Royal Dutch Shell plc (RDS.A) has won the regulatory approval to begin preparation work at drilling sites in the Chukchi Sea off Alaska’s northwest coast. However, it waits for the certification of its oil spill containment system. The whole work will be conducted in the presence of safety experts of Bureau of Safety and Environmental Enforcement.
Although the company remains on track with its Arctic drilling venture and started the operation in the Arctic at the beginning of the year, it got delayed by the regulatory restriction. It has already spent $4.5 billion to explore oil and gas off Alaska’s coast.
Shell is authorized to dig 20-by-40-foot mud-line cellars, which are expected to hold and protect a well’s blowout preventer, 40 feet below the seabed. Down another 1,500 feet, the company can also drill narrow pilot holes that disclose obstructions or gas pockets. Management expects to commence drilling in a mud-line cellar and a pilot hole within the next two weeks. The hydrocarbon-bearing zone will however take another couple of weeks.
However, the government restricted Shell to drill into oil reservoirs until the spill containment system is fully certified.
The federal regulator requires Shell to stop drilling in Chukchi around September 24 before ice moves in. This is to ensure that the company has time to cope with a spill or a wellhead blowout. Shell has demanded an extension of two weeks citing that ice should not be a concern till mid-November.
In terms of assets, Royal Dutch Shell owns a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. The group’s strong inventory of development projects and increased capital expenditures should help volume growth in the long run.
Royal Dutch Shell conducts operations in many countries. As such, the group is exposed to risks associated with doing business abroad. Such risks include embargoes and/or expropriation of assets, exchange rate risks, terrorism or political/civil sentiment.
Shell – the second biggest oil company by market capitalization after ExxonMobil Corp. (XOM) – currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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