Tuesday, July 17 , 2018, 8:35 pm | Fair 66º

 
 
 
 
Advice

Letter to the Editor: Oil Biggies Walk a Tightrope

The steep plunge in oil prices that seems to render unconventional drilling unprofitable for the foreseeable future is also causing concern for investors in the biggest conventional oil/gas conglomerates.

Shell chief executive Ben van Beurden “... sees no quick end to the slump in oil prices and plans to further slash annual spending, sell off assets and bring the total number of job cuts to 6,500 by the end of 2015.”

CEO van Beurden announced on July 30 that the company's capital expenditure will be cut an additional $3 billion, 20% less than the previous year and that “more than $30bn assets are to be disposed of by 2018 once its takeover of BG is complete.”

“Shell said it would be slowing investment in US shale, Canadian oil sands and Iraq ...” (The Guardian)

But van Beurden vowed that the company will continue its expensive and controversial exploratory drilling plans in Arctic Alaska, which he calls “... a ‘long-term play’ that could not be influenced by current energy prices.” (ibid.) Seeming to feel need for further justification, he added that the budget for 2015 investments, including the Arctic Alaska project, had already been determined and could not be summarily changed.

The Royal Dutch Shell icebreaker ship Fennica left its Portland, OR drydock on Thursday, July 30, bound for Alaska's Chuckchi Sea, after having undergone repair of the hull gash it had sustained from an undersea obstacle in the Aleutian Islands earlier.

Greenpeace activists had delayed the ship’s departure, some maneuvering kayaks into its path, others swinging from a bridge under which the vessel had to sail. Eventually, authorities removed the protesters; a federal judge levied a fine of $2,500/hour on those attempting to block the ship and threatened a higher rate.

Greenpeace had hoped to delay the Fennica from reaching the Arctic until winter ice reappeared, thereby hindering any effective drilling.

Environmentalists worldwide have decried and condemned Shell’s Arctic exploration and drilling plan. Shell’s safety record in that area has already been smeared with accidents.

Should this company be responsible for a major oil spill in Arctic waters, climatic and ice conditions would render effectivere mediation/cleanup almost impossible even to the limited degree achieved following BP’s Deepwater Horizon disaster in the warm waters of the Gulf of Mexico.

How many billions of dollars would Shell and its investors be on the hook for following such a disaster? What would be the effect on the company’s stock price? Indeed, what would be the effect on the company’s continuing viability?

Considering that CEO van Beurden’s rationale for pressing on with Shell’s Arctic exploration/drilling broadly hints at the degree of risk involved; considering the industry’s notable miscalculation as to the degree of consumer demand it could count on, and the resulting drastic plunge in oil prices that show no sign of recovery; considering the growing realization that most fossil fuels must be left in the ground to forestall a climatic cataclysm caused by unstoppable greenhouse gas emissions; considering the effect on oil/gas conglomerates’​ value when their “stranded assets” are widely appreciated; considering all this, are not Royal Dutch Shell (bonded with BG Group or not) and all other oil/gas producers and their service industries now walking a tightrope as to their value with investors and as to their economic viability?

In the last week of July, shares of ExxonMobil and Chevron “posted major declines in their year-over-year profits largely because of the big drop in the price of oil. ... Chevron ... posted its lowest profit in 13 years.” (Los Angeles Times, Aug. 1, 2015)

“ConocoPhillips performed even worse plunging to a $222m underlying loss.” (The Guardian)

The New Yorker magazine once included a feature called “The Clouded Crystal Ball,” poking fun at various publications’​ wrong-headed predictions.

Take a look at this presentation from an oil industry web site that exists right now:

“Crude oil is by far the world’s most important energy source and the price of oil therefore plays an important role in industrial and economic development. ...

“Because the supply of crude oil is limited but demand is constantly growing, the price of oil is also continuously rising. ...

“Because the crude oil industry has developed hardly at all in recent years due to a lack of investment capital for discovery, extraction and further processing, global production can barely meet the high demand for crude oil from countries such as the USA, China or India.”

This is the probity offered by the oil/gas industry. This is the clouded crystal ball these companies present to future investors and consumers.

My crystal ball shows business news sections, in the future, publishing a string of economic failures of oil/gas producers and their service providers.

Stay tuned.

William Smithers
Santa Barbara

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