ANCHORAGE, Alaska (AP) – Royal Dutch Shell will cease exploration in Arctic waters off Alaska’s coast following disappointing results from an exploratory well backed by billions in investment and years of work.
The announcement was a huge blow to Shell, which was counting on offshore drilling in Alaska to help it drive future revenue. Environmentalists, however, had tried repeatedly to block the project and welcomed the news.
Shell has spent upward of $7 billion on Arctic offshore exploration, including $2.1 billion in 2008 for leases in the Chukchi Sea off Alaska’s northwest coast, where an exploratory well about 80 miles off shore drilled to 6,800 feet but yielded disappointing results. Backed by a 28-vessel flotilla, drillers found indications of oil and gas but not in sufficient quantities to warrant more exploration at the site.
Activists in Seattle had been protesting Shell for months after the oil company announced plans to use the Port of Seattle as its base for the Arctic drilling operation. The protests severely hurt Shell’s attempts to craft a public image of an “environmentally friendly” oil company.
I’ve said all along that the economics of offshore oil drilling just aren’t there at this point — maybe not ever again. The easy oil is gone; the stuff that’s left is extraordinarily difficult (and expensive) to get at. With oil prices plummeting, it just doesn’t make economic sense.
Meanwhile, Shell is in the hole to the tune of $4.1 billion thanks to this bad business decision — and not only that, it’s been a public relations disaster, too:
Shell is expected to take a hit of around $4.1bn as a result of the decision.
The company has come under increasing pressure from shareholders worried about the plunging share price and the costs of what has so far been a futile search in the Chukchi Sea.
Shell has also privately made clear it is taken aback by the public protests against the drilling which are threatening to seriously damage its reputation.
Ben van Beurden, the chief executive, is also said to be worried that the Arctic is undermining his attempts to influence the debate around climate change.
His attempts to argue that a Shell strategy of building up gas as a “transitional” fuel to pave the way to a lower carbon future has met with scepticism, partly because of the Arctic operations.
A variety of consultants have also argued that Arctic oil is too expensive to find and develop in either a low oil price environment or in a future world with a higher price on carbon emissions.
Oil is over. It’s yesterday, it’s finished. Give it up.