Shell Gives Another Early Christmas Gift to Environmentalists

Shell Oil surprised the environmental community in September by announcing an end to Arctic drilling. What could come next? Shell is abandoning plans for the Carmon Creek oil-sands project in Alberta and taking a $2 billion write-down.

2 minute read

November 2, 2015, 7:00 AM PST

By Irvin Dawid

Alberta Oil Sands

chris kolaczan / Shutterstock

"Energy producers are canceling or delaying projects as a crude price slump forces them to prioritize spending," writes Rebecca Penty. "The company (in late September) abandoned drilling offshore Alaska indefinitely after it failed to find enough oil or gas in the Chukchi Sea."

Shell is halting work on the 80,000 barrel-a-day Carmon Creek drilling development after deciding the project couldn’t compete in its portfolio, the company announced in a statement Tuesday (Oct. 27). Carmon Creek is the first project in the downturn to be shelved after being sanctioned."

Shell Oil is not alone in cutting back their oil sands operations. They join "Suncor Energy Inc. and Cenovus Energy Inc. in deferring investment this year in the oil sands, one of the most expensive places to extract crude," writes Penty. "Oil-sands projects were struggling to compete against lower-cost U.S. shale and offshore developments even before the price of crude plunged."

"Earlier this year, three major Canadian energy companies said they would stop new or expanded oil-sands ventures, and last year French oil company Total SA and Statoil ASA of Norway put off plans," writes Christopher Harder for The Wall Street Journal Energy Journal.

In addition to the high cost of drilling in the oil sands combined with slumping crude prices, the lack of pipeline infrastructure plays a significant role.

All four proposals for new large-scale oil pipelines to ship Alberta crude to the continent’s coasts have been delayed by environmental opposition and regulatory scrutiny, including the Keystone XL line that’s in its eighth year of U.S. review.

Tip of the iceberg? (pardon the metaphor)

"It’s getting even tougher for the world’s third-largest reserves in Canada to attract investment with prices for West Texas Intermediate (WTI) and Brent crudes both hovering below $50 a barrel," writes Penty.

With this new Shell announcement, 18 future oil-sands announcements have been delayed this year,” Jackie Forrest, vice-president of Calgary-based ARC Financial Corp., said in a phone interview. “Many of the other ones were not as expensive to cancel because not as much had been spent on them."

While the Carmon Creek write-off of $2 billion is significant, the write-off for the Chukchi Sea offshore operation off Alaska could be as high as $9 billion. 

Brad Plumer of Vox media goes into greater depth on the economics of oil sands development.

The Guardian expands on the write-off and cost losses affecting Shell from halting both Arctic and oil sands developments.

Tuesday, October 27, 2015 in Bloomberg News

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