No Match for the Arctic, Shell Abandons Drilling

With its exploratory well in the Chukchi Sea finding little oil or gas, Shell admits $4 billion failure on the project.

A flotilla of kayaktivists protest Shell's Arctic drilling efforts in Seattle. (Credit: John S. Lewis via Flickr)

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Royal Dutch Shell announced Monday it is abandoning a multibillion-dollar effort to drill for oil and gas in the Arctic, bowing not to the vocal protests or calls to save the climate, but to cold hard reality. The company’s exploratory well, it turned out, was not finding enough oil or gas.

Shell said that its exploratory drilling at the Burger J well in the Alaskan Chukchi Sea tapped some reserves, but Shell determined they were “not sufficient to warrant further exploration,” according to a company statement.

The project’s results are “a clearly disappointing exploration outcome,” said Marvin Odum, the director of Shell Upstream Americas.

Environmentalists feel otherwise, hailing the company’s decision as a major win for the climate.

“Shell’s abandonment of drilling and cancellation of all exploratory activity in the Arctic is joyous news for our climate, communities along the Arctic Ocean, and the hundreds of thousands of people who have joined in public protests saying ‘Shell No’ to Arctic drilling,” Michael Brune, Sierra Club’s executive director, said in a statement.

Earlier this year, Shell faced a flotilla of “kayaktivists” in Seattle during the departure of its Arctic drilling fleet. While en route to Alaska, the company discovered a gash in one of its Arctic-bound icebreakers, the Fennica. The damaged vessel was sent for repairs to Portland, where the company faced a new wave of protests.

Shell’s Arctic efforts later got it kicked out of the Prince of Wales’s Corporate Leaders Group on Climate Change, a group Shell helped establish.

Despite the opposition to the project, environmental advocates were caught off guard by Monday’s announcement.

“It’s safe to say we were pretty surprised,” said Tim Donaghy, a senior research specialist at Greenpeace.

Shell cited the project’s high costs—the company said it would lose spent $4.1 billion on the failed project—and an unpredictable regulatory environment as the driving factors behind the decision to halt drilling offshore of Alaska “for the foreseeable future.” Shell has sunk more than $7 billion into its Arctic drilling efforts.

The Arctic has remained tantalizing to oil companies because it is estimated to contain 22 percent of the world’s untapped oil and gas reserves. But tapping that comes with major logistical problems, largely because of sea ice and unpredictable weather. Russian companies have watched their efforts to drill offshore languish as well and plunging oil prices have made the endeavor even less rewarding.  

“This amount of wasted capital is something that Ceres and its investors have been warning Shell about for years now,” Shanna Cleveland, senior manager of the carbon assets risk initiative at the Boston-based sustainability group Ceres. “It really shows that going after these types of high-risk projects, where you essentially need to hit a gusher to break even is a not a good strategy for companies,” she said.

Ann Pickard, a Shell executive vice president, warned that the Arctic program hinged on the success of the Burger J well back in May. According to FuelFix, Pickard said, “If we get a dry hole in J, we’re done.”

This is not the first time Shell’s northern drilling efforts have been stymied. In 2012, Shell tried to drill an exploratory well. It ended up with the grounding of its drilling rig, the Kulluk, and at least eight of its contractors faced felony charges and fines totaling $12.2 million for environmental crimes such as  discharging dirty water into the ocean and improper record keeping of equipment failures.

But whether or not Shell is really done with the Arctic is unknown. In the Monday announcement, Odum 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 U.S.”

That’s why activists including Greenpeace’s Donaghy have told InsideClimate News they plan to keep pressuring the Obama administration to block future Arctic drilling.

“The Obama administration dodged a bullet,” said Donaghy. Now is the time for the administration to come out formally against Arctic drilling—and drilling generally on public lands, he said. “The next step is demanding an energy policy that’s in line with climate policy.”