Shell in the USA

FROM A REGULAR CONTRIBUTOR

John,

I read your blog today and the article about how much Shell hopes to gain financially from any discoveries it makes in the offshore Arctic.

Market Report: $10bn if Shell cracks it with Arctic drilling

The estimate of $10 billion is way low, I believe. My guess is that Shell’s economic analysis and projections range anywhere from $100 billion to $500 billion, depending upon how recoverable oil and gas are actually discovered and the price per bbl for the oil. Estimates are that there are around 25 billion bbls of recoverable oil in US Arctic waters. And at a measly $10 per bbl after tax profit that equates to roughly $250 billion in profit. If oil prices stay high Shell could easily make $30 per bbl after tax profit. And then there is the natural gas.

However, to put things in perspective the new Canadian BC natural gas discovery dwarfs estimates of gas reserves in the US Arctic. And if converted to liquid hydrocarbons represents roughly 10 billion bbls of refined diesel. So, this one onshore gas discovery in Canada is equivalent to about half the estimated potential of the offshore US Arctic. To add insult to injury, development costs will be a fraction of what they will be in the Arctic offshore, and the environment risks are puny in comparison.

So, in the light of this recent Apache Oil discovery it is easy to conclude that it is far preferable to explore for and develop shall gas reserves than it is to try to develop hydrocarbon reserves in the very inhospitable offshore Arctic environment.

One has to ask why Shell is lagging so far behind in the exploration for these types of non-conventional gas reserves. The answer I believe is that Shell management cannot think ‘outside the box’.

Here are some articles that I think you might also find interesting:

Ex-Saudi Oil Official: U.S. is Energy Independent: Why Peak Oil is a Blessing, Not a Curse

North Dakota oil may hit 1 million barrel mark: Regulators say state production could become on par with Texas

PN Bakken: Reserves rocket

Shell essentially left the Williston basin in North Dakota 30 years ago, when oil prices were beginning their mid-1980’s decline. I actually worked the Williston Basin area for Shell at that time.

However, Shell management clearly has not had the foresight to see how advances in drilling technology would change the industry and add vast new oil and reserves that were once considered unexploitable. The Williston Basin is a prime example and may have several times as much recoverable oil in it as Shell expects to find in the Alaskan offshore world. Estimates of oil in place are approaching 1 trillion bbls. If only 4% of that oil is recoverable there could be 40 billion bbls of recoverable oil in this basin. That is more than has been discovered in Alaska, or in Texas, or in the Gulf of Mexico. By 2015 North Dakota may become the #1 oil producing state.

Once again Shell has missed the boat on a major oil play in the States.