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 Shell has spent about $7 billion on exploration in the waters off
Alaska so far and said it could take a hit of up to $4.1 billion for
pulling out of the Chukchi Sea for the "foreseeable future".
The unsuccessful campaign is Shell's second major setback in the
Arctic after it interrupted exploration for three years in 2012 when
an enormous drilling rig broke free and grounded.
Environmental campaigners and shareholders have also pressured Shell
to drop Arctic drilling. Some are worried an oil spill would harm
protected species while others are concerned about the cost after
oil prices more than halved in a year.
"Shell has found indications of oil and gas in the Burger J well but
these are not sufficient to warrant further exploration," Shell said
in a statement on Monday.
It said the decision to withdraw from the area reflected the results
from the exploratory well, the project's high costs and the
unpredictable federal regulatory environment in the area off the
U.S. state of Alaska.
"The entire episode has been a very costly error for the company
both financially and reputationally," said analysts at Deutsche
Bank, who estimate the Shell's Arctic exploration project could cost
the company about $9 billion.
BONE OF CONTENTION
Shell's abandonment of Arctic drilling came just six weeks after the
U.S. government granted the company final clearance for its
campaign.
"They had a budget of billions, we had a movement of millions. For
three years we faced them down, and the people won," said John
Sauven, executive director at Greenpeace UK.
Activists tried to interrupt Shell's drilling plans in July by
blocking an icebreaker vessel as they dangled from a bridge.
The decision is also the latest in a series of setbacks for projects
in the Arctic trying to find oil and gas deposits estimated at 20
percent of the world's undiscovered resources.
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Earlier this year, Norway's Statoil postponed its Arctic Johan
Castberg project again and in 2012 Russia's Gazprom, together with
Total and Statoil, scrapped the Shtokman gas project in the Arctic
Barents Sea.
Shell's London-listed shares reacted positively in early trading on
Monday to the Arctic withdrawal, gaining up to 0.6 percent. The
shares fell later in line with the oil and gas index.
"Alaska been a bone of contention for many investors thus today's
update is a positive," said Bernstein analysts, who rate Shell's
stock as outperform.
Shell said its Alaskan project was valued at about $3 billion on its
balance sheet and that it had a $1.1 billion in future contractual
commitments. It said it would give an update on the cost of
writedowns with third-quarter results.
(Additional reporting by Abhiram Nandakumar in Bengaluru; editing by
David Clarke)
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