Our Blog

Shale vs. Arctic Projects | Russell T. Rudy Energy LLC

The February 13 issue of “Rigzone” contains an article entitled “Shale Presents Competition for Arctic Oil, Gas Development”.  The headline makes sense when you consider that investors evaluate projects on the basis of perceived risk vs. reward; the lower the risk and the higher the reward, the more likely the project will be funded.

Rewards for Arctic projects can certainly be high, but so are the risks.  According to the U.S. Geological Survey, the Arctic contains 6% of the earth’s surface and 25% of oil and gas reserves.  Consequently, by the 1980’s, 500 wells had been drilled above the Arctic Circle.  However, enthusiasm for Arctic projects dissipated when oil prices dropped and the Exxon Valdez ran aground.

Nevertheless, oil prices are currently high and Russia is providing incentives for Arctic development there.  Consequently,  Russia, with 70% of Arctic reserves, will be a major focus area.  ExxonMobil, in partnership with Rosneft,  plans to drill 14 wells in the Kara Sea.  Norway, Alaska, Northeast Canada and even Greenland will see significant investment in the next few years.  ExxonMobil, Chevron and Shell all plan to drill in offshore Greenland in the near future.

While Arctic projects offer high rewards, there are significant challenges as well.  These can include oil price fluctuations, high costs, environmental concerns, limited local gas markets and long lead times due to logistics and lack of infrastructure.

To read the article in its entirety, please go to http://www.rigzone.com/news/article.asp?hpf=1&a_id=131617&utm .