Shell makes shock exit from Arctic oil drilling

Shell has pulled out of offshore drilling in the Arctic, in a decision labelled an “unmitigated defeat” for oil companies by environmentalists opposed to the exploration.

Shell has invested £3 billion in its controversial project to drill for oil in the Arctic off Alaska. Picture: Contributed

The company is abandoning exploration off the coast of Alaska after failing to find sufficient signs of oil and gas to make further exploration worthwhile.

Shell said it would cease exploration activity in the region “for the foreseeable future”, blaming high costs associated with the project and a “challenging and unpredictable regulatory environment”. It said the decision to pull out of the multi-billion-dollar project was “disappointing” and will see it take a financial hit, though it added that the broader region was still likely to be of strategic importance.

The decision comes as global oil prices have fallen sharply, making complex exploration projects less economical.

Activists who have been staging a series of protests against the controversial drilling, including parking a giant polar bear puppet outside Shell’s headquarters in London, claimed the company had also taken a reputational hit for its activity. The campaigners oppose Arctic offshore drilling because of fears over the difficulty of clearing up a spill in the remote region, and the impacts it would have on the pristine environment.

Environmentalists also point to research that suggests that oil and gas drilling in the Arctic is not compatible with efforts to cut emissions in order to curb rising global temperatures.

Greenpeace UK executive director John Sauven said: “Big oil has sustained an unmitigated defeat. The Save the Arctic movement has exacted a huge reputational price from Shell for its Arctic drilling programme.

“And as the company went another year without striking oil, that price finally became too high. They’re pulling out.”

He urged US president Barack Obama to prevent any other oil company from drilling in the American Arctic.

He added that countries around the world would soon be meeting in Paris to negotiate a new global deal to tackle climate change.“If a movement of seven million people can beat one of the world’s biggest energy companies, think what we can do when we come together in our tens and hundreds of millions.

“This is a moment to appreciate that when we assert our power, we can win extraordinary victories.”

Shell said the abandoned project represented about $3 billion (£2bn) on its balance sheet plus $1.1bn (£720 million) of future contractual commitments.

Marvin Odum, director of Shell’s Upstream operations for the Americas, said: “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 said it had drilled at the Burger J well, about 150 miles off the coast of Alaska, in about 150ft of water, to a depth of 6,800ft over the summer “in a basin that demonstrates many of the key attributes of a major petroleum basin”.

It added: “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.”

Shell said earlier this year it was “planning for a prolonged downturn” as it slashed investment by 20 per cent and said it would cut 6,500 jobs during 2015.