Shell Abandons Disappointing Offshore Alaskan Well

28 Sep 2015 | Author: | No comments yet »

Shell Abandons Disappointing Offshore Alaskan Well.

Royal Dutch Shell said it would cease exploration activity in offshore Alaska for the “foreseeable future” and take a writedown of about $4.1 billion (€3.6 billion) after failing to find enough oil in the region. The company said the well “found indications of oil and gas but these are not sufficient to warrant further exploration” of the Burger prospect, a geological structure.

Shell has spent upward of $7 billion on Arctic offshore exploration, including $2.1 billion in 2008 for leases in the Chukchi Sea off Alaska’s northwest coast, where an exploratory well about 80 miles off shore drilled to 6,800 feet but yielded disappointing results. Investors and industry executives questioned the wisdom of Shell’s spending heavily and putting its reputation at risk — especially with oil prices having fallen over the last two years from $110 per barrel to below $50 per barrel. We always thought the risk was tremendously great.” Environmental groups said oil exploration in the ecologically fragile Arctic could lead to increased greenhouse gases, crude oil spills and a disaster for polar bears, walrus and ice seals.

Over the summer, protesters in kayaks unsuccessfully tried to block Arctic-bound Shell vessels in Seattle and Portland, Oregon. “Polar bears, Alaska’s Arctic and our climate just caught a huge break,” said Miyoko Sakashita, oceans program director for the Center for Biological Diversity, in a statement. “Here’s hoping Shell leaves the Arctic forever.” Monday was Shell’s final day to drill this year in petroleum-bearing rock under its federal permit. Shell said the value of Alaska drilling on its balance sheet was $3.1 billion, and that it had a further $1.1 billion in contractual commitments, probably for items like drilling rigs.

In a note to investors, Biraj Borkhataria, an analyst at RBC Capital Markets in London, said that investors were disappointed by the well results but might welcome the decision to suspend drilling in the long run. Shell officials had called the Chukchi basin “a potential game-changer,” a vast untapped reservoir that could add to America’s energy supply for 50 years. Shell had the strong backing of Alaska officials and business leaders who want a new source of crude oil filling the trans-Alaska pipeline, now running at less than one-quarter capacity. Charles Ebinger, senior fellow for the Brookings Institution Energy Security and Climate Initiative, said in an interview that a successful well by Shell would have been “a terribly big deal,” opening an area that U.S. officials say contains 15 billion barrels of oil.

While oil prices have dropped significantly in recent years and nations have pushed for cleaner energy sources, analysts predict that the world between 2030 and 2040 will need another 10 million barrels a day to meet growing demand, especially in developing countries, Ebinger said. Shell in 2012 sent drill rigs to the Chukchi and Beaufort seas but was not allowed to drill into oil-bearing rock because the containment dome had been damaged in testing.

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