After Royal Dutch Shell won drilling licenses in 2005, the company invested over $4.5 billion for exploration activities in the Arctic seas of Alaska. The investment was roughly one sixth of the total capital spending budget of the company.

Earlier, in 2012, Royal Dutch Shell finished its top hole drilling activities of the Chukchi and Beaufort Seas. But after the end of the drilling period, Kulluk – one of the company’s drilling rigs – was impaired due to bad weather. Even before that Royal Dutch Shell’s drilling operations were affected by the non compliance of regulatory issues by Noble Discoverer – a rig owned by Noble Corp. (NE - Free Report) .  Both the rigs will be sent to Asia for repairs.

Management believes that Alaska is an important source of energy resources. So, in order to get access to those resources, the company must be well equipped with technology and also should have a thorough understanding of environmental and social issues of the ecologically-sensitive regions.  

The Royal Dutch Shell management however stated it is strongly committed to resuming drilling operations in Alaska in the long term.

Based in Hague, the Netherlands, Royal Dutch Shell is an exploration, production, refining, and marketing company with operations and assets worldwide. The company divides its operations into three major segments: Upstream, Downstream, and Corporate.

Royal Dutch Shell’s relatively heavy downstream exposure leaves it less diversified than its integrated peers. As such, the group’s results remain greatly exposed to refining/marketing margins. Shell’s downstream operations have struggled recently due to weak demand for fuel, leading to lower returns in this segment.

Royal Dutch Shell currently carries a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

In the energy sector, firms that are expected to outperform the U.S. equity market over the next one to three months are NGL Energy Partners LP (NGL - Free Report) and Range Resources Corporation (RRC - Free Report) . Both the firms currently carry a Zacks Rank #1 (Strong Buy). 

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