Shell Suspends Arctic Drilling

In February 2013, Royal Dutch Shell announced that it was suspending its offshore drilling programme in the Arctic for the rest of the year due to safety reasons. Shell had first obtained these licences in 2005. "The decision to pause drilling for oil in the Chukchi and Beaufort Seas off Alaska was widely expected, following a catalogue of problems last year" (BBC News, 2013). The move, according to Marvin Odum of Shell Oil, "will give us time to ensure the readiness of all our equipment and people". This decision also came at the time when Shell had already spent $4.5bn, culminating in two exploratory wells being completed during the drilling programme in the summer of 2012.

At the end January 2014, Shell further announced that it was suspending efforts to drill for oil in the Arctic waters off Alaska as part of a multibillion-dollar scaling back of spending on new projects under new management. The Anglo-Dutch oil major's decision to suspend the project came after a federal appeals court ruled that the U.S. government had not properly assessed the risks of drilling in the Arctic before it sold leases for exploration drilling some years back. The environmental impacts considered were for the extraction of one billion barrels of oil - a number, which the court ruled, was "arbitrary and capricious" (Foster, 2014).

To date, Shell has invested well over $5 billion in its Arctic drilling projects and spent six years fighting legal challenges from environmental groups worried about the fragile Arctic ecosystem, as well as the climate consequences of burning what Shell has referred to as its "multibillion barrel prize" (Foster, 2014). This type of delay may result in significant problems in accounting for oil and gas operations, as well as measuring performance, because there is no direct correlation between the magnitude of expenditures and the value of reserves (Wright and Gallun, 2008).

Required:

1. Identify and discuss the distinguishing features of oil and gas exploration and production activities raised by this project.

2. Critically analyse and evaluate, by recourse to literature, the significant accounting and reporting challenges presented by this project.