According to a Wall Street Journal article, Royal Dutch Shell PLC increased its profit strongly in the third quarter. However, the Obama administration’s drilling moratorium in the Gulf of Mexico, which ended this month, will have long lasting effects on production. Because of the ban, next year Shell expects to pump 40,000 barrels per day less than it had planned before the moratorium was enacted. This is 1.3% of its production (WSJ). Interestingly, Shell still reported an 88% rise in profit that beat expectations on Wall Street. This rise is likely because of increased natural gas and oil prices (WSJ). The company has also embarked on an “efficiency drive”, which also had an effect on profit. So far, Shell has lost $115 million because the moratorium forced some rigs to be unused (WSJ).
It is unlikely that production will return to forecasted levels very soon because of uncertainty about new regulations. Companies are trying to figure out how increased inspections, required spill cleanup plans, and more examination of testing will change business (WSJ). There are other companies, unlike Shell, that have taken unsustainable losses because of the ban. Some smaller companies, which represent 60% of production in the Gulf, will have to leave the Gulf of Mexico (WSJ). This could leave negative consequences for production of oil and gas in the U.S. While Shell increased profit, its development projects in Alaska and its projects in the Gulf have been slowed or stopped as well (WSJ).
All in all, this issue is not very complicated. Shell has increased profits, but it has still been hurt by the moratorium. The same cannot be said for smaller, independent companies. I hope that their production is not harmed to a large extent because as the article stated, that could have a large effect on U.S. production, which would likely push prices up. I suppose the only way to resolve this and move on is to figure out the new regulations in the Gulf so companies can get back to work and adjust their plans to reflect the new policies. Otherwise, the U.S. energy industry could be hurt by increased prices.
Chazan, Guy. "Shell: Drilling Ban Fallout Will Endure." Wall Street Journal (2010): Web. 28 Oct 2010.
I suppose that Shell is simply too big to be affected by the moratorium. I think it could possibly be embracing this moratorium as leverage and to gain sympathy for permits to drill elsewhere in and around the States. Clearly smaller oil companies are the ones that will me most affected. I wonder if BP will have to pay these smaller companies for lost profits because the moratorium was clearly sparked by BP carelessness.
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