Royal Dutch Shell has stopped Arctic oil and gas exploration off the coast of Alaska after “disappointing” results from a key well in the Chukchi Sea.

In a surprise announcement (read below the announcement), the company said it would end exploration off Alaska “for the foreseeable future”.

Shell said it did not find sufficient amounts of oil and gas in the Burger J well to warrant further exploration.

The company has spent about $7bn (£4.5bn) on Arctic offshore development in the Chukchi and Beaufort seas.

“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,” said Marvin Odum, president of Shell USA.

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

‘Risky endeavour’

Lord Browne, former BP boss and government adviser, told the BBC that the Arctic “is a very risky place [to explore] and very expensive to develop, so there are probably easier places to go”.

Indeed some analysts suggested Shell might give up on the Arctic completely.

“It is possible that Shell might almost be relieved as they can stop exploration for a legitimate operational reason, rather than being seen to bow to environmental pressure,” Stuart Elliott from energy information group Platts told the BBC.

“With the oil price around $50 a barrel, it was a risky endeavour with no guarantee of success.

“You could argue that this has been bad for Shell’s reputation and it wouldn’t be a big surprise if they abandoned Arctic drilling altogether.”

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Analysis: Kamal Ahmed, BBC business correspondent

Shell’s investors were regular recipients of long and detailed presentations on the potential for the region.

So, what changed?

Certainly, the first findings from the Burger J exploration well 150 miles off the Alaskan coast were not promising.

Second, although President Barack Obama had given the necessary permissions for drilling to start again following the problems of rig fires in 2012, Mrs Clinton’s tweet revealed that political risks were still substantial.

Mr van Beurden also has plenty of other issues weighing on his in-tray.

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Announcement: Shell updates on Alaska exploration

“Shell today provides an update on the Burger J exploration well, located in Alaska’s Chukchi Sea. The Burger J well is approximately 150 miles from Barrow, Alaska, in about 150 feet of water. Shell safely drilled the well to a total depth of 6800 feet this summer in a basin that demonstrates many of the key attributes of a major petroleum basin. 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 U.S. regulations.

“The Shell Alaska team has operated safely and exceptionally well in every aspect of this year’s exploration program,” said Marvin Odum, Director, Shell Upstream Americas. “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 will now cease further exploration activity in offshore Alaska for the foreseeable future. This decision 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.

The company expects to take financial charges as a result of this announcement. The balance sheet carrying value of Shell’s Alaska position is approximately $3.0 billion, with approximately a further $1.1 billion of future contractual commitments. An update will be provided with the third quarter 2015 results.

Shell holds a 100% working interest in 275 Outer Continental Shelf blocks in the Chukchi Sea.

Operations will continue to safely de-mobilize people and equipment from the Chukchi Sea.” Source: Royal Dutch Shell

 

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Source: BBC – Shell stops Arctic activity after ‘disappointing’ tests

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