The imaginary line, Arctic Circle runs through seven countries on the face of the earth including the U.S, Canada, Iceland, Finland, Norway, Russia and Sweden. The region north of the circle is referred to as the Arctic while the region south of the circle is called the Northern Temperate Zone. I am only interested on the Arctic for now.
According the United States Geological Survey estimates, the Arctic contains about 30 percent of the world’s natural gas deposits, and approximately 13 percent of the global oil. Oil and Gas companies have been pursuing the energy deposits in the Arctic for more than 80 years, but the region’s rapid climate changes have been a key obstacle toward making any significant developments. However, global warming is playing a vital role in making things happen, albeit an aggressive wave of criticism from environmental activists.
Royal Dutch Shell (NYSE: RDS-A) is one of the industry giants that have been in a constant pursuit of the elusive commodity. U.S Oil & Gas company Exxon Mobil (NYSE: XOM) has also ventured in the hunt for oil and gas drilling opportunity albeit via a partnership deal with Russian giant Rosneft.
British Petroleum (NYSE: BP), which is expected to acquire 5.66 percent stake in the state, owned Rosneft this year, is also reportedly eying a piece of the cake buried beneath the Arctic. On the other hand, ConocoPhillips (NYSE: COP) still sustained its plans to start offshore drilling at the Arctic by 2014. The company made the statement despite continued regulatory uncertainties facing Shell’s efforts to drill. Another company which had made its drilling plans begin by 2014, Statoil (NYSE: STO), postponed its project to 2015.
Nonetheless, the dream of making successful oil drilling in the Arctic will not be achieved without bleeding cash and possibly ending in a catastrophic fashion. The act is considered hazardous with a prospective negative impact on the Canadian people if anything were to go wrong. Some of the recent obstacles faced by Shell in its pursuit to start first exploration wells in the Chukchi and Beaufort seas include lengthy permitting procedures, weather, ice and delays in certification of a spill response barge.
Ken Salazar, Interior Secretary noted that Shell’s 60 day assessment drilling at the two seas would be used to determine future permits for Arctic exploration. On the other hand, environmentalists are hoping that the review would lead to tighter rules on Arctic energy exploration, or possibly, suspension of Shell’s efforts.
Salazar was quoted by Bloomberg saying, “The unique challenges posed by the Arctic environment demand an even higher level of scrutiny.” This explains why Statoil has taken a prudent step towards beginning its drilling. But ConocoPhillips is not fazed by the fact that an adverse outcome from Shell’s efforts could as well rule out any further activity.
Elsewhere, early last month, Exxon Mobil and Rosneft signed a Declaration on Protection of the Environment and Biodiversity for Oil and Gas Exploration and Development on the Russian Arctic Continental Shelf. The declaration, which includes various measures and development activities, is expected to protect the ecosystem at the arctic during the oil and gas exploration process.
Meanwhile, BP cleared the path on its way toward Arctic energy exploration through Rosneft by paying a total of $325 million for the settlement of the dispute with its oligarch partners, AAR consortium, in the TNK-BP joint venture. The two partners agreed to sell 50 percent of their stakes in the joint venture to Rosneft.
There are quite a number of companies looking to explore the energy resources trapped at the Arctic. Shell seems to be the guinea pig in this project while others observe before making their move. The opportunity, if successfully exploited could result in a massive upside on the company’s stock. However, a reverse would result in another “white elephant” kind of investment impacting a rattling downside to the company’s stock. Like I said, it is like “spoon-and-egg race”, which means taking into consideration every possible outcome.