Thanks, Alaska: Every Barrel Of Oil Just Got More Expensive

Shell has spent nearly $7 billion exploring oil in basins across Alaska. The company announced last week it will abandon its work in the Alaskan Arctic because its findings to date do not warrant further exploration.

"Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.," Marvin Odum, director of Shell Upstream Americas, said in a statement. "However, this is a clearly disappointing exploration outcome for this part of the basin."

Related Link: New Wild Salmon Oil: The Iceland-Alaska Connection

Bernstein Comments On Shell's Decision To Stop Current Exploration

In a report published Tuesday, Oswald Clint of Bernstein commented on Shell's decision, noting that the company's move has industry-wide implications. The analyst stated that the concept of "yet-to-find" oil was a key story investors used to be told and consisted of resources that remain to be found.

In Shell's case, the company's operations in the region, if successful, could have proved to be a "game changer," even for a company of Shell's size.

Clint continued that north of latitude 66 represents "one of the most alluring" yet-to-find regions, and the industry was relying on resources in the region to meet global demand for the next few decades. However, Shell's technological ability was insufficient to tackle the geological interpretations of the basins, which suggests a full suite of rock types including sandstones, carbonates and shales.

Geological Implications, Insufficient Resources Leave Much To Be Desired

Clint added that if the geology "isn't working," then no oil-prone government or oil price can bring the supply to the market. As such, the analyst is "more bullish than consensus" on oil prices, as a "broken geological model means new supply may never come." Accordingly, this means "existing barrels in the portfolios of listed energy companies has [sic] just become more valuable (and therefore even more undervalued today)."

Related Link: Royale Energy Regains 100% Ownership In N. Slope Acreage

Outperform Rated Picks

Shell's announcement adds "underappreciated support" for future oil prices and has implications for how, where and when large operators replace reserves. According to the analyst, Shell "has done their reserve addition move at the trough" and thus it remains his top Integrated pick with an Outperform rating and $72.69 price target.

Shares of UK-listed BG Group plc are Outperform rated with a GBp 1,460 price target.

Shares of BP plc (ADR) BP are Outperform rated with a $41.58 price target.

Shares of Eni SpA (ADR) E are Outperform rated with a $43.29 price target.

Shares of Europe-listed Galp Energia SGPS SA are Outperform rated with a €14 price target.

Shares of Statoil ASA(ADR) STO are Outperform rated with a $23.96 price target.