OUT IN THE COLD: INVESTOR RISK IN SHELL’S ARCTIC EXPLORATION ‘Oil spill risks, high extraction costs, doubts over the amount of commercially recoverable reserves, and a precedent of cost overruns and delays combine to raise questions about the commercial viability of some proposed Arctic projects.’ Introduction

International oil companies (IOCs) are and a precedent of cost overruns and facing a dual threat from both the end delays combine to raise questions of easily accessible oil from conventional about the commercial viability of sources, and the rise of resource some proposed Arctic projects. sovereignty in the Middle East, Russia and Latin America, whereby governments Accordingly, it is necessary to analyse are increasingly asserting control over specific projects and specific territories the natural resources located in their to understand the precise risks of Arctic territories. This is driving the IOCs to projects for a particular company. In ever more extreme forms of oil and gas Russia, for example, political risk and a lack extraction, from Canada’s tar sands of transparency should be of concern to to ultra-deepwater sites, to the Arctic IOCs and their shareholders. This report and other ice-covered watersi. therefore, firstly, examines the risks that are generally applicable to offshore The Arctic Ocean is the last frontier for Arctic extraction projects (as separate the IOCs, with rapid reductions in ice from onshore operations, as offshore cover (due to climate change from the work involves different technological combustion of fossil fuels) making the challenges and is subject to different exploitation of newly discovered offshore regulatory regimes). Secondly, we assess resources possible, at least theoretically. the environmental, safety, political, The region’s resources are estimated funding and other risks associated with at 22% of the world’s undiscovered oil, particular offshore Arctic-conditions according to the latest US Geological projects for a specific oil company, in this Survey (USGS) estimates,1 although case Royal Dutch Shell (‘Shell’). Shell’s commercially recoverable reserves may Russian (Section 4) and Alaskan (Section be much smaller (see Section 1). 3) offshore operations are used as case studies to illustrate the spectrum of risks. In the aftermath of the Deepwater Horizon disaster in the Gulf of Mexico, This report focuses on Royal Dutch the potential environmental and financial Shell’s operations as its proposed impact of an oil spill in the Arctic has drilling programme in Alaska this received much scrutiny, although to date year is seen to lead the charge into IOCs admit they have not calculated the Arctic waters for major IOCs. financial impact of a worst-case scenario.2 Finally, we propose questions that Apart from oil spill risks, high extraction shareholders should ask of Shell costs, doubts over the amount of to clarify how such risks are being commercially recoverable reserves, mitigated and managed.

i. The Arctic region is conventionally understood as land and ocean north of the Arctic Circle (currently 66° 33' 44" north) and includes the following countries and/or their waters: Greenland (autonomous province of Denmark), Iceland, Norway, Sweden (no Arctic Ocean access), Finland (no Arctic Ocean access), Russia, the US (Alaska) and Canada. For the purposes of discussing oil extraction, it makes sense also to talk of ‘Arctic conditions’, that is, waters where ice cover demands specialised technological solutions. The waters off Sakhalin Island, discussed in Section 4, are an example of an Arctic-conditions province south of the Arctic Circle. Executive summary

Arctic offshore exploration is a priority for the high side of the industry range” and devices and dispersants) are of questionable Shell: its Alaskan project alone accounted “development times are likely to disappoint”.4 efficacy in icy waters (see Section 3). for about one-seventh of Shell’s total Shell has previously experienced significant exploration spending in 2011 (see Section cost overruns at its Sakhalin-2 project, No analysis has been published quantifying 3), while further lease purchases were where estimated costs rose from $10bn to the specific oil spill response impediments made in Greenland and Canada in 2010- $22bn in one go (see Section 4). in Shell’s US lease areas in the Chukchi and 11, and negotiations continued for a Beaufort seas. A study of the Canadian strategic Arctic partnership with Russian Dependence on favourable Beaufort Sea by WWF,7 however, found that state-controlled major Gazprom. More political conditions it would not be possible to respond to an oil bidding is expected soon for concessions Because of the high costs, securing spill for seven to eight months of the year. in Arctic Norway, Greenland and the US. significant tax breaks or subsidies will be a Even during the most favourable weather necessary precondition for the commercial conditions (July-August), a response near This push for reserves is due in part to the viability of Arctic extraction projects, the shore would only be possible 44‑46% decline in Shell’s production over the last particularly gas. Bernstein Research notes of the time, assuming the necessary 10 years (with the exception of a 5% rise that “fiscal takes will be crucial to make infrastructure and workforce were readily in 2010). Sakhalin-2, Shell’s first Arctic- any Arctic developments viable”.5 This available. Without such an analysis it is not conditions offshore extraction project, reliance on favourable political decision- possible to accurately assess the risk posed decided upon around the time of Shell’s making presents particular challenges for to Shell by an oil spill in its Arctic operations. reserves scandal, has a history of cost projects in Russia. In 2006, following an overruns and delays that sets a worrying intervention by the Putin administration, Shell recently admitted to the Commons precedent for investment decisions made Shell lost its majority stake in the project Environmental Audit Committee that it had during periods when Shell feels pressure to Gazprom. It may be a risky strategy not assessed the potential cost of a worst- to book new reserves (see Section 4). for IOCs to rely on fiscal subsidies from case spill in the US Arctic. Peter Velez, head governments to offset high extraction costs. of Shell’s emergency response operations International oil companies (IOCs) face in Alaska, confirmed that the company had pressure from investors to achieve a Inadequate oil spill response plans put no price tag on clean-up operations, positive reserves replacement ratio (RRR), The US government’s Bureau of Ocean saying the chance of a well control problem which measures the amount of proven Energy Management, Regulation and was “very, very small”.8 The Deepwater reserves added to a company’s reserve Enforcement (BOEMRE) estimated a one Horizon disaster serves as a stark warning base during the year relative to the oil and in five chance of a major spill occurring of the high financial and environmental gas extracted.3 It is important, however, over the lifetime of activity in just one impacts of ‘low probability’ events. that investors and IOCs appropriately block of leases in the Beaufort Sea.6 balance any focus on their RRR with the Lack of transparency in Russian operations potential financial impact of the short- and Current technology is ill equipped to The Sakhalin-2 project (where Shell long-term risks inherent in any project. deal adequately with a large oil spill in reportedly has effective operational Arctic waters. Limited accessibility due control, with a 27.5% stake) has neither Arctic oil and gas projects – to storms, ice cover and lack of daylight disclosed equivalent oil spill response plans, the risks for Shell and will mean oil companies will not have nor important financial information. The its shareholders the long months that were available to Russian government has begun receiving High costs those tackling the Deepwater Horizon revenues from Sakhalin-2,9 which under High extraction costs raise questions about disaster to determine solutions to any the contract terms should happen once the feasibility of Arctic extraction projects catastrophic spill. Industry-funded research all of the investors’ costs have been in the medium-term, with one analyst has confirmed that the usual techniques recovered. Yet at the time of ceding the noting that “development costs will be at of controlling a spill (such as containment controlling stake to Gazprom, Shell and its partners reportedly agreed to absorb $3.6bn of the cost overrun.10 It appears that Shell has yet to make any disclosure regarding the issue of cost recovery, which highlights the risk of a lack of transparency regarding Shell’s Russian projects.

Exposure to poor safety and environmental practices of partners Shell and Gazprom signed a ‘protocol for strategic global cooperation’ in 2010. The potential operational involvement of Gazprom or its subsidiaries in Shell’s Arctic projects and, particularly, a potential share swap between the companies should be of concern to investors, owing to Gazprom’s poor safety, environmental and transparency record. In December 2011, Gazflot, a subsidiary of Gazprom, continued drilling outside of the approved season11 and without carrying out all necessary assessments.12 The rig in question sank, killing 53 of its 67 crew.13

Project funding challenges The social and environmental responsibility guidelines of international financial institutions (IFIs) and signatories to the Equator Principles – the voluntary set of standards for assessing and managing social and environmental risk – have proven to be a barrier to companies securing project funding for frontier extraction projects.

For example, in 2003-2006 Sakhalin-2 failed to obtain funding from the European Bank for Reconstruction and Development (EBRD) because of serious breaches of EBRD’s environmental and sustainability guidlelines.14 The project’s current lenders (including BNP Paribas, Credit Suisse and Standard Chartered) are facing public pressure to refuse funding for an additional drilling platform at Sakhalin-2.15 6 Out In The Cold: Investor Risk In Shell’s Arctic Exploration 1. The high cost of Arctic oil and gas

Confronted by the end of easily accessible recoverable reserves may not be as bountiful Shtokman, one of Russia’s flagship Arctic oil from conventional sources and the as the oft-quoted USGS figure suggests, extraction projects, is a case in point. It is simultaneous rise of resource sovereignty in and the feasibility of particular extraction one of the world’s largest gas fields (with the Middle East, Russia and Latin America, projects will depend to a significant 138 trillion cubic feet of gas and around International Oil Companies (IOCs) have extent on political will and available tax 505 million barrels of gas condensate),23 sought to maintain their profits by pursuing breaks, as well as the oil/gas ratio. located in the Barents Sea, and currently ever more extreme sources of oil in operated by a consortium of Gazprom, Total provinces such as the Arctic, the tar sands in Overestimated recoverable reserves? and Statoil. Since its discovery in 1988, the Alberta, and ultra-deepwater sites in Brazil.16 The results of an unpublished USGS review planned start of commercial drilling has been of the reserves of the East Greenland Rift delayed many times. At the formation of the The swift reduction in ice cover that has Basin, obtained by Der Spiegel,20 show that operating consortium in October 2009, the attended the onset of climate change has commercially recoverable hydrocarbon final investment decision had been expected now opened up the theoretical possibility reserves in the Arctic are likely to be far less before the end of that year.24 Most recently of exploiting newly discovered offshore than the purely technical estimates suggest. it was expected in December 2011 and resources. The US Geological Survey (USGS) then March 2012,25 but instead a further estimates the region’s resources at 22% of The estimate for reserves in this region delay until July 2012 was announced, with the world’s undiscovered oil, or 90 billion suggested a yield of 7.5 billion barrels analysts citing the lack of tax breaks as a barrels of oil, and 1,670 trillion cubic feet of oil equivalent. According to the USGS significant factor.26 In the course of this of gas,17 although the price of extraction findings, however, the amount of oil that difficult history, cost estimates for the is not taken into account in these figures. can actually be extracted at an exploitation project have shot up, from $6bn in 1994 cost of $100 per barrel is only 2.5 billion to $20bn in 2007 to around $40bn in But any such extraction will be heavily barrels, with a 50% probability. That is, 2011, according to Bernstein Research.27 dependent on a variety of market, technical the oil produced would need to sell at and environmental factors. Extremely significantly higher than $100 a barrel, Gas less commercially attractive than oil harsh climatic conditions, long distances allowing for transport costs and tax. Even Due to both market conditions and the high and high technological demands mean at a more unlikely exploitation cost of costs of transportation, gas fields are likely extraction costs are likely to be very high. $300 per barrel, only 4.1 billion barrels to be more difficult to make profitable than The key requirements are sustained high could be extracted at 50% probability.21 oil. According to Andrew Latham, vice- demand, and the resulting high oil price, president of energy consulting at Wood as well as ongoing political stability in No comparable estimates are available Mackenzie, “remote gas is often much harder the region. Neither of these conditions is for the areas of Shell’s established to transport to markets. In addition, export permanent – and, in fact, high prices can interest (Chukchi Sea, Beaufort Sea, and technology constraints are expected suppress demand.18 But IOC strategy at West Greenland). Their depth, ice to delay production of a large portion of the board and management levels appears and weather conditions differ from [Arctic] commercial gas until 2050.”28 to assume that these market conditions the East Greenland Rift Basin so the are in fact permanent. For comparison exact correspondence of resources Wood MacKenzie and Fugro Robertson’s on oil price, an analysis by McKinsey to commercially recoverable reserves 2006 assessment of Arctic hydrocarbon quoted by the Office of Tony Blair report, will be different, but the USGS data reserves concluded that the region was ‘Technology for a Low Carbon Future’, serves as a reminder of the possible “a gas province, with 85 per cent of the estimates that a sustained oil price of $120 discrepancy between these values. discovered resource and 74 per cent of per barrel reduced the incremental cost of the exploration potential as gas”. Statistics additional investment in decarbonisation, Cost overruns and delays Norway researchers Lars Lindholt and and, as a result, alternatives to fossil Bernstein Research excludes any Arctic Solveig Glomsrød meanwhile report that fuels would become more attractive.19 oil and gas production from its supply “the relative importance of the Arctic as predictions for the next decade, noting that a world gas supplier will decline”.29 Shell High extraction costs challenge the “development costs will be at the high side itself recently announced a decision to feasibility of Arctic extraction projects in the of the industry range” and “development sell its stake in Arctic Canada’s Mackenzie medium-term. Furthermore, commercially times are likely to disappoint”. 22 Delta onshore gas pipeline, with analysts citing the disappearance of a market for this gas because of the presence ‘Development costs [in the of cheaper shale gas in the US.30 Arctic] will be at the high side of Fiscal and political risks Under these conditions, as Bernstein Research points out, “fiscal takes will be the industry range. Development crucial to make any Arctic developments viable”31 – that is, securing significant tax times are likely to disappoint.’ breaks or subsidies will be a necessary precondition for any extraction in Bernstein Research the Arctic, particularly of gas.

This highlights the particular vulnerability of Arctic extraction to political risk, something not factored in by market analysts such as Bernstein: with the risks and costs at the high end, extraction depends on the support of host governments. Russia is particularly challenging here, as Section 5 will illustrate. However, while US politicians emphasise the role of Arctic oil in providing cheap fuel and reducing dependency on foreign markets, extraction costs may prove too large for this to happen. Indeed, a statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and US domestic oil production by the Associated Press showed that there was no correlation between extraction volumes and the price of petrol.32 Although there is a strong history of subsidies for domestic oil extraction in the US, this might provide a reason for a government to reconsider subsidies. The future of oil and gas subsidies in the US will in large part be dependent on the outcome of the November 2012 congressional and presidential elections.

The following section presents a brief overview of available information on Shell’s Arctic-conditions offshore projects (both those in operation and those in the early stages) and highlights their particular exposure to the risks outlined above. 8 Out In The Cold: Investor Risk In Shell’s Arctic Exploration

2. Shell’s Arctic exposure

Shell’s production has been decreasing for exploration programme: in 2011, the Given high extraction costs, is the company the past 10 years – with the exception flagship Alaskan offshore exploration wise to spend this much on exploration of a 5% increase in 201033 – so booking project accounted for at least $0.5bn of acreage? As the story of Sakhalin (Section new reserves is a priority for the company. the total $3.5bn exploration budget.35 4) will show, rushed decisions taken to Exploration expenditure is growing, This section provides an overview of replace dwindling reserves elsewhere may increasing by 30% to $3.5bn in 2011, Shell’s ongoing offshore Arctic extraction lead not only to going into riskier frontier with a projected further increase to $5bn and exploration activities, as well as the areas but also bad cost management. in 2012.34 Since Shell’s 2005 purchases Icompany’sF I plansC for furtherO acreageC in the US Beaufort Sea, the Arctic hasA C acquisitions in the region, to set in EcontextA been a priority direction in the company’sP the two case studies (sections 4 and 5). N H Key:36 T ExplorationR or Production projects currentlyO underway NArea of Interest

Sakhalin-3

Sakhalin-2

Chukotka

Beaufort Sea Chukchi Sea

O c e a n t i c r c A

Yamal Peninsula Baffin Bay Kara Sea

Greenland Sea

Barents Sea

Norwegian Sea N O R T H

A T L A N T I C O C E A N Out In The Cold: Investor Risk In Shell’s Arctic Exploration 9

Table 1 – Shell’s Arctic Assetsii

Region Alaska (see Section 5) Canada Greenland Russia (see Section 4)

Holdings 155 leases in Beaufort One block in Beaufort Sea Two blocks off Sakhalin-2: two fields off sea37,38 and 275 in Chukchi (since 2007),40 West Greenland Sakhalin Island Sea39

Stake Sole leaseholder Sole leaseholder Operator, consortium Consortium member leaseholder (41% for under production sharing Block five and 46% agreement (27.5% stake, for Block eight)41 down from 50% stake in 2006) with operational control

Partner companies - - Statoil, GDF Suez, E&P Gazprom (controlling Greenland and Nunaoil stake), Mitsui & Mitsubishi

Stage Exploration (drilling Not yet commenced Exploration (seismic Extraction (full cost planned for 2012) exploration testing) recovery officially achieved, though likely not factually – see Section 4)

Reserves (oil/gas) Estimates for all of US Estimates for all of Estimates for all of West 1bbl/25tcf46 (see also Section 1 Beaufort Sea: 8 billion Canadian Beaufort sea, Greenland: 31bbl of oil on the difference barrels of oil (bbl) / 30 including deepwater: equivalent45 between technically trillion cubic feet (tcf)42 16.8bbl44 and economically Estimates for all recoverable reserves) of Chukchi Sea: 12bbl/76tcf43

Investment to date $4bn (including at least $600m (Beaufort Sea Undisclosed. Seismic On consortium level: $2.2bn on leases)47 lease),48 survey ongoing in 201249 $24.5bn, including absorbing at least $3.6bn of $12bn cost overrun

Future investment Undisclosed. For Undisclosed. For Unknown. For comparison, Undisclosed. New (3rd) comparison, the abortive comparison, $970m Cairn’s exploratory drilling LNG processing train 2011 exploration committed to invest in in nearby blocks cost and an extra drilling rig programme cost approx. Nova Scotia exploration $150m/year51 are proposed $0.5bn over six years.50

Key project-specific Inadequate accident- Political control, cost risks preparedness; regulatory mismanagement, bad and litigation delays; track record of partner lease expiry costs company (Gazprom), funding

Developments to watch 2012 US Department Exploration plans not 2012 and 2013 lease Pending decisions on extra out for of Interior approval of yet announced. Beaufort sales, 2012 results of drilling platform, 3rd train Shell well containment Sea 2012 lease sale. seismic testing on LNG plant. Ongoing technology, 2012 drilling negotiations on strategic season, 2015, 2017 and partnership with Gazprom 2018 lease expiry dates

ii. Here and elsewhere in the report, amounts of oil and gas are shown in barrels and cubic feet respectively. Where our sources used a different metric, this was converted using the Santos Conversion Calculator (www.santos.com/conversion-calculator.aspx). The conversions of tons of oil to barrels are therefore approximate as the real exact conversion rate depends on the density of the particular oil. Apart from the projects outlined in the presents the same combination of harsh The following two sections present in table, further lease sales in Arctic areas weather conditions and moving seasonal detail Shell’s ongoing projects and plans is expected in Norway in 201252 and ice that is the challenge of offshore Arctic in offshore Alaska and Russia and the Greenland in 2012-1353 and Shell has conditions. Additionally, although Shell is risks pertinent to each. Oil spill risk is indicated its interest in bidding. 54 currently the operator of Ormen Lange, being examined in the context of the US the exploration and seafloor installations operations, given that the company’s most Shell also owns Niglintgak, a major onshore were carried out by Hydro as operator.56 recent spill response plans are publicly gas discovery in Arctic Canada, and The Gro field just above the Arctic Circle available, whereas the pertinence of such operates the Salym oil fields in partnership in the Norwegian Sea cited by the booklet risk to Sakhalin-2 and the company’s with Gazprom in north-west Siberia. proved to be a “disappointment”.57 preparedness there is harder to assess. Shell in the Arctic,55 a promotional booklet, additionally cites Shell’s operations at Questions for Shell the Ormen Lange deepwater field in P What is the company’s overall spending Norway, and its Kashagan offshore field on Arctic exploration compared with in Kazakhstan. Although aspects of their its total exploration budget? technological design will be relevant in Arctic extraction, these projects are not P When does Shell expect any of its new included in this report as none of them Arctic investments to start extraction? Out In The Cold: Investor Risk In Shell’s Arctic Exploration 11

3. Case study 1: Alaska

As of April 2012, Shell is set to go ahead clearer regulatory environment of the US. Underestimating oil spill risks with a drilling programme in the Beaufort In terms of management and technology, Despite the US Interior Department’s and Chukchi seas, north of Alaska. Shell’s Shell has little track record of operating Bureau of Safety and Environmental plans for offshore exploration in the US in the Beaufort and Chukchi seas (except Enforcement approval for Shell’s Beaufort Arctic have become an industry test for test wells in the late 1980s), so this and Chukchi seas oil spill response case58 on drilling in the Arctic in terms of case study focuses on analysing the known plans,65 there are strong reasons to both technology and the ability to achieve unknowns: the probability of discovering believe the company is inadequately the necessary regulatory approvals and commercially recoverable reserves prepared for the risk of a large oil spill. secure the social licence to operate. in the time allotted by the company’s leases, and the risks associated with How much of a risk are oil spills? The project’s safety and environmental inadequate accident preparedness. Shell’s 2009 environmental impact safeguards, in particular its preparedness assessment discounted the chances to deal with spills, have seen a number of Background of a large spill or a well blowout as challenges, exposing both the project’s As of 2010, according to a company improbable.66 But major spills have internal weaknesses and a significant presentation60, Shell held 137 Beaufort Sea occurred during exploration drilling regulatory/litigation risk. Despite recent leases worth $84m (purchasing began in (including BP’s Deepwater Horizon regulatory clearances, a number of facts 2005) and 275 Chukchi Sea leases worth blowout in 2010 and Petronas’ spill suggest that Shell’s exploration project $2.1bn (purchased 2008), the company’s north of Australia in 2009), and well lacks key technological capabilities, largest investment in its Arctic programme blowouts have occurred in shallow water infrastructure and information to be so far. In December 2011, Shell won rights (including Total’s recent Elgin gas leak).67 able to deal with the risk of oil spills. to an additional 1861 tracts in Harrison Bay, north of the Alaska National Petroleum The US Bureau of Ocean Energy The conditions in the region are different Reserve. In 2012, the company plans to drill: Management, Regulation and Enforcement from Sakhalin: ice cover is significantly P in the Chukchi Sea, the Burger (BOEMRE) estimated a one in five chance more challenging, with thicker multi- prospect (Posey Area) Blocks 6714, of a major spill occurring over the lifetime year iceiii present,59 and drilling (at 6762, 6764, 6812, 6912;62 and of activity in just one block of leases in the the exploration stage at least) will be Beaufort Sea.68 The probability of small spills performed by floating rigs rather than P in the Beaufort Sea (Camden is close to 100 per cent69 – as elsewhere, stationary concrete-reinforced structures. Bay), Flaxman Island Blocks such spills are an accepted fact of oil Politically, the project operates in the 6559, 6610 & 6658.63 companies’ operations, but in the Arctic

iii. Multi-year ice is sea ice that has survived at least one summer’s melt season. It contains less brine and more air pockets than first-year ice. This means ‘stiffer’ ice that is more difficult for icebreakers to navigate and clear.

Shell’s lease areas in the US Chukchi and Beaufort Seas as per 2010 company presentation64

Crackerjack Beaufort Sea

Barrow Harrison Bay Burger SW Shoebill Camden Bay Wainwright

Chukchi Sea Pt Lay Kaktovik

Point Hope Alaska (USA) Kotzebue 12 Out In The Cold: Investor Risk In Shell’s Arctic Exploration

they will be associated with more significant comparable increase in resources – only only two months to thoroughly test the technical challenges and, therefore, higher two additional vessel of opportunity equipment before drilling begins. More costs. skimming systems (VOSSs) staged 42 worryingly, in written evidence to a UK hours away were added to the response parliamentary inquiry Shell admitted What technology and infrastructure fleet, alongside two other skimmers.76 that it has no intention of testing the is Shell relying on? capping system in icy conditions.82 This The US Geological Survey concludes that P Shell also models its worst-case is a particular concern given that Shell’s “there is no comprehensive method for scenarios in best-case conditions. For Chukchi oil spill response plan admits that clean-up of spilled oil in sea ice.”70 Shell example, Shell’s ‘worst case’ discharge “the range of open water is variable from has acknowledged publicly that the usual scenario models a spill between August year to year and ice could be present at techniques for controlling a spill (booms, 7 and September 6,77 which is only the drill site”.83 A recent US government dispersants, etc.) are of questionable relevant to a summer spill scenario. Accountability Office report concluded: efficacy in Arctic waters: As“ these [ice] Shell provides no oil spill modelling “Even with Shell’s plans to have dedicated conditions develop, the efficiency of physical for a spill on or around October 31 capping stack [a well containment device] containment and recovery tactics will be (at the end of the drilling season) nor and well containment capabilities in the reduced.”71 Joint Industry Programme estimates the movement of oil trapped region to provide rapid response in the research, funded by Shell, showed that under ice subject to subsea currents. event of a blowout, these dedicated oil weathered for more than six days in capabilities do not completely mitigate field conditions was un-ignitable and P Shell’s spill plan for the Alaskan Beaufort some of the environmental and logistical unrecoverable with mechanical devices, Sea claims that oil would only “be risks associated with the remoteness and that in-situ burning was only a viable option released to a relatively small area on the environment of the region,” including for approximately 5 days after oil is spilled water”, even though US regulators have surface ice, ice scouring, limited and that it is not effective at all in 30- estimated some of the wells it wants to infrastructure and available vessels.84 70% ice conditions, reporting that “after drill in 2012 could gush at a rate of more six days the oil was so mixed with slush than 60,000 barrels a day.78 Worryingly, P Finally, Shell’s Chukchi Sea response plan that both mechanical recovery and in-situ in a recent evidence session to a UK states that the company intends to use burning were evaluated as not effective.”72 parliamentary inquiry, Shell admitted a single drillship during the Chukchi Sea that it has not calculated how much a drilling programme: “In the event of a Not only are there significant technological large spill would cost to clean up, despite blowout, the drillship would immediately limitations to the ability of oil companies the serious financial repercussions a cease its then current operations and to clean up a spill, the infrastructure to large-scale spill is likely to have.79 relocate to a safe location to initiate mount a large-scale response simply isn’t in a relief well and intersect the blowout place. The US coastguard has admitted that P A spill would be most damaging if it well”. As the Pew Trust notes, there is no almost no infrastructure exists in the region. occurred at the end of the drilling season, evidence of any case in history where a Admiral Robert Papp Jr, a senior coastguard when any response would be further rig involved in a catastrophic well blowout official, said: There“ is nothing up there to impeded by ice. While drilling in the was able to drill its own relief well.85 operate from at present… no way we could Chukchi Sea is barred after September deploy several thousand people as we did 24, the Beaufort Sea plan would allow Key uncertainty: quantifying the threats. in the Deepwater Horizon spill.”73 Making exploration through to October 31. So far, no analyses have been published a more general point, Lloyd’s of London According to a report by University of quantifying the specific oil spill response in their most recent report, Arctic Risk, Alaska Fairbanks professor Andy Mahoney impediments in Shell’s lease areas in the concluded: “In many areas infrastructure is (commissioned by Pew Environment Chukchi and Beaufort seas. But a study currently insufficient to meet the expected Group), ice moves into Alaska’s Beaufort commissioned by WWF found that it would demands of economic development.”74 Sea earlier than it does in the Chukchi not be possible to respond to an oil spill region. Ice formed during the winter in the in the Canadian Beaufort Sea for seven How seriously is the company Beaufort Sea is “thicker and stronger” than to eight months of the year.86 During the taking the risk? the ice flows in the Chukchi Sea and could most favourable weather conditions (July- Although Shell’s 2012 oil spill response plans create a major hazard for oil clean-up.80 August), a response would only be possible for both the Beaufort Sea and Chukchi Sea75 44-46% of the time, assuming that the acknowledge certain risks much better P The Interior Department’s approval of infrastructure and workforce were readily than previous versions of the documents Shell’s oil spill response plan is conditional available. Such a ‘response gap’ analysis (for example, the Chuckchi plan discusses on the company’s well containment needs to be carried out and published to procedure in case of a well blowout, whereas plans in the event of a well blowout. be able to accurately assess the threat the previous document simply discounted In the company’s plans for 2009 and that spills pose to Shell’s operations. such a prospect as unlikely), a number of 2010, Shell declared that the use of a details suggest that crucial issues have capping and containment system would Lease expiry dates only been given casual consideration. be unfeasible.81 By 2011, the company Part of the reason for pushing ahead had changed its mind and the system with the exploration programme despite P Shell’s worst-case discharge estimate has become a key part of its planned spill these gaps in spill response expertise more than quadrupled from 5,500 response. However, Shell has released and despite the public opposition may barrels a day in the 2009 Chukchi Sea few details about the system. As of be that Shell is worried about its Alaska plan, to 25,000 barrels a day in the March the company has not tested its leases expiring, as suggested by a 2010 2011 plan, yet there hasn’t been a well containment equipment, leaving internal company document circulated The US Geological Survey concludes that ‘there is no comprehensive method for clean-up of spilled oil in sea ice’. 14 Out In The Cold: Investor Risk In Shell’s Arctic Exploration

to employees and ex-employees: “With the issue of the final permits Shell required Questions for the company only four years remaining on some of the for drilling during summer 2010, alongside P Has the company carried out a spill 10-year leases, Shell is concerned that the a moratorium on offshore drilling in US response gap analysis of its prospects in leases will expire before commerciality is waters. Shell estimated it lost $115m the Beaufort and Chukchi seas? If so, will proven unless the current moratorium and due to the moratorium in Q2 and Q3 the company make it available publicly? regulatory uncertainty is resolved.”87 2010.93 Litigation again prevented Shell from obtaining the necessary P Has the company carried out an analysis As follows from Section 1, and considering authorisations in 2011, and the of the environmental and financial there is so far none of the infrastructure company cancelled its drilling plans.94 worst-case scenario and, if so, will the required to get oil from offshore company make it available publicly? North Alaska prospects to market, any Finally, in 2012 Shell obtained most hydrocarbon discoveries made in the of the necessary approvals95 from the P Will the company test its spill response Chukchi and Beaufort seas may not be regulators and even filed a pre-emptive technology (particularly well containment immediately commercially viable in any court case in Alaska asking the court to devices) in Arctic conditions and make case; the issue is more that Shell is likely declare its oil spill response plans sound detailed disclosure of the conditions to incur additional costs by prolonging before civil society groups could challenge and results of these tests? its leases. The Beaufort Sea leases in them.96 Regardless of the result of this particular were acquired at Beaufort Sea case, it is clear that the company’s next P Will the company analyse the potential oil and gas lease sales 195 (March 2005) exploration and extraction steps will be effects of using in-situ burning or and 202 (April 2007).88 As the leases under a similar amount of scrutiny from chemical dispersants and make have a primary term of 10 years, the ones regulators, the public and environmental detailed disclosure on this analysis? bought in 2005 expire “unless the lessee organisations, making further delays likely. is conducting operations on the lease”.89 If P What oil/gas balance is Shell expecting Shell can show that operations are being Oil/gas balance questions to find in the Burger and Flaxman conducted, the leases can be extended, at As Section 1 showed, gas extraction is Island prospects? Does the company some extra cost. The precise procedure or less likely to be commercially viable in expect gas exports from these costs of lease extensions are uncertain.90 the Arctic than oil. Shell’s drilling in the prospects to be economically viable, Burger prospect in the Chukchi Sea in and under what conditions? Court and regulatory challenges 1989 – the same area being drilled in 2012 Shell’s drilling plans have been – encountered a major gas accumulation P How does Shell plan to finance extraction delayed year on year since 2007 by (most likely 14 trillion cubic feet of gas and infrastructure in the event of a find? litigation and regulatory pressure. 724 million barrels of condensate, according to BOEMRE97), which the company did Having acquired Beaufort Sea acreage not consider economical at the time.98 in 2005 for $44m, Shell planned to drill exploratory wells there in late summer Altogether in the mid-1980s and early 2007, but did not go ahead as a lawsuit 1990s Shell drilled three exploratory wells was filed against the regulator by North in the Bering Sea (with Arco – now part of Slope Borough and the Alaska Eskimo BP – and Gulf),99 15 in the US Beaufort Sea Whaling Commission, challenging the and four in the Chukchi Sea.100 Following a approval of Shell’s exploration plan as fall in oil prices, Shell divested much of its it had not properly considered impacts Alaskan offshore assets in 1997-98.101 on wildlife and on indigenous people’s subsistence economy.91 The lawsuit and Shell’s own presentation of its Alaska plans appeals prevented the drilling programme normally mentions both oil and gas.102 from going ahead in 2008 and 2009.92 The question remains, what balance of oil and gas is the company expecting On May 27 2010, in the wake of the to find, and how will it be able to make Deepwater Horizon disaster, US secretary of gas extraction economically viable? the interior Ken Salazar postponed Out In The Cold: Investor Risk In Shell’s Arctic Exploration 15

4. Case study 2: Russia

The following pages review the history of Sakhalin-2, Shell’s headline offshore Arctic-conditions project, underscoring the political, transparency and reputational risks of working in Russia, as well as Shell management problems Piltun-Astokhskoye- B platform associated with rising project costs. Piltun-Astokhskoye- A platform

Sakhalin-2 is the company’s main experience as operator of an offshore project in ice-covered waters,103 but there are Onshore P significant reasons to doubt it has been processing Lunskoye platform facility a positive one. The project costs overran by more than 100%. This contributed to a takeover of Shell’s controlling stake by Gazprom, the Russian state-controlled oil and gas major, which dealt a blow to Shell’s reserves.104 Meanwhile, environmental issues have contributed to project funding problems as well as reputational issues and investor concerns.105 Shell’s evolving partnership with Gazprom means increased future exposure to such risks.

Background Sakhalin-2 is one of the world’s largest integrated offshore oil and gas extraction projects, as well as Russia’s first offshore LNG plant P P Oil export terminal gas and liquefied natural gas (LNG) project.106 It is managed by Sakhalin Energy Investment Company (SEIC), a joint venture currently between Gazprom (50% plus Sakhalin-2 project infrastructure on and around Sakhalin island, Russia one share), Shell (27.5%), Mitsui (12.5%) and Mitsubishi (10%).107 Despite losing phase 2, the project is designed to extract for year-round extraction (using subsea its majority stake in 2006, Shell still has 370,000 barrels of oil equivalent per day. pipelines to bring hydrocarbons to shore) effective operational control (according to In 2011, reported production levels were and an LNG plant. Whereas phase 1 had observers108 and as attested by the fact approximately 45.5 million barrels of oil cost about $1.5bn, phase 2 cost was valued that no Gazprom subsidiaries are contracted and 515.5 million cubic feet of gas.111 at just under $10bn. The final investment on the extraction side of the project). decision was made in May 2003.113 Sakhalin-2 operates under a production Sakhalin-2’s two prospects (the Piltun- sharing agreement (PSA),iv the first of its Cost overrun Astokhskoye and Lunskoye fields) are kind in Russia, signed on 22 June, 1994.112 In 2006, Shell was forced to disclose a located approximately 15km north-east Starting with a 25% share in the joint substantial cost overrun on Sakhalin-2: of Sakhalin Island in the Okhotsk Sea, venture, Shell assumed operatorship and instead of $10bn, the cost was now east of Russia. The sea is covered with ice a controlling 62.5% stake in SEIC in 2000. $22bn, while the start of LNG exports for around six months of the year.109 The By that point Sakhalin-2’s first installed was not now anticipated until the third- fields’ combined recoverable reserves are platform (Molikpaq) had already started quarter of 2008 instead of mid-2007. estimated at more than 1.3 billion barrels seasonal oil extraction. Shell’s task as The actual costs (CAPEX and OPEX) of oil and condensate and 21 trillion cubic operator in phase 2 of the project was of the project as of 2012 rose further feet of natural gas.110 For the current to bring onstream two more platforms to $24.5bn. What had happened?

iv. A ‘production sharing agreement’ is a contract between the state and investors which has the force of law, and according to which once a certain amount of the costs of extraction (‘cost oil’) have been recovered by the investor, the rest of the hydrocarbons produced are divided up between the state and the company or companies involved. 16 Out In The Cold: Investor Risk In Shell’s Arctic Exploration

A leaked US government cable quotes the Russia’s hydrocarbons (through takeovers salmon spawning grounds vital for the fishing then Sakhalin-2 project director David of Sibneft119 and Yukos120). To protect industry, and whale migration patterns. In Greer: “Sakhalin Energy agreed with the its projects, in 2006 Shell attempted to 2003, the EBRD challenged the project’s [Russian government] on a $9.6bn price negotiate an asset swap deal with Gazprom. environmental impact assessment and tag for the project in May 2003. In the However, the deal fell through when Shell consistently refused funding unless these meantime… approvals took longer, steel was forced to reveal its Sakhalin-2 cost problems were resolved.130 By comparison, prices rose, and contractor costs ballooned overrun.121 The Russian government then the companies running Sakhalin-1 avoided – all of which put huge pressure on the stepped up pressure on the project through the problem by taking no project funding. budget. By early 2004, it was already clear the environmental regulator, threatening that costs would exceed $13bn, and that to revoke the project’s environmental Attempting to satisfy the bank’s demands estimate rose by early 2005 to almost approval and levy unprecedented fines.122 contributed to the cost overrun: SEIC had $20bn.”114 It was clear that the project to delay a number of operations, reroute also had serious environmental issues (see Finally, on 21 December 2006, the partners an offshore pipeline, and fund a whale below) and safety problems, with 18 job- in SEIC handed over 50% plus one share to advisory panel and an indigenous people’s related fatalities recorded up until 2006.115 Gazprom for $7.45bn, which commentators programme. Crucially, the refusal meant deemed an acceptable price for a deal made that SEIC was unable to secure the solid The decision to go with phase 2 was “under duress”,123 “caving into government reputation EBRD project funding implies. taken nine months before Shell’s reserves pressure”.124 A leaked agreement, confirmed SEIC was forced to resort to a different, scandal, in which the company admitted to by an SEIC shareholder manager, showed smaller consortium of banks led by the having overstated the size of its reserves, the three companies also agreeing to Japan Bank for International Cooperation. broke publicly in 2004. Extracts from absorb $3.6bn of the cost overruns internal company documents available outside of the contract terms.125 Looking forward publicly after the scandal indicate that The current project lenders (particularly by May 2003 the company’s board Looking forward BNP Paribas, Credit Suisse and Standard was aware of the potential impact of Shell is hopeful new projects will emerge Chartered) are once again being targeted disclosure on its reserves calculations,116 in Russia in the coming years. It was even by scientists and environmental groups so they may have been anxious to add discussed as a possible replacement for in a bid to prevent the installation of an new reserves to the books without due BP after the latter’s failure to secure a additional drilling platform at Sakhalin-2,131 consideration to the potential costs. joint venture deal with Rosneft in the Kara which was not included in the project’s Sea.126 But will future deals be subject initial environmental assessments. As When market valuations for IOCs are to similarly unpredictable and damaging signatories to the Equator Principles, the so dependent on analysts being able to political, and resulting financial, pressure? lenders could follow the EBRD’s earlier identify and book new reserves, Shell is example in forcing certain requirements once again publicly emphasising the search Putin and his ministers have indicated upon the company as a condition of lending. for new fields. But in looking for a positive that the Russian oil industry needs foreign reserves replacement ratio (RRR), rash investment and skills to assist exploration However, the implications are wider than and risky decisions may be made.117 and extraction in the country’s offshore the project itself. As Russian oil industry Arctic.127 A return to PSAs for this purpose specialist Professor Michael Bradshaw Political risk was discussed in 2010128 but instead the notes,132 Shell’s Sakhalin-2 experience The unusually favourable terms of government decided to award control means it makes sense for the company to the Sakhalin-2 contract turned into a of Arctic oil and gas prospects to state- avoid project financing on similarly risky problem for Shell as Putin’s government controlled majors Rosneft and Gazprom, ventures and instead to fund them out of in Russia assumed greater control with potential for joint ventures with private its own pocket. But the Russian companies over the country’s resources. partners as minority shareholders.129 With Shell is likely to work with will need project Putin returning to the presidential seat in funding for similar initiatives.133 Will banks The Sakhalin-2 PSA, negotiated in 1994 May 2012, it appears unlikely that foreign that adhere to the Equator Principles by a government with few options and companies will gain substantial control or provide loans for such a project? little experience, appeared particularly guarantees over new Russian concessions. disadvantageous to the Russian budget. In this context, it is significant that WestLB For example, Russia was to get no share Project funding under pressure announced in April 2012 that it will not of the project until the investors’ full costs The social and environmental responsibility provide project finance for oil developments had been recovered,118 whereas the PSA guidelines of international financial in the Arctic and Antarctic regions: “The for Sakhalin-1, a similar project run by institutions (IFIs) and banks bound by further you get into the icy regions, the more Exxon and Rosneft, involved profit for the the Equator Principles have proven to expensive everything gets and there are Russian state from the start. Neither of be a barrier for project funding on risky risks that are hard to manage,” said Dustin the contracts have been made public so projects such as Sakhalin-2. The latter’s Neuneyer, sustainability manager, group their full implications are hard to assess. application for financing from a coalition development, at the German corporate of banks, including the European Bank for and investment bank.134 For example, he President Putin’s administration took a far Reconstruction and Development (EBRD), said, remediation of any spills “would cost more assertive approach to oil revenues was targeted by a global coalition of a fortune”, and natural processes by which than its predecessors, elevating state- environmental NGOs, which claimed SEIC’s spilt oil would be broken down are slower owned companies Rosneft and Gazprom to operations fell foul of EBRD’s environmental or non-existent at freezing temperatures. control the extraction of more than half of and sustainability guidelines by disrupting “There are projects that are evidently ‘In 2006 Shell was forced to disclose a substantial cost overrun on Sakhalin-2: instead of $10bn, the cost was now $22bn’. 18 Out In The Cold: Investor Risk In Shell’s Arctic Exploration

unsustainable in an encompassing sense. For The most recent and dramatic example of Questions for the company WestLB, the risks and costs are simply too this poor record was the disaster on the P Has Shell recouped its high”. WestLB’s new policy135 is reflected Kolskaya rig, which capsized and sank on its investment in Sakhalin-2? throughout the sector, as Neuneyer stated: way back from drilling in the Okhotsk Sea “Other banks contacted us and are very on 18 December 2011, killing 53 of the 67 P What steps is Shell taking to ensure interested in this approach and policy”. Will crew.140 The rig, commissioned by Gazflot, adequate funding for proposed these new concerns in the banking sector a direct Gazprom subsidiary, continued developments at Sakhalin-2? raise the additional financing challenges for drilling outside of the approved operations both Shell and its partners in Arctic projects? season141 and without having passed P What steps is Shell taking or will it the necessary environmental and safety take to avoid further situations where Transparency issues assessments.142 The lack of approvals had projects are at risk of pressure or On 30 January 2012, Russian energy been challenged by a prosecutors’ office, takeover by the Russian state? minister Sergei Shmatko announced that but they lacked the enforcement power Sakhalin-2 would reach full cost recovery to prevent the drilling from going ahead. P Is Shell considering acquiring in Q1, boasting the achievement two years Surviving crew members pointed out that shares in Gazprom as part of ahead of plan.136 On 30 March 2012, it multiple technical faults in the platform and their strategic cooperation? was announced that production sharing deficiencies in the towing plan had been on Sakhalin-2 had begun, implying that raised by the crew to the management, P In working with Gazprom on joint all of the investors’ ‘cost oil’ had been which had ignored the warnings.143 Criticisms projects, is Shell expecting to keep as recovered.137 It is unclear whether Shell of poor technical preparedness have also much operational and subcontracting has actually recouped all of its part of the been levelled against Gazprom’s pioneering control as in Sakhalin-2? If not, how will $24.5bn138 investment. If together with its Arctic drilling rig Prirazlomnaya.144 Shell ensure the application of its global partners it has had to absorb part of the cost health and safety and environmental overrun, as well as selling the controlling How is Shell planning to work with Gazprom? policies by Gazprom and its subsidiaries? stake to Gazprom for less than its worth, Will Shell keep as much operational Shell may not have come close to recovering control over joint projects as it does over P In working with Gazprom or other its initial costs. Shell appears to have made Sakhalin-2? The details of the protocol Russian partners, how will Shell maintain no comment on this, highlighting the general are undisclosed, and public declarations transparency to shareholders about lack of financial, as well as operational, about the negotiations are inconclusive: the operation of joint projects? transparency in Shell’s Russian projects. P in January 2011 Sakhalin governor Aleksandr Khoroshavin reported Gazprom: a risky partner to Putin that the companies were Shell and Gazprom signed a ‘protocol on discussing a share swap;145 strategic global cooperation’ in November 2010.139 The partnership aims to extend P in June 2011 the companies “signed the two companies’ cooperation to other the Basic Terms and Conditions of the offshore Arctic-conditions projects beyond Agreement stipulating the study of Sakhalin-2, and a share swap between possible ways to create a joint venture the two companies (akin to BP’s abortive for joint projects delivery”;146 share swap with Rosneft) was discussed. Depending on the shape of the eventual P further meetings between top partnership, particularly if it involves a figures in Shell and Gazprom took share swap, it may expose Shell to risks place in November 2011, January associated with Gazprom’s poor safety, and March 2012,147 although little environmental and transparency record. detail was publicly disclosed.

Kolskaya rig capsized and sank on its way back from drilling in the Okhotsk Sea, killing 53 of the 67 crew. It had been commissioned by Gazflot (Gazprom subsidiary) to drill outside of the approved operations season. Out In The Cold: Investor Risk In Shell’s Arctic Exploration 19

5. Conclusion

The Deepwater Horizon disaster revealed deepwater exploration’s inherently risky General questions on Shell’s Arctic programme nature and its inadequate regulation, risk assessment and risk management. But the P With concerns over Arctic oil P The financial impact of the Gulf of industry’s push into Arctic offshore extraction developments increasingly manifesting Mexico oil spill on BP plc demonstrates with regulatory and investor community themselves in the finance sector, will the company-wide impact of failings support suggests that the correct lessons Shell's determination to pursue Arctic at a single operation. Investors have not yet been learned from the tragedy. projects, undermine investor confidence should consider whether potential in the management of the company? failings at Shell’s Arctic projects, Booking new reserves is a priority for Shell which are driven by its Exploration & as it seeks to boost its reserves replacement Production division, pose a significant ratio. But rather than simply focus on risk to the overall financial health volume, it is critically important to consider of the Royal Dutch Shell group? the quality of the reserves in terms of both commercial feasibility and inherent risks. SPECIFIC questions on Shell’s Arctic proJECTS As with many frontier oil projects, questions remain about the medium- P What is Shell’s overall spending on P Has the company carried out a spill and long-term economic viability of Arctic exploration compared with its response gap analysis of its prospects Arctic projects, which are dependent overall exploration budget? in the Beaufort and Chukchi seas? If on high oil prices and fiscal subsidies. so, will the company make it available P When does Shell expect any of its new publicly? In addition, such projects present new and Arctic investments to start extraction? unique challenges for the oil industry. Across P Has the company carried out an analysis all Arctic waters, the potential environmental P Has Shell recouped its investment in of the environmental and financial and financial impact of any potential major Sakhalin-2? worst-case spill scenario and, if so, will oil spill has not yet even been assessed. the company make it available publicly? Shell and other companies acknowledge the P What steps is Shell taking to reduce the ineffectiveness of existing technology to deal possibility of further intervention by P Will the company test its spill with such a spill but have chosen to focus on the Russian government in Sakhalin-2 response technology (particularly the supposed low probability of it happening and possible future projects? well containment devices) in Arctic rather than prepare for its inevitable conditions, and make detailed high impact. In the wake of Deepwater P In working on future projects with disclosure of the conditions and results Horizon, this approach seems unwise. Gazprom, is Shell expecting to keep of these tests? operational and subcontracting In addition to these general risks, particular control? If not, how will Shell ensure P Will the company analyse the potential Arctic-conditions territories present their the application of its global health and effects of using in-situ burning or own issues. The dramatic track record of safety and environmental policies by chemical dispersants and make detailed Shell’s Sakhalin-2 project in Russia and Gazprom and its subsidiaries? disclosure on this analysis? particularly of its partner company Gazprom suggest a significant risk of cost overruns and P In working with Gazprom or a different P What oil/gas balance is Shell expecting interventions by the Russian government, Russian partner, how will Shell maintain to find in the Burger and Flaxman Island as well as a severe lack of transparency. transparency to shareholders about the prospects? Does the company expect operation of joint projects? gas exports from these prospects to This report is intended to inform investors be economically viable, and under what of the specific risks facing Shell as the P What steps is Shell taking to ensure conditions? company plans to expand its Arctic adequate funding for proposed operations. It suggests a number of developments at Sakhalin-2? P How does Shell plan to finance questions investors should ask Shell to extraction infrastructure in the event enable them to understand whether the of a find in Alaska? company has adequately assessed the various risks it faces and is taking appropriate steps to mitigate and manage them. 20 Out In The Cold: Investor Risk In Shell’s Arctic Exploration

1 USGS Release: 90 Billion Barrels of Oil gov/newsroom/article.asp?ID=1980. Greenwire/2011/12/19/2 [Accessed January and 1,670 Trillion Cubic Feet of Natural 18 Greenpeace UK, Platform & Oil Change 4, 2012]. Shell News 2011. OilPrimer.Com. Gas Assessed in the Arctic. United States International, 2012. Shifting Sands: How www.oilprimer.com/shell-news-2011.html. Geological survey. 23.07.2008. www.usgs. a changing economy could bury the tar 36 Mazerov, K. The Arctic: Confronting the gov/newsroom/article.asp?ID=1980. All links sands industry. www.greenpeace.org.uk/ cold, hard truths about the last frontier. accessed on April 17 2012 unless otherwise media/reports/shifting-sands-how-changing- Drilling Contractor. 01.02.2012. www. indicated. economycould-bury-tar-sands-industry. drillingcontractor.org/the-arctic-confronting- 2 Macalister, T., MPs unimpressed by oil 19 Tomlinson, S., 2009. 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Offshore oil regulators say Chukchi Beaufort Sea, Outer Continental Shelf, Lease 24 StatoilHydro signs Shtokman agreement with leases OK. Alaska Dispatch. 20.05.2011. Sale 170, U.S. Department of the Interior Gazprom. Statoil.Com. 25.10.2009. www. www.alaskadispatch.com/article/offshore-oil- Minerals Management Service Environmental statoil.com/en/NewsAndMedia/News/2007/. regulators-say-chukchi-leases-ok. Division. www.boemre.gov/itd/pubs/1997/97- Pages/StatoilHydroGazpromAgreement.aspx 44 Chen, Z. et al., 2007. The Future Oil 0039.pdf. 25 Marshall, S. Shtokman “ready to roll” onshore. Discovery Potential of the Mackenzie/ 7 Amos, W., 2011. WWF Comments on Upstream Online. 08.11.2011. www. Beaufort Province. 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Gas-Leading-Arctic-LNG-GTL_95617 offshore drilling [“Газфлот” оштрафован на 30 Partners could buy Shell Mackenzie stake. 50 Eastern Canada NS11-1 Lease Sale 100 тыс. рублей за бурение на шельфе]. Upstream Online. 19.07.2011. www. results. Deloitte. www.psg.deloitte.com/ Rosbalt. 21.02.2012. www.rosbalt.ru/ upstreamonline.com/live/article268069. NewsLicensingRounds_CA_120208.asp business/2012/02/21/948504.html. ece?mobile=small§ion=live. 51 Paul, C. Forbes India Magazine - Desert Fox. 13 14 crew members were rescued out of 31 Clint, O., 2011. Arctic Exploration: Does Any Forbes India. 29.06.2011. forbesindia.com/ 67 - Ukranian citizen dies in Kolskaya Of It Make Sense? Paper given at Finding printcontent/1472. emergency [В результате аварии на Petroleum: Exploring the Arctic conference. 52 Norwegian blocks announced in Awards платформе “Кольская” погибла гражданка Royal Geological Society. Presentation in Predefined Areas 2011. Deloitte. www. Украины]. 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May 2012

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