Shell says it will end Alaska offshore Arctic drilling

Charisse Jones | USA TODAY

Show Caption Hide Caption Shell's $7 billion Alaska oil search finds dry well Royal Dutch Shell Plc will halt exploration in the U.S. Arctic after $7 billion of spending ended with a well off Alaska that failed to find any meaningful quantities of oil or natural gas.

Royal Dutch Shell said it will end oil exploration in offshore Alaska "for the forseeable future'' after an exploratory well in the Chukchi Sea failed to yield the hoped for oil and gas.

Shell (RDS.A) had drilled the Burger J well down 6,800 feet, and thought the exploration would pay off because of its location in a basin that it believed had qualities that signal a significant reservoir of petroleum.

But while it "found indications of oil and gas,'' it wasn't enough to justify continued exploration, and so the company says it will seal the well and move on.

“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.,” Marvin Odum, president of Shell USA, said in a statement. “However, this is a clearly disappointing exploration outcome for this part of the basin.”

The company also said it was ending its efforts in the basin because of the expense, and the contentious regulatory climate in the area.

The announcement was a major setback for Shell, which hoped that drilling off the Alaska coast would boost the company's revenue. Environmentalists, who had been against the exploration, were pleased with Shell's decision.

“That’s incredible,” said Margaret Williams of the World Wildlife Fund in Anchorage. “All along, the conservation community has been pointing to the challenging and unpredictable environmental conditions. We always thought the risk was tremendously great.”

Susan Murray, deputy vice president-Pacific, for the international advocacy group Oceana, said in a statement that “the future of the Arctic Ocean just got a little bit brighter. ... Shell’s announcement today allows the government to take a step back to apply careful planning, precaution and science to forge a sustainable future for the Arctic.”

Shell has spent billions in the area, and said there is still more to be explored. The oil company had the support of Alaska officials and business leaders who are seeking a new source of crude oil for the trans-Alaska pipeline, which is now at less than one-quarter capacity.

Charles Ebinger, senior fellow for the Brookings Institution Energy Security and Climate Initiative, said a successful Shell well would have been “a terribly big deal,” opening an area that U.S. officials say contains 15 billion barrels worth of oil.

Despite declining oil prices, and clamoring by activists and some countries for cleaner sources of energy, analysts expect that between 2030 and 2040, there will be a global need for another 10 million barrels a day to meet growing demand, particularly in developing countries, Ebinger said.

“Areas like the Arctic are one of the areas that, if we’re going to be able to do this, we need to examine,” he said.

Shell's vessels experienced some significant challenges working in the Arctic. A drill vessel broke away from its towline in the Gulf of Alaska, running aground near Kodiak Island. And owners of the Noble Discoverer, a leased vessel used for exploration in the Chukchi Sea, pleaded guilty to eight felony maritime safety counts and paid a $12.2 million fine.

Contributing: Associated Press

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