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Shell's Arctic Drilling Delayed

Zacks Equity Research

Global energy company, Royal Dutch Shell plc (RDS.A) has postponed its Arctic drilling plans for a year after a spill containment dome sustained damage during the course of a testing session. The company will carry out preliminary work this year and will drill for oil next year.

The containment dome, which should have been in place before drills could enter oil bearing rocks in the Chukchi and Beaufort seas, was smashed. But the company remains positive about future prospects of the project.

As of now, Shell would drill 1,400 feet below the seafloor and close the hole to resume drilling in 2013. The company has already spent $5 billion and was hoping to complete the drilling of five Alaska wells this year in both the Chukchi and Beaufort seas.

The company has two drilling ships and more than twenty supporting vessels, which were built for that area. As per federal reports, the U.S. Arctic waters contain an estimated 26 billion barrels of oil and 130 trillion cubic feet of natural gas. Shell expects to tap this huge resource.

Royal Dutch Shell plc owns one of the largest integrated oil and gas businesses in the world. The group has operations all over the world and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources, and other energy related businesses. Royal Dutch Shell divides its operations into three major segments: Upstream, Downstream, and Corporate.

We believe that Shell’s strong and diversified portfolio of development projects offer lucrative long-term opportunities to the company and will continue to boost revenue and earnings growth over the next few quarters.

However, the company is particularly susceptible to its high exposure to the downstream business, its major natural gas focus, as well as lofty capital spending, which may result in reduced returns going forward.

Royal Dutch Shell – Europe's most valued oil company, ahead of BP plc (BP) and Total SA (TOT) currently retains a Zacks #3 Rank that translates into a short-term Hold rating.  We are also maintaining our long-term Neutral recommendation on the stock.


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