Royal Dutch Shell
Plcwill halt exploration in the U.S. Arctic after $7 billion of spending
ended with a well off Alaska that failed to find any meaningful quantities of
oil or natural gas.
“This is a clearly
disappointing exploration outcome,” Marvin Odum, director of Shell’s Upstream
Americas unit, said in a statement Monday. The company said it will cease
further offshore activity in Alaska for the foreseeable future.
Europe’s largest oil
company was targeting resources it said could be 10 times greater than the oil
and gas produced so far in the North Sea. The decision to explore in the Arctic
met with resistance from environmental groups including Greenpeace,whose
activists occupied the company’s drilling rigs. Shell and its peers are also
curbing spending after the price of oil slumped about 50 percent in the past
year amid a global oversupply.
While
indications of oil and gas were present in theBurger J well in Alaska’s
Chukchi Sea, they weren’t sufficient to warrant further exploration, the
company said. Shell will now plug and abandon the well.
Shell had planned a
two-year drilling program starting this July. The company was seeking to resume
work halted in 2012 when its main drilling rig ran aground and was lost. It was
also fined for air pollution breaches. The Anglo-Dutch company first discovered
oil and gas in the region in the late 1980s.
High Costs
Shell continues to see
potential in the region and the decision not to explore further in Alaskan
waters “reflects both the Burger J well result, the high costs associated with
the project, and the challenging and unpredictable federal regulatory
environment in offshore Alaska,” according to the statement.
Shell said it expects it
will take financial charges related to the decision. Its balance sheet carries
a value ofabout $3 billion for its Alaska position, with additional
future contractual commitments of about $1.1 billion, The Hague,
Netherlands-based energy explorer said in the statement.
“This could be negative for
third-quarter earnings because of potential impairment charges,”said
Ahmed Ben Salem, a Paris-based analyst with Oddo & Cie, said by phone. “On
the other hand, in a $50 oil-price environment it’s not so bad to abandon that
search because it’s expensive. Shell has enough resources already to take focus
on in this environment.”
Environmental Protests
Shell won approval for its
Arctic plans in May after the U.S. Interior Department found drilling in the
Chukchi Sea would have no major environmental impact.
Campaigners from Greenpeace
and other environment groups have opposed Shell’s plans to drill in the Arctic
and the U.S. government’s approval of the plan. In May, Shell’s shareholders
questioned why they should support a drilling program that could pollute waters
and contaminate seafood.
“Big oil has sustained an
unmitigated defeat,”Greenpeace U.K. Executive Director John Sauven said
by e-mail. “The Save the Arctic movement has exacted a huge reputational price
from Shell for its Arctic drilling program. And as the company went another
year without striking oil, that price finally became too high.”
Exxon Mobil Corp., BP Plc
and other producers have discovered more than 10 billion barrels of oil in
North American Arctic seas since the early 1970s. Most of those resources
remain locked beneath the sea floor because of a lack of pipeline capacity to
haul them to faraway markets.
Shell’s B shares, the most
widely traded, dropped as much as 0.6 percent and traded 0.5 percent lower at
1,549 pence as of 10:36 a.m. in London. The stock has declined 31
percent this year.
(
Bloomberg)