Shell has pulled out of offshore drilling in the Arctic, in a decision labelled an “unmitigated defeat” for oil companies by environmentalists opposed to the exploration.
The company is abandoning exploration 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 multibillion-dollar project was “disappointing” and will see it take a financial hit, though it added that the broader region was still likely to be of strategic importance.
The decision comes at a time when global oil prices have fallen sharply, making complex and costly exploration projects less economical.
Activists who have been staging a series of protests against the controversial drilling, including parking a giant polar bear puppet outside Shell’s headquarters in London, claimed the company had also taken a reputational hit for its activity. The campaigners oppose Arctic offshore drilling because of fears over the difficulty of clearing up a spill in the remote region, and the impacts it would have on the pristine environment.
Environmentalists also point to research that suggests that oil and gas drilling in the Arctic is not compatible with efforts to cut emissions in order to curb rising global temperatures.
Greenpeace UK executive director John Sauven said: “Big oil has sustained an unmitigated defeat.
“The Save the Arctic movement has exacted a huge reputational price from Shell for its Arctic drilling programme.
“And as the company went another year without striking oil, that price finally became too high. They’re pulling out.”
He urged US President Barack Obama to prevent any other oil company from drilling in the American Arctic.
He added that countries around the world would soon be meeting in Paris to negotiate a new global deal to tackle climate change.
“If a movement of seven million people can beat one of world’s biggest energy companies, think what we can do when we come together in our tens and hundreds of millions.
“This is a moment to appreciate that when we assert our power, we can win extraordinary victories in the fight against climate change.”
Shell said the abandoned project represented about three billion US dollars (£2 billion) on its balance sheet plus 1.1 billion US dollars (£720 million) 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 (241km) off the coast of Alaska, in about 150ft (46m) of water, to a depth of 6,800ft (2,073m) 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 7 billion US dollars (£4.6 billion) and said it would cut 6,500 jobs during 2015.
Shell is in the middle of the £47 billion 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 US dollars, less than half its recent peak of nearly 116 US
dollars 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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