AMSTERDAM: Drilling in the Arctic region is considered to be a very risky business. The region’s temperatures are very low, with the hostile weather making it a challenging and tedious task for the energy companies.
However, Royal Dutch Shell plc (ADR) (NYSE:RDS.A) would know better. In 2012, the company’s Kulluk rig went aground in a storm. The company has also been a victim of many technical mishaps, forcing it to delay drilling in the area.
Crude oil prices have fallen more than 50% in the last nine months. Consequently, energy companies’ margins have contracted significantly. For energy companies like Shell, it becomes more difficult to operate in the regions such as the Arctic, which have a higher cost of production compared to the other traditional areas.
On the other hand, Bloomberg reports that the US Interior department has validated the company’s exploration lease in the Alaska. The lease has been confirmed despite Greenpeace activists’ efforts to have the drilling halted in the region.
Bloomberg further says that the US Interior Secretary Sally Jewel indicated that Shell has learnt a valuable lesson regarding its contractors. She added that the company now knows how to better manage its contractors for its offshore drilling programs.
To ensure that such incidents are not repeated in the future, the US government has reviewed and raised the security standards in the Arctic region.
In March 2013, Shell released a report on its offshore drilling program in the Chukchi and Beaufort seas. The US government thoroughly reviewed the report, and concluded that the weaknesses in the contractor oversight had led to the majority of Shell’s problems. The report also shed light on collaboration between companies in terms of resources and Arctic-specific practices.
