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Shell concedes defeat in the Arctic after poor results

The company have abandoned the multi-billion dollar drilling campaign after facing difficulty in the region

Poor exploration results this summer have prompted Shell to abandon a multi-billion dollar drilling campaign in the US Arctic. Its prospects had already looked fragile given high costs, low oil prices, regulatory uncertainty and environmental opposition.

Shell said it found indications of oil and gas in the Burger J well it drilled in the Chukchi Sea, but that these had not proved sufficient to warrant further exploration. The well, drilled to a total depth of 6,800 feet in 150 feet of water at a location some 150 miles from Barrow, Alaska, will be sealed and abandoned.

The company said it would cease exploration activity offshore Alaska for the foreseeable future and that its decision was informed not just by the well result, but also the project’s high costs, and the difficult and unpredictable federal regulatory environment in offshore Alaska.

Shell estimates that financial charges related to its Alaskan drilling campaign will amount to around $3bn, plus a further $1.1bn of future contractual commitments. The company will provide an update when it releases its third-quarter 2015 results on 29 October.

Shell is the latest in a growing group of explorers to postpone or abandon Arctic drilling plans over the past couple of years.

"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”, Marvin Odum, director of Shell Upstream Americas says.

Earlier this year, the US Bureau of Ocean Energy Management estimated the lease area that includes Shell’s blocks in the Chukchi Sea held 4.3bn barrels of oil and 2.2 trillion f3 of natural gas. The wider Chukchi Sea is thought to hold around 15bn barrels of technically recoverable oil reserves.

Earlier in September, Shell said oil production from its Arctic programme would not be on stream before 2030, even if exploratory results had been favourable.

That long lead-time, as well as uncertainty over future oil demand, prices and climate-change measures, likely influenced its decision to withdraw. Environmentalists have also opposed Arctic drilling. Greenpeace described Shell’s pull-out as “an unmitigated defeat” for the oil industry and called on US President Barack Obama to ensure that “no other oil company be licensed to drill in the American Arctic”. 

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