Environmental campaigners reacted with jubilation to the news that Royal Dutch Shell had abandoned a contentious Arctic drilling programme off Alaska after failing to strike oil.
The decision brings to an end almost a decade of efforts that could ultimately cost the AngloDutch group $8bn, a sum described by analysts as “staggering” for a dry well.
It makes extensive development of the Arctic, seen as the last big oil and gas frontier, unlikely for years to come.
Shell said it did not find sufficient amounts of oil and gas in its Burger J well, in the Chukchi Sea, to warrant further exploration, and said it would take billions of dollars in writedowns. It
ruled out a return to the region “for the foreseeable future”, blaming the project’s cost and a “challenging and unpredictable” US regulatory environment.
Marvin Odum, upstream Americas director, said the area was “likely to ultimately be of strategic importance to Alaska and the US. However, this is a clearly disappointing exploration
outcome for this part of the basin.”
Shell expects to suffer losses of up to $4.1bn with its thirdquarter results, reflecting an asset writedown and the cost of contractual commitments. It will try to farm out its 30strong
fleet of vessels, including two drilling rigs.
The collapse in oil prices since last June, from more than $115 a barrel to less than $50 now, has called into question the viability of difficult, highcost production in areas such as the
Arctic.
The Burger prospect is in a largely unexplored area estimated by the US as potentially holding 4.3bn barrels of recoverable oil.
Industry rivals have been watching to see whether Shell could overcome severe technical, regulatory and legal challenges. Its inability to find commercially viable reserves will send a
signal that, at a time when companies are seeking to save every possible dollar, Arctic exploration does not justify the cost.
Environmental groups, which opposed Shell’s drilling programme, claimed victory.
Michael Brune, executive director of the Sierra Club, said it was “joyous news”, adding that he hoped the US would now cancel sales of new leases off the coast of Alaska, including
three scheduled for 2016/17.
Christopher Adams and Ed Crooks
