Regulatory hurdles cited as part of the reason for decision
By Bob Berwyn
Shell Oil’s hotly contested Arctic oil-drilling operation will shut down for the foreseeable future, the multinational fossil fuel company announced today, drawing sighs of relief from environmental advocates who had described the exploration efforts in apocalyptic terms.
The company’s efforts have been stop-and-go for a long time. In 2013, for example, Shell announced a temporary pause in the program after a string of incidents, including failed tests of oil spill containment gear, runaway ships and notices for violations of environmental regulations.
That same year, the U.S. Department of Interior released a report showing serious flaws in Shell’s Arctic oil drilling plans, including lack of a meaningful plan for containing potential spills.
“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 company said in a statement.
“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,” said “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.
The company cited both the high costs of the project and what it described as the “challenging and unpredictable federal regulatory environment in offshore Alaska” as reasons for the decision.
Shell said it expects to take a financial hit 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 percent working interest in 275 Outer Continental Shelf blocks in the Chukchi Sea for which it paid millions of dollars in leasing fees to the U.S. government.
Shell’s Arctic drilling program was plagued by accidents and violations of environmental laws, and bitterly opposed by the environmental community, at every step of the way.