Royal Dutch Shell PLC said it is postponing a controversial plan to drill for oil in the arctic waters off Alaska's shores by a year, after failing to win the necessary permits from U.S. regulators.
Royal Dutch Shell PLC said it is postponing
a controversial plan to drill for oil in the arctic waters off
Alaska
's
shores by a year, after failing to win the necessary permits from
U.S.
regulators.
Shares in Shell fell 3% in
London
trading on Thursday as it unveiled disappointing fourth-quarter results that
came in well below analysts' forecasts. Shell Chief Executive Peter Voser
admitted he was "not satisfied" with the results.
(This story and related background material will be available on The Wall
Street Journal website, WSJ.com.)
Shell reported net profit of $6.8 billion in the quarter. But stripping out
gains and losses from inventories, non-operating and one-off items--the number
investors focus on--its result was $4.1 billion, well below forecasts.
Shell blamed low natural gas prices in the
U.S.
and
problems in its refining division, where some of its big refineries closed down
for maintenance. The rising price of crude oil has also squeezed profit margins
in its refining and marketing business.
There was some good news, however, with oil and gas production rising by 5%. The
company is still on track to increase output by 11% over the 2009-2012 period,
as big, long-term projects begin to come on stream--such as two huge natural
gas developments in
Qatar
. Shell
"is indeed delivering on its promises," analysts at Petrocam wrote.
Shell said it was continuing to count the cost of the Gulf oil spill, which
threw many of its investment plans into disarray. The Obama administration
imposed a drilling moratorium in the wake of the April 20 explosion of the
Deepwater Horizon rig, and though it was lifted in the fall, drilling in the
Gulf
of Mexico
has been slow to resume.
Shell said it took a $70 million charge last year to cover the cost of oil rigs
idled by the drilling halt. That, combined with other charges and production
losses in the aftermath of the spill added up to an earnings loss of $260
million in 2010 and 10,000 barrels a day of lost production. The company was
forced to postpone $700 million of capital investment, and expects a production
shortfall of 50,000 barrels a day this year, Chief Financial Officer Simon
Henry said.
The moratorium also held up Shell's long-delayed plans to drill for oil
offshore in
Alaska
. The
company has invested $3.5 billion in an exploration program in
Alaska
's
Beaufort and Chukchi seas, but the plans have been entangled in legal
challenges by environmental groups fearing the effects of a big oil exploration
campaign on the fragile arctic.
Late last year, Shell was dealt a fresh setback when the state Environmental
Appeals Board invalidated its air-quality permits for drilling in Alaskan
waters. Shell says this is the only permit it is now missing, and it has all
the other 34 required.
Voser said that, due to the uncertainties over permitting, Shell has decided to
postpone its drilling program for a year to 2012. He stressed that offshore
Alaska
,
which is believed to contain reserves of up to 25 billion barrels of oil,
"remains an interesting area for us in the longer term."
Concern about allowing oil companies into the arctic wilderness has grown since
the Deepwater Horizon accident, with many environmentalists arguing that oil
spills in such remote areas would be much harder to contain and clean up than
in the relatively accessible
Gulf of Mexico
.
The report of the presidential commission investigating the Deepwater Horizon
disaster, published last month, said more scientific research needed to be done
on the ecosystems of the arctic, including annual stock assessments for marine
mammals, fish and birds that use the Beaufort and
Chukchi
Seas
. That
could then be used to measure the impact of oil and gas development on the
region.
But Shell was encouraged that the commission said the need for additional
research "should not be used as a de facto moratorium on activity in the
Arctic
."
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