TODAY - December 17, 2015

As I pointed out in October, Royal Dutch Shell had a raft of bad news - including the story below about abandoning Alaska, and another (even more recent, if I remember correctly) about abandoning the entire Arctic. This is costing the company billions. I was right that the market was slow to react - today, at $44.94, RDS is well below its August bottom.

IF you're still interested in RDS (due to its high dividends, right?), you have to go back to early 2009 before you'll find lower prices. In that year, the stock bottomed at $42.48. Stocks have a tendency to test their lows, so $42.48 is likely to be an inflection point for RDS. It's where many investors will place their buys. I'd look to acquire shares somewhat higher in the hopes of filling the order, perhaps in the next three months.

I think you're right to want oil. I believe the entire 'shale oil' boom to be a deceit - that the oil wells are expensive and don't last long enough to recoup their cost. Once banks stop lending to the drillers, the small ones will go bankrupt. I've read more recently that that has begun to happen - though perhaps more because of the low oil price than because of well costs and lifetimes. When the world economy rebounds - whether that's three months or three years from now - oil's price should run. The bigger companies that can survive these hard times should do very well.

All bets are off, though, if the Paris carbon summit the western world has committed to causes undue hardship for the oil companies. I don't yet what the agreement says or how it will impact these companies. Would one of you care to research that? If you do, please report back.

BTW, Exxon Mobile (XOM) has been FAR stronger over the last four months (when Xxxxxx asked what I thought of RDS) than RDS. It's up almost 10%. RDS, of course, is underwater over the same period. So I was right about RDS being slow to react.

BTW, there's a prediction making the rounds today that oil will hit $100 briefly in 2016. I don't know about that, but I think a few spikes will happen before oil permanently rebounds.

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Sent: Tuesday, October 13, 2015 at 8:29 AM
From: "Decomposed"
To: "Xxxxxxx"
Subject: Re: Royal Dutch Shell - "and will likely cost the company billions in charges" but "[London] Investors seemed unfazed "

Beats me. Sometimes the market is slow to react. Sometimes bad news is already priced into a stock. Based on the plunge in price during August and September, my guess would be the latter. Notice that the stock surged right after this article. That supports my supposition: Everybody but the public knew about Shell's decision BEFORE September 28th and sold. Then it became time to buy... while the poor saps without connections were all panic-selling based on the article.

Sent: Monday, October 12, 2015 at 1:11 AM
From: "Xxxxxxxx"
To: "Decomposed"
Subject: Re: Royal Dutch Shell - "and will likely cost the company billions in charges" but "[London] Investors seemed unfazed "

Thanks, Decomposed, for this news article. I had heard mention, but didn't know the details. ...Interesting that this news barely affected the stock price. (Why would that be?)

On Mon, Sep 28, 2015 at 6:42 AM, Decomposed wrote:

Shell to call a halt to Alaskan Arctic exploration

By Sarah Kent
Marketwatch.com

Published: Sept 28, 2015 6:12 a.m. ET

LONDON-- Royal Dutch Shell PLC on Monday said it would cease drilling in the Arctic after disappointing results, moving to end a costly project that caused a surge of environmental protests and will likely cost the company billions in charges.

The oil and gas company pressed ahead with its multibillion-dollar exploration program offshore Alaska this summer despite tumbling oil prices and opposition from environmental groups, as well as religious and political figures such as the Archbishop of Canterbury and Hillary Clinton.

The Arctic--one of the few remaining unexplored oil frontiers--had been deemed to be too great a prize to walk away from, but the company has changed its mind after the Burger J well it drilled in the Chukchi Sea this summer only showed traces of oil and gas.

"This is a clearly disappointing exploration outcome for this part of the basin," said Marvin Odum, Shell's upstream head in the Americas.

The oil giant said the decision to abandon the $7 billion exploration project also reflected the high costs of the project and "challenging and unpredictable" regulatory environment.

Though the company had high hopes for its exploration program in the Arctic, it maintained it was likely to walk away if it failed to find oil this summer, even though such a decision would be costly. Shell put the balance sheet value of its holdings offshore Alaska at $3 billion, with a further $1.1 billion of future contractual commitments.

The company will give more information about the cost of walking away at the time of its third-quarter earnings, due Oct. 29. It is expected to repurpose some of the contracts it has already paid for to other projects to help mitigate the financial impact, but the blow could be significant. Shell's entire net profit in the second quarter this year was $3.4 billion.

Shell obtained its licenses to explore the Chukchi Sea in 2008 and pushed ahead with the project when oil prices were historically high--more than $100 a barrel.

With crude oil prices having fallen by more than half in the past year, some investors weren't happy about the company's decision to move forward in the Arctic.

Investors seemed unfazed by the company's announcement, with the share price barely moving in London trading on Monday

"Investors don't want Shell to deliver more capex into Alaska," said Bernstein research analyst Oswald Clint. "I imagine investors will be OK with a $1 billion hit versus tens of billions in the future."

Environmental activists treated the decision as a victory Monday, following a sustained campaign in opposition to Arctic drilling that ranged from London to Seattle. Fearing that Shell's drilling could lead to an ecological disaster like the Exxon Valdez spill off the Alaskan coast, activists staged kayak-borne protests that accompanied the company's rig on its journey to the Arctic.

The issue seeped into the U.S. presidential contest, with Mrs. Clinton saying Shell's endeavor was "not worth the risk."

"It's a major bloody nose for Shell," said Ben Ayliffe, an Arctic campaigner at Greenpeace. "Given the extent to which they went out on a limb in the Arctic, I think that would then cast major doubt over the viability of these Arctic projects in the future."

Shell's decision could herald the end of resource exploration in the Arctic for some time, although low oil prices and geopolitics--rather than environmental concerns--would be the main reasons.

Exxon Mobil Corp. shelved its plans to drill in the Russian Arctic after the U.S. imposed sanctions on Moscow's energy industry following the annexation of Crimea. Chevron Corp. has put its Arctic exploration plans on hold because of low oil prices. A consortium including Exxon and BP PLC suspended its Canadian Arctic exploration program in June.

Even if Shell had found oil in the Arctic, the challenges of bringing those resources to production have been underscored by a project in the Barents Sea. Italian energy company Eni SpA and Norwegian peer Statoil ASA are just now moving into production on the giant Goliat field--15 years after it was discovered.

http://www.marketwatch.com/story/shell-to-call-a-halt-to-alaskan-arctic-exploration-2015-09-28