Royal Dutch Shell To Delay Drilling Of Australian Well

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By: MICHEAL KAUFMAN
Published: Mar 31, 2015 at 1:57 pm EST

Royal Dutch Shell plc. (ADR) (NYSE:RDS.A) has postponed its $100 million-plus exploration well in Australia’s north-east cost. The Den Haag-based energy company’s project known as the Cronus-1 was initially scheduled to start drilling in the first quarter of 2015 in the Browse basin. However, now the project has been postponed, reportedly till the end of this year.

Many are speculating that the project is postponed because of more than 50% plunge in the crude oil prices since June 2014. A spokesman of Shell denied that the decline in crude oil prices has resulted in postponing the Cronus project. However, the spokesman failed to give any reason for the delay.

Other companies, such as Japan’s Santos Ltd (ADR) (OTCMKTS: SSLTY) and Inpex Corporation have also delayed their works on the well. As reported by the Financial Review, one of a Perth-based explorer regarding the issue said: “The feeling among everyone I am talking to is that if it is not focused on 2015 production, then don’t do it. Delay it, defer it.”

During the early market hours today at 9:57 (ET), the US benchmark for crude oil, West Texas Intermediate was trading at $48.06 per barrel, while the Brent crude at the same time was trading at $55.23 per barrel.

Analysts, as reported by the Financial Review, thus feel that the lower crude oil prices would lead to a cutback in exploration expenditure by the energy companies. Industry experts also believe 2016 exploration budgets to go down if crude oil prices do not stabilize. Santos decided in 2015 to scale back on its capital budget by 25% or $700 million. The company also cut its exploration budget by 29% or $250 million.

According to one of the sources of Financial Review, the delay in the venture could benefit Shell. Due to the fall in crude oil prices, the rig hire rates have also declined. If the crude oil prices do now stabilize soon, some analysts expect the rental prices to reach 40% lower by the end of 2015 than over the past few years.

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