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OM in the News: Shell Oil’s Artic Project Gamble

August 22, 2015

shell oil“In a windowless conference room in Anchorage,” writes BusinessWeek (Aug. 5-12, 2015), “a dozen Royal Dutch Shell employees report on the highest-profile oil project in the multinational’s vast global portfolio.” Warmed by mid-July temperatures, Arctic ice in the Chukchi Sea, northwest of the Alaskan mainland, is receding. Storms are easing; helicopter flights will soon resume. Underwater volcanoes are dormant. “That’s good news for us,” said Shell’s top Alaska executive.

Overhead, a bank of video monitors displays radar images of an armada of Shell vessels converging on a prospect called Burger J. Company geologists believe that beneath Burger J—70 miles offshore and 800 miles from the Anchorage command center—lie up to 15 billion barrels of oil. An additional 11 billion barrels are thought to be buried due east under the Beaufort Sea. All told, Arctic waters cover 13% of the world’s undiscovered petroleum–enough to supply the U.S. for more than a decade.

Surprise lurks in the Chukchi, whose frigid waters span from Alaska to Siberia. Logistical and legal obstacles have repeatedly delayed the Arctic initiative, on which Shell is spending more than $1 billion a year—more than $7 billion so far and counting. The single well in Chukchi that Shell aims to excavate this summer could be the most expensive on earth, and it hasn’t yielded its first barrel.

Activists have sued; judges have intervened. In 2010, work stopped when the Obama administration temporarily suspended offshore drilling throughout the U.S. Back in action in 2012, Shell suffered a maritime fiasco when ship engines conked out and a massive drill barge ran aground, requiring a Coast Guard rescue. Even against this challenging economic backdrop, Shell won’t postpone or downsize its Arctic dreams. The offshore Alaska field has the potential to be multiple times larger than the largest prospects in the U.S. Gulf of Mexico. But to put it mildly, Shell is assuming immense project management operational risks to drill in the Arctic.

Classroom discussion questions:

  1. Why are project management tools so critical to Shell?
  2. Why is Shell carrying out such a vast project?
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