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Shell pulls out of Arctic campaign

Shell news
Shell news

Shell has pulled out of controversial drilling off the coast of Alaska after failing to find sufficient signs of oil and gas to make further exploration worthwhile.

The company said it would cease exploration activity in the region “for the foreseeable future”, blaming high costs associated with the project and a “challenging and unpredictable regulatory environment”.

It said the decision to pull out of the multi-billion dollar project was “disappointing” and will see it take a financial hit.

The move is likely to be welcomed by activists who oppose Arctic offshore drilling because of the impact they say it has on the environment.

But Shell said the well, in Alaska’s Chukchi Sea, was likely “to remain of strategic importance”.

The decision comes at a time when global oil prices have fallen sharply, making complex and costly exploration projects less economical.

Shell said the abandoned project represented about $3billion (£2billion) on its balance sheet plus $1.1billion (£720million) of future contractual commitments.

Marvin Odum, director of Shell’s Upstream operations for the Americas, said: “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 US.

“However, this is a clearly disappointing exploration outcome for this part of the basin.”

Shell said it had drilled at the Burger J well, about 150 miles off the coast of Alaska, in about 150 feet of water, to a depth of 6,800 feet over the summer “in a basin that demonstrates many of the key attributes of a major petroleum basin”.

It added: “For an area equivalent to half the size of the Gulf of Mexico, this basin remains substantially under-explored.

“Shell has found indications of oil and gas in the Burger J well, but these are not sufficient to warrant further exploration in the Burger prospect. The well will be sealed and abandoned in accordance with US regulations.”

Shell said earlier this year that it was “planning for a prolonged downturn” as it slashed investment by 20% or $7billion (£4.6 billion) and said it would cut 6,500 jobs during 2015.

Chief executive Ben van Beurden said in July: “We have to be resilient in a world where oil prices remain low for some time, whilst keeping an eye on recovery.”

Shell is in the midst of the £47billion takeover of exploration firm BG, the biggest takeover in the sector since US firm Exxon’s purchase of Mobil in 1998. Shell has said it expects to complete the takeover of BG early next year.

The sector has been hit by a slump in the oil price – thanks to a glut of supply – with a barrel of Brent crude remaining below $50, less than half its recent peak of nearly $116 in June last year.

Analysts at Liberum said Shell’s decision to abandon offshore drilling in Alaska could have a “material adverse impact” on the company’s third quarter results. These will be published on October 29.

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