$7 Billion Later, Shell to Withdraw from Arctic Oil Drilling

Environmentalists could have saved themselves a lot of demonstrating had they known that Shell Oil would pack up their drilling rigs after only six weeks of exploratory drilling in the Chukchi Sea off Alaska. Insufficient oil and other reasons cited.
September 29, 2015, 7am PDT | Irvin Dawid
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"Shell said the decision to withdraw from the area reflected poor results from its Burger J exploratory well, the project's high costs and the unpredictable federal regulatory environment* in the area off the U.S. state of Alaska," writes Karolin Schaps, energy correspondent for Reuters. 

"The entire episode has been a very costly error for the company both financially and reputationally," said analysts at Deutsche Bank, who estimate the Shell's Arctic exploration project could cost the company about $9 billion.

Low oil prices played a major role as well, write Clifford Krauss and Stanley Reed of The New York Times.

(A)t at a time when global markets are glutted with oil, thanks to the advent of new drilling techniques, the announcement also confirmed major oil companies’ increasing willingness to turn their backs on the most expensive new drilling prospects in the Gulf of Mexico and suspend plans for new projects in Canada’s oil sands.

Low oil prices plus the high cost of drilling caused Chevron "to drop their test well drilling program in Canada's Beaufort Sea" last December. They are hardly alone.

"Earlier this year, Norway's Statoil postponed its Arctic Johan Castberg project again and in 2012 Russia's Gazprom, together with Total and Statoil, scrapped the Shtokman gas project in the Arctic Barents Sea," writes Schaps.

The title of our May 2012 post of Shell's initial exploration, "Arctic Drilling: From Improbable To Inevitable," could not appear at this time to be further from the truth, at least as long as oil prices remain so low.

This is the Shell's second setback in Arctic drilling. In December 2013, "(o)ne of Shell Oil’s two Arctic drilling rigs beached on an island in the Gulf of Alaska, threatening environmental damage from a fuel spill and calling into question Shell’s plans to resume drilling in the treacherous waters north of Alaska in the summer," according to The New York Times.

"Environmentalists, who have criticized Shell's drilling plans in an area that is home to populations of whales, walrus and polar bears, claimed victory," adds Schaps.

* "The ‘unpredictable regulatory environment’ that forced Shell out of the Arctic is otherwise known as massive pressure from more than seven million people," Greenpeace UK executive director John Sauven said.

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Published on Monday, September 28, 2015 in Reuters
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