Does Shell really deserve the anti-BP money?

BP’s well-documented travails since the Deepwater Horizon rig disaster will on balance have been good news for its oil major rival Royal Dutch Shell.

Shell will have seen a lot of money recycled into it from institutional and retail shareholders worried about the lack of dividend from BP, as well as further potential downside risk.

But does this mean that Shell is in a far better place than its troubled peer?

Like BP, Shell is also pinning a large part of its future growth on deepwater drilling. This sector is likely to come under severe scrutiny after the Macondo well blow-out.

According to the International Energy Association (IEA), deepwater global capacity is set to increase at an average of 1.5 million barrels a year through to 2015, an increase of 10% over that period.

Systemic Risk

Rathbone Blue Chip Income & Growth manager Julian Chillingworth holds Shell as a top 10 position within his fund but accepts that Shell is likely to feel the impact of increased regulatory pressures too.

He told Citywire: ‘Shell is a resources business and that has to come with risks. What happened to BP could easily happen to a particular well run by Shell.’

BP has more of a potential issue with reduced activities in the Gulf of Mexico because it has significantly more exposure to the region than Shell, but Shell would also feel the impact of reduced drilling activity if the US were to impose restrictions on deepwater drilling in its waters.

However, Chillingworth points out that Shell also has significant operations in the oil shales or so-called ‘tar sands’ of the US and Canada.

‘It has less exposure to the Gulf but more exposure to the tar sands, which in themselves are not a very environmentally friendly activity.’