Shell’s future in the Arctic looks doubtful
By: MICHEAL KAUFMAN
Published: Dec 23, 2014 at 12:38 pm EST
Published: Dec 23, 2014 at 12:38 pm EST
There is a large question mark on whether Royal Dutch Shell (ADR) (NYSE:RDS.A) will continue a new round of drilling in the Chukchi Sea and the Beufort Sea in the Arctic or not. The company earlier filed alawsuit against a group of environmentalists to avoid any legal challenges in the future. The lawsuit sparked criticism from authorities and posed several problems for the Dutch oil giant.
Shell acquired the leases in 2008, after receiving approval from the Bureau of Ocean Energy Management (BOEM). But a lawsuit was filed blaming BOEM for taking arbitrary estimates which were not reliable. BOEM as a result revised its assessment and issued a supplementary environmental statement, which revealed that around 4.4 billion barrels of crude oil could be pumped compared to the previous estimate of one billion barrels.
But the boost in production also came with more risk as the revised estimates also proposed that the chances of an oil spill in the region have also increased from 40% to 75%. The revised results came on October 31. The new reports which show increased oil recovery from the region have sparked questions among those speculators who claim that BOEM is colluding with Shell and trying to help approve its exploration programs in 2015.
According to some sources, the alleged collusion between Shell and the Bureau existed even before the environmental statement had been finalized. While BOEM does not have the authority to approve exploration programs, the interior department agency is still allowed to process agency paperwork. Despite the alleged collusion, Shell and the Bureau will face criticism from environmentalists over air pollution issues and could result in more problems for Shell. Moreover, the increased probability of oil spills will also not be favorable for Shell.
Here are several other problems that Shell faces: Crude oil prices have gone down more than 45% since June, the US benchmark for crude oil, West Texas Intermediate, is trading at 56.03, and the global benchmark for crude oil the Brent Crude oil is trading at $60.94. The lower prices pose significant challenges for Shell because the cost of drilling in the Arctic which has severe weather conditions and has high cost of production compared to other regions due to its remote location is much higher.
According to estimates by some analysts, crude oil prices would have to be in the range of $80 per barrel to $90 per barrel in order to allow these companies to break even. Some analysts say that even a price of $110 per barrel would not be enough.
This is why some energy companies like ConocoPhillips (NYSE:COP) andChevron Corporation (NYSE:CVX) have dropped their plans for drilling in the Arctic region due to strict regulatory requirements and higher cost of production.
Shell has so far spent $6 billion on its operations in the Arctic, the most of any company. Even after spending so much the company has not made significant new discoveries in the region. And with the pressure from environmentalists, the company’s future in the Arctic looks doubtful.
Vice president of Shell in Alaska, Peter Slaiby, has stated that further obstacles could result in Shell’s pulling back, and if this happens, the Arctic region will be deprived of drilling for many years to come.
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Imagine the life of a Premiership footballer: however much money you spend, cash just keeps pouring in. It’s been a bit like that for big FTSE-listed oil producers like Royal Dutch Shell in recent years. However wild and extravagant their expenditure — Shell has spent nearly $6bn on its failed Arctic drilling programme — the cash just kept pouring in, thanks to oil’s long run above $100 per barrel. I reckon that the oil industry got too comfortable at $100 per barrel. After all, it was easy money. Soaring costs weren’t a huge problem, except for shareholders, who saw their firms’ profits fall, despite stable revenues. That era of easy money is now over…
Extract
The next several months may be pivotal for the future of oil development in the Arctic.
While Russia has proceeded with oil drilling in its Arctic territory, the U.S. has been much slower to do so. The push in the U.S. Arctic has been led by Royal Dutch Shell, a campaign that has been riddled with mistakes, mishaps, and wasted money.
Nearly $6 billion has been spent thus far on Shell’s Arctic program, with little success to date. Now, 2015 could prove to be a make or break year for the Arctic. Shell may make a decision on drilling in the Chukchi and Beaufort Seas by March 2015. If it declines to continue to pour money into the far north, it may indefinitely put Arctic oil development on ice (pun intended).
FuelFix Article: Shell collaborating with regulators over Arctic drilling
Extract
WASHINGTON — Newly released documents suggest federal regulators are collaborating closely with Shell as the company pursues a new round of Arctic drilling next summer, even though an underlying sale of the region’s oil leases is still in legal limbo.
Idemitsu Showa Shell merger talks could trigger more consolidation
Reuters article published Tuesday 23 December 2014 under the headline: Japanese refining merger talks could spur more consolidation
It seems that the forecast wave of mergers in the oil industry arising from the collapse in oil prices has kicked off in Japan. Also fits in with Shell’s fire sale strategy.
Extracts
Consolidation looks to have kicked off with Japan’s No. 2 refiner Idemitsu seeking to buy No. 5 Showa Shell in a 500 billion yen ($4.2 billion) deal that would bring them close to industry leader JX Holdings.
The combined company would have annual sales of about 8 trillion yen, making it the second biggest after the leader JX Holdings and control about 30 percent of Japan’s gasoline market. JX has 33 percent of Japan’s oil market.
Consolidation is further supported by the crash in oil, which has seen prices almost halve since June, resulting in falling stock prices for energy firms and reduced asset values, offering opportunities to cash rich investors.
Industry sources said that Royal Dutch Shell, which has sold numerous assets this year as part of restructuring and cost saving, is keen to sell its 35 percent stake in Showa Shell and likely to cooperate in the deal.
Saudi Arabia’s state-owned oil firm Saudi Aramco also owns about a 15 percent stake in Showa Shell. Both Royal Dutch Shell and Saudi Aramco could not be immediately reached for comment.
U.S. litigation arising from secrecy issues surrounding groundbreaking IP technology coveted by Shell
Alleged industrial espionage by Shell Oil Company: A senior individual in the U.S. intelligence community was authorised by U.S. Dept. of Defense government attorneys to confirm to me that an investigation directed at Shell USA had been initiated by the US Department of the Navy, Naval Criminal Investigative Service (NCIS).
By John Donovan
In 2010, I published an article revealing that four years earlier, U.S. authorities had launched an investigation into alleged industrial espionage by Shell Oil Company.
When I approached the then Chief Ethics & Compliance Officer of Royal Dutch Shell Plc, Mr. Richard Wiseman, about the story, this was his initial response on 29 June 2010:
I have no comment to make on this. You should not take this as an indication of our accepting or denying the allegations.
and later the same day:
No comment, means no comment and as ever you should not draw any conclusions from my not commenting. Shell’s response to previous allegations is not relevant.
Michiel Brandjes, the Company Secretary & General Counsel Corporate was involved in the correspondence and was as forthcoming as Mr Wiseman.
At the time, a senior individual in the U.S. intelligence community was authorised by U.S. Dept. of Defense government attorneys to confirm to me that an investigation directed at Shell USA had been initiated by the US Department of the Navy, Naval Criminal Investigative Service (NCIS).
The allegations which led to the investigation were made by a former Shell Oil Company engineer/scientist, Mr. Frank Joseph Trunk III.
The status of the investigation is unknown and possibly classified information.
However, on 8 December 2014, a related complaint, not involving Shell at this time, was filed by Washington DC law firm MAYER BROWN LLP on behalf of their client, Mr. Trunk. There was a delay before I could put the document into the public domain with free access, while a decision on a related matter was decided by Chief Judge Richard W. Roberts of the Federal District Court for the District of Columbia.
The list of defendants and the extraordinary content of the Complaint (link at the foot of this article) provides some indication of the significance of the technology and those parties interested in it, including NASA.
The technology apparently also has immense potential value to Shell, including in regard to its deep water drilling activities. Hence the alleged corporate espionage directed at its former employee, Mr Trunk.
The Defendants in the case are:
RAYMOND E. MABUS, SECRETARY OF THE UNITED STATES NAVY
DR. ERNEST J. MONIZ, U.S. SECRETARY OF ENERGY
CHARLES T. HAGEL, U.S. SECRETARY OF DEFENSE
MICHELLE K. LEE, DEPUTY UNDERSECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY AND DEPUTY DIRECTOR OF THE U.S. PATENT & TRADEMARK OFFICE
The Complaint seeks clarification about the security classification status of certain patents filed by Mr. Trunk.
Shell knew about the potential civil applications, and perhaps some military applications, but nothing specific about the technology which makes the applications viable. This made it impossible for Shell to claim ownership when it could not even explain how the technology worked.
Shell allegedly decided to get its hands on the technology by surreptitious means, rather than negotiating a commercial agreement/license with its inventor, Mr. Trunk.
I have been the subject of corporate espionage by Shell on a number of occasions over the past two decades. Shell has it own in-house spooks at Shell Global Security and also uses external spy firms such as Hakluyt.
Extracts from the Complaint
INTRODUCTION
Beginning in January 2000, the Office of Naval Research (“ONR”) submitted a request to place patent applications filed by Mr. Trunk under Secrecy Orders pursuant to 35 U.S.C. §§ 181- 188, because of the potential threat to national security if information in those applications were made public. Mr. Trunk’s work had been under technical and security reviews by ONR since September 1993. Those applications describe fundamental breakthroughs in physics and material science that according to one senior Navy scientist “are the sort of thing Nobel prizes are made of.”
From paragraph 38: In February 2010, Mr. Trunk gave a presentation in response to NASA’s invitation to approximately 50 NASA scientists and engineers at the Langley Research Center in Virginia. NASA was particularly interested in Mr. Trunk’s work in electromagnetic theory.
39. In late 2013, NASA again contacted Mr. Trunk with another invitation to speak on his work in electromagnetics at NASA’s Langley Research Center, as well as present his vision for a long term research program in electromagnetics. Mr. Trunk, however, advised NASA through their prime contractor for this project that he cannot discuss or disclose information in his patent applications, or information related to those applications, until the issues relating to classification have been resolved. As a result, Mr. Trunk has had to forego a possible consulting arrangement with NASA and/or their contractors.
57. As a result of the Defendants’ actions, Mr. Trunk does not know at this time whether or not his patent applications, and derivative or related technology, are still classified; whether they have been properly declassified; or what information concerning his ground-breaking discoveries can be published and discussed publicly. Mr. Trunk faces the risk of possible criminal liability for disclosure of classified information until these issues are resolved. Mr. Trunk’s numerous and diligent efforts to resolve these issues informally with the Defendants have been unsuccessful and have been met with hostility. Accordingly, Mr. Trunk is forced to seek declaratory relief from the Court.
IV. CLAIM FOR DECLARATORY RELIEF
58. Plaintiff incorporates by reference the allegations set forth above in paragraphs 1 through 57.
59. A case or controversy currently exists concerning the classification status of Mr. Trunk’s patent applications and material derived from the technology described in those applications. Despite diligent efforts, Mr. Trunk has been unable to obtain any resolution of those issues.
60. Accordingly, Mr. Trunk seeks a declaration as to whether or not his patent applications, and the information in those applications, and derivative works related to the information in those applications, are classified and whether proper declassification procedures have been followed; and if the information is still classified, the level of classification; who, including Mr. Trunk, is permitted to have access to the information; the names of the agencies that still consider the information to be classified; and to whom, and under what conditions, the information may be disclosed.
Because of the unusual nature of some of the information supplied to me from the USA during the course of my investigation in 2010, I deemed it appropriate to inform the British Secret Intelligence Service (SIS) of these matters as known to me at that time.
I will of course report on the litigation as it proceeds and expands, possibly to involve Shell.
20 PAGE COMPLAINT FILED 8 DECEMBER 2014 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA: CASE 1:14-cv-221-KBJ
The TRUTH will set you FREE.
By John Donovan
By John Donovan
