Royal Dutch Shell suspends Arctic drilling indefinitely

Monday, September 28, 2015

Royal Dutch Shell suspends Arctic drilling indefinitely

By Juliet Eilperin and Steven Mufson September 28 at 12:35 PM

This story has been updated.
Royal Dutch Shell announced early Monday morning it will suspend Arctic drilling indefinitely, after finding insufficient oil and gas in one of its exploratory wells to justify costly development.
The move puts the end — for now — on the contentious debate over whether oil and gas exploration should take place in the environmentally sensitive area off Alaska’s coast. President Obama has come under intense fire for allowing drilling to proceed, and environmentalists cheered Shell’s announcement.
It also highlights the tremendous costs and risks of drilling in the Arctic frontier, which is thought to have vast oil reserves but where little exploration has taken place so far.
In a statement at 1 a.m. Eastern time, Shell said that while it had successfully drilled its Burger J exploration well in Alaska’s Chukchi Sea this summer to a total depth of 6,800 feet, the indications of oil and gas “are not sufficient to warrant further exploration in the Burger prospect.” The well lies roughly 150 miles from Barrow, Alaska.
“The Shell Alaska team has operated safely and exceptionally well in every aspect of this year’s exploration program,” said Shell Oil Co.’s president Marvin Odum. “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 U.S. However, this is a clearly disappointing exploration outcome for this part of the basin.”
The firm said it would seal and abandon the well in accordance with U.S. regulations and “will now cease further exploration activity in offshore Alaska for the foreseeable future.”
[READ: Shell’s big gamble in the Arctic]
“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 statement added.
Interior Department spokeswoman Jessica Kershaw said Monday the department “has focused on making sure that Shell’s exploration activities are performed as safely as possible” and would continue to monitor its activities as it scaled back its operations “to ensure that de-mobilization activities are done safely and responsibly.”
The company said it would take a large financial charge as a result of the announcement. The balance sheet value of Shell’s Alaska position is approximately $3.0 billion, with approximately a further $1.1 billion of future contractual commitments for equipment the company expected to use in 2016 and 2017, the company said. It will try to redeploy some of those assets, but some write offs will be required.
Shell has spent more than $7 billion on oil exploration in the Alaskan Arctic, including more than $2 billion in what was a record Interior Department lease sale in 2008 and $1.4 billion this year. But its efforts to find a vast amount of oil have been mired in lawsuits and a regulatory process complicated by a series of mishaps — such as hitting uncharted shoals — that have damaged vessels required for the drilling program. The BP oil spill in the Gulf of Mexico also resulted in a suspension of all offshore drilling for a period and made regulators more sensitive to spill risks.
Lois Epstein, a licensed engineer and Arctic program director for the Wilderness Society, said the project made no sense given the area’s wildlife, lack of an oil spill response infrastructure and the threat fossil fuel burning poses to the climate.
“Shell’s announcement is a very good news for the marine environment, sensitive coastal lands and the Arctic communities that would be devastated by a major oil spill,” Epstein said in a statement. “Hopefully, this means that we are done with oil companies gambling with the Arctic Ocean, and we can celebrate the news that the Arctic Ocean will be safe for the foreseeable future.”
For the oil industry, however, the well results were bad news.
“That was a huge disappointment not only for Shell but also for the industry,” said Fadel Gheit, an oil analyst for Oppenheimer & Co. “This has been a saga. Bad timing, bad planning, bad circumstances. It was not meant to be. Everything that could go wrong went wrong.”
He said that though the company only completed one well, he said that it was the best prospect Shell had. “If you wanted to make a bet on one horse, this was the horse in for the money,” he said. “This was the best candidate.” In the 1990s, five wells were drilled in the area and abandoned after yielding natural gas, but by early 2008 oil prices had soared and Shell had taken another look at the seismic data.
The announcement that Shell would halt drilling came less than a month after President Obama’s historic trip to the Alaskan Arctic to highlight climate change and Arctic policy. Environmental activists had both celebrated the trip and yet also suggested a contradiction between the president’s climate concern on the one hand, and his administration’s allowing Shell’s drilling plans to go forward.
“As President Obama saw first-hand, there are many challenges in the Arctic region, and we can use this opportunity to address changing climate and the need to protect and conserve important ocean resources,” said Susan Murray, a deputy vice president at Oceana, in a statement. “Shell’s announcement today allows the government to take a step back to apply careful planning, precaution, and science to forge a sustainable future for the Arctic.”
“Today’s announcement from Shell that it will not drill for oil in the Arctic Ocean for the foreseeable future underscores the reality that drilling in this harsh and sensitive Alaskan environment is not worth the risk,” Sen. Edward J. Markey (D-Mass.) said in a statement Monday.
But Rex A. Rock, Sr., president of the Arctic Slope Regional Corporation (ASRC), a consortium of Alaska Native companies that recently invested in Shell’s oil prospects, said in a statement that he was “deeply disappointed” with the news from Shell. The leaders of ASRC said they had invested in Shell’s venture because of concerns that climate change would make it more difficult to sustain their traditional whaling and fishing based economy.
“We are looking for solutions on how we continue to sustain our local economies to support our communities,” Rock said. “Absent any responsible resource development onshore and offshore, we are facing a fiscal crisis beyond measure.”

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Juliet Eilperin is The Washington Post's White House bureau chief, covering domestic and foreign policy as well as the culture of 1600 Pennsylvania Avenue. She is the author of two books—one on sharks, and another on Congress, not to be confused with each other—and has worked for the Post since 1998.