Shell departure ‘a punch in the gut’ for Alaska

By Margaret Kriz Hobson | 09/29/2015 08:14 AM EDT

Alaskans are struggling to understand the full impact of Royal Dutch Shell PLC’s Sunday announcement that it is abandoning its Chukchi Sea leases because it found too little oil and gas to warrant further exploration.

Alaskans are struggling to understand the full impact of Royal Dutch Shell PLC’s Sunday announcement that it is abandoning its Chukchi Sea leases because it found too little oil and gas to warrant further exploration.

Shell’s decision to scrap its U.S. Arctic drilling program shocked and angered Alaska state officials and Native group leaders who have been among the oil giant’s most vocal supporters.

Alaska House Speaker Mike Chenault (R) spoke for many state oil supporters in describing Shell’s decision as "a punch in the gut."


Ben Nageak, a Democratic state House member from Barrow, called Shell’s action "heartbreaking" for North Slope residents who had hoped to benefit from the company’s Chukchi Sea oil development.

Noting that production is steadily declining at the 40-year-old Prudhoe Bay oil fields, Nageak said Shell’s operation could have provided "another economic boom that could have propelled our young people and their children to better futures."

Arctic Slope Regional Corp.’s president and CEO, Rex Rock Sr., shared those sentiments.

"We are looking for solutions on how we continue to sustain our local economies to support our communities," Rock said. "Absent any responsible resource development onshore and offshore, we are facing a fiscal crisis beyond measure."

Shell’s departure is especially a blow for company employees and contractors who have worked on the Arctic drilling program over the last seven years. This summer, Shell had roughly 400 workers in its Anchorage office and 3,000 contractors working in the field on the Chukchi operation.

Shell officials acknowledged yesterday that the company’s decision to leave Alaska is "hugely disappointing."

"We had hoped to write the next chapter of Alaska’s oil and gas history, and that won’t happen — at least not now, not with Shell," said Shell Alaska spokeswoman Megan Baldino.

Although Shell is closing down its Arctic drilling operation, it has not relinquished its Beaufort or Chukchi leases. In fact, the company continues to push federal regulators for an additional five years to explore on those properties.

Regulatory blame

In announcing its decision to stop drilling in the Arctic, Shell took a swipe at the Obama administration, criticizing the federal government’s "challenging and unpredictable federal regulatory environment in offshore Alaska."

The Alaska leaders are also blaming the federal government for the demise of the company’s Chukchi Sea oil development operation. Shell’s action is certain to intensify efforts by Alaska leaders to gain greater control over resource development in the state.

Alaska Gov. Bill Walker (I) argued that the outcome of Shell’s $7 billion Arctic oil development program might have been different if the company had been given more time and greater leeway to explore.

"It’s certainly disappointing that they could not drill multiple wells in that amount of time, given the amount of money" the company spent, Walker said in a press conference. "Typically, around the world, they would have drilled multiple wells. That was not allowed."

Regulators initially allowed Shell to simultaneously drill two wells about 9 miles apart at its Chukchi unit. But regulators later withdrew that decision based on a 2013 marine mammal rule that requires a minimum well spacing of 15 miles (E&ENews PM, June 23).

Walker said he is pressing President Obama to open federal lands in the state to new exploration. He also plans to meet with Interior Secretary Sally Jewell in the near future "to emphasize the importance of putting oil in the pipeline," he said, referring to the Trans-Alaska Pipeline System.

"I contacted the White House this morning to set up meetings to discuss the potential impact of Shell’s decision, as well as Alaska’s need to explore in the 1002 area," located in the northern region of the Arctic National Wildlife Refuge, he said.

Alaska Republican Sen. Lisa Murkowski called for the Obama administration to work with Alaskans to develop "a predictable and sensible regulatory system both onshore and offshore that encourages companies to make major investments in our future."

Murkowski, who chairs the Senate Energy and Natural Resources Committee, is lobbying regulators to open the door to new oil and gas development in the National Petroleum Reserve-Alaska, off the Beaufort Sea coast, and in the Arctic National Wildlife Refuge.

She also recommended that the Interior Department extend the lease terms for Shell and other companies that own federal lands in the Beaufort and Chukchi seas, as well as hold new lease sales in the American Arctic.