Shell abruptly exits Chukchi drilling

By Margaret Kriz Hobson | 09/28/2015 08:09 AM EDT

After investing seven years and $7 billion in hopes of finding a mother lode of oil in the American Arctic, Royal Dutch Shell PLC is scrapping its Chukchi Sea drilling program and ending exploration in offshore Alaska "for the foreseeable future."

In a short but blunt press statement, the company said the amount of oil and gas discovered at its Burger J lease is "not sufficient to warrant further exploration in the Burger prospect. The well will be sealed and abandoned in accordance with U.S. regulations."

Marvin Odum, director of Shell Upstream Americas, noted that "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," he said.

While the low oil potential was the main reason for walking away from the American Arctic, Shell also blamed "the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska."

With the Chukchi operation ending, Shell said it expects to take a significant financial loss. However, the full impact of the decision was not immediately clear.

The company said only that its "balance sheet carrying value of Shell’s Alaska position is approximately $3.0 billion, with approximately a further $1.1 billion of future contractual commitments. An update will be provided with the third quarter 2015 results."

Shell’s stunning decision marks the end of the company’s controversial plan to develop oil and gas resources in the American offshore Arctic waters.

Environmental activists who have continually challenged Shell’s Arctic drilling operation applauded the company’s decision to give up its Chukchi exploration program.

Lois Epstein, Arctic program director for the Wilderness Society, described Shell’s decision as "very good news for the marine environment, sensitive coastal lands and the Arctic communities that would be devastated by a major oil spill."

"Hopefully, this means that we are done with oil companies gambling with the Arctic Ocean, and we can celebrate the news that the Arctic Ocean will be safe for the foreseeable future," she said.