The Royal Dutch Shell net income fell with 57 percent, but Shell will resume drilling in Alaska

Posted on January 31, 2015

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Shell Arctic-Drilling-in-Alaska

Beaufortzee

The blue area is the Beaufort Sea

The price of Brent crude, an international variety of oil, dropped about 50 percent last year and naturally the earnings for the oil companies should drop with more than 50 percent as they have to pay the base expenses before they can earn something. On Thursday Royal Dutch Shell, Europe’s largest oil company by market value, said fourth quarter net income fell 57 percent to $773 million due to the steep decline in oil prices. The lower oil prices are likely to reduce cash flow in 2015, but COE Ben van Beurden said that the company must be careful not to “over-react.”

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Not to over-react is to keep the investment budget at the same level as for 2014. Shell suspended operations in Alaska in 2013 after one of its oil rigs ran aground. But the plans to resume drilling in Alaska this year have been planned since years back and even if cash flow will be lower they now plan to spend about $1 billion in Alaska this year.

“We always said we were going to just pause the program. And we paused it last year and the year before,” van Beurden told the BBC. “But at the same time we didn’t abandon all the infrastructure, logistics that we had in place because you cannot, for such a complex and large operation, just scale down and scale up whenever you want. So we have been preparing all this while for an eventual return to this year.”

Environmentalists criticized Shell for resuming operations in Alaska even as it cuts spending elsewhere.

“Shell is taking a massive risk, doggedly chasing oil in the Arctic, not just with shareholder value but with the pristine Arctic environment,” Charlie Kronick, a campaigner at Greenpeace, said in a statement. “A spill there will be environmentally and financially catastrophic. It’s time for investors to recognize that it’s impossible for Shell to justify its continued pursuit of offshore Arctic oil.”

Shell said on its website, citing the U.S. Minerals Management Service “The Beaufort Sea contains an estimated 8.2 billion barrels of oil and 27.6 trillion cubic feet of natural gas”. Yearly global consumption is about 31 billion barrels of oil. The Beaufort Sea can support the world for 3 months. The question is what a destroyed environment can be worth?

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