Shell's Looking Strong

It's relatively easy to single out the most active of the U.S. independent oil and gas operators. On the basis of its bulging acreage position and active drilling program, the clear winner is Chesapeake Energy (NYSE: CHK  ) , which has been a leader in the development of many of the nation's new shale oil and gas plays.

However, identifying the most active member of the integrated operators is a tougher task, if only because it involves taking into account the companies' presence in global venues, none of which would make the cut as garden spots. I'm referring to places such as Azerbaijan, West Africa, the Arctic, or waters deep enough to render the site of last year's Gulf of Mexico tragedy a virtual wading pool. But as I look at the group that comprises Big Oil, I find myself becoming progressively more intrigued by the active pace of Royal Dutch Shell (NYSE: RDS-B  ) .

Diving back into the Gulf
For starters, the Netherlands-based company is likely to become the industry leader in putting rigs to work on new exploratory programs in the Gulf of Mexico, following the BP (NYSE: BP  ) rig explosion, months-long oil spill, and drilling moratorium in 2010. While companies such as Noble Energy (NYSE: NBL  ) and BHP Billiton (NYSE: BHP  ) are being allowed to resume work on programs that were begun before last year's tragedy, Shell appears en route to gain permits to initiate new Gulf programs.

Under the procedures administered by the Bureau of Ocean Energy Management Regulation and Enforcement, companies must first receive approval for exploration plans before applying for permits to drill. In March, Shell became the first operator to receive approval on a new drilling plan, which, if ultimately permitted, would allow the company to initiate three new exploratory wells in 2,950 feet of Gulf water. Then, a second Shell plan was approved last week and would allow the drilling of five wells as part of its Appomattox discovery in 7,200 feet of water more than 70 miles from the Louisiana coast.

Prodded to a picked up pace
The pokey permitting pace maintained by the BOEMRE since the deepwater drilling moratorium was canceled in October has raised the dander among a number of Congressmen, who are attempting to institute three bills that would hasten the process. Led by Rep. Doc Hastings (R-Wash.), the first bill passed the House of Representatives this month. It would require the Obama administration to pursue four lease sales -- three in the Gulf and another offshore Virginia. The previously planned sales were delayed or canceled following the tragedy aboard the Deepwater Horizon rig.

Noting that the moratorium cost 12,000 jobs and the removal of a dozen rigs from the Gulf -- seven of which were deepwater units, while the remainder were shallow water rigs -- Hastings and his colleagues last week passed a second bill to nudge the administration to observe a faster permitting pace.

Known as the Putting the Gulf of Mexico Back to Work Act, the second bill would allow the Interior Department just 30 days to approve or deny an application for a permit. However, two 15-day extensions would be allowed in the event that the applicant received written notice detailing the reasons for the holdup.

The third bill is now being debated in the House. If passed and signed into law, it would allow drilling along a sizable portion of the East Coast, Southern California, the Arctic Ocean, and Bristol Bay in Alaska.

Another side fights on
The Hastings bills are hardly sailing to passage without opposition, however. For instance, Bill Snape, the senior counsel for the Center for Biological Diversity, noted that the Deepwater Horizon tragedy "was caused in large part because of the lack of environmental review." He also objected to a provision in the second bill that would require that challenges to permits, leases, or plans be brought before the 5th Circuit district court.

He observed that, "It is a factual reality that, in at least one case, a majority of the 5th Circuit was not able to even rule on a climate change case because of oil company- related conflicts."

Chilling out in Alaska
Meanwhile, while the fat remains in the fire in the Gulf of Mexico, and following several disappointments, Shell is still attempting to gain permission from the Environmental Protection Agency to drill in the Beaufort and Chukchi seas off Alaska, where it has already spent about $3.5 billion -- and several years -- for exploratory efforts and drilling preparation.

The Interior Department has responsibility for drilling in the Gulf of Mexico, while Alaska falls under the purview of the EPA. And while it had appeared earlier that roadblocks established by the agency likely would thwart Shell's planned drilling offshore Alaska, executives of Shell recently met with EPA officials and energy aides from the Obama administration.

The company's executives later called the discussions "more positive." Beyond that, Gina McCarthy, the EPA's assistant administrator for air and radiation, expressed a conviction that Shell "believes the three permits that we're processing now will be very valuable to them."

And in the Arctic
Meanwhile, talks apparently are continuing between Russia's massive oil company OAO Rosneft and BP regarding a deal agreed to in January wherein the companies would ante up a combined $16 billion to facilitate a share swap in preparation for jointly exploring in the Russian Arctic. And while the talks appear to have taken on a somewhat more positive tone after the deal was roundly opposed by AAR, a group of Russian oligarchs who serve as equal partners with BP in TNK-BP, the country's third-largest oil company, a resolution of the differences remains far from a foregone conclusion.

As a result, Shell, ExxonMobil (NYSE: XOM  ) , and Chevron (NYSE: CVX  ) all appear to be potential substitutes for BP in providing the sort of technological aid that Rosneft needs to explore its challenging Arctic. At the same time, none of the other companies is likely to be eager to jump into the sort of share swap that BP has agreed to.

So Shell in particular might be on the verge of initiating new activity in three separate and promising oil and gas venues. Given that triumvirate of attractive opportunities, I'm inclined to watch Europe's largest member of Big Oil more closely. I can't conceive of a more ideal way to do so than to add the company to your own watchlist

Motley Fool newsletter services have recommended Chesapeake Energy and Chevron. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own any of the shares named above. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (6)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 19, 2011, at 5:15 PM, gcmagone wrote:

    Solid and agressive with a very good dividend, that describes Shell. Chevron is a close second. Exxon could be a darling if it got it's dividend up to 4%+. Chesakeake is for the future...distant future, unless you feel that one of the above will buy them.

  • Report this Comment On May 20, 2011, at 4:41 AM, bourse wrote:

    And there are more good news: under the new CEO Voser Shell is streamlining its operations and selling downstream activities. They expect to improve free cash flow up to 60% starting next year.

    The stock market still doesn't seem to take notice of that...

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