The Arctic will be safe from drilling efforts by accident-prone Shell this year, and the oil company says it is reconsidering its very future in the region.
Shell spent nearly $6 billion on plans to drill the Arctic, but it has yet to produce any oil. The federal government barred the company from Arctic waters last year following a series of accidents during exploratory drilling in 2012.
The company had hoped the suspension would be lifted this year. As it turns out, the suspension won’t matter.
The company announced on Thursday that it won’t pursue exploratory drilling in the Arctic this year, and its CEO told reporters that the company is “reviewing our options” in the Arctic.
The announcement followed declining profits, the hiring of a new chief executive, and a major court ruling. Last week, a federal appeals court sided with environmentalists over the federal government, ruling that an environmental analysis related to the 2008 Chukchi Sea lease sale was flawed because it included an arbitrary estimate of the amount of oil available to be drilled.
From Shell’s press release about the decision:
The recent Ninth Circuit Court decision against the Department of the Interior raises substantial obstacles to Shell’s plans for drilling in offshore Alaska. As a result, Shell has decided to stop its exploration program for Alaska in 2014. “This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” [CEO Ben] van Beurden said.
The Washington Post takes a look at the bigger picture:
But some analysts noted that the company has suffered a series of setbacks around the world that have led to write-downs in the value of projects. They said the delay fits the strategy of the company’s new chief executive, Ben van Beurden, who wants to put money into projects with more certain outcomes and shorter time horizons. …
Shell sent rigs to drill in the area in 2012, but the company got a late start after struggling to bring its drilling vessels in line with permit requirements. Then it had to deal with unexpected summer ice floes and decided to install only the top of wells in the Chukchi Sea because it was running out of time to drill before open-water season ended. Later that year, one of its vessels, the Kulluk, was damaged when it ran aground on its way to warmer waters. The company said it will be scrapped.
And here is the Anchorage Daily News with reactions:
“Shell is finally recognizing what we’ve been saying all along, that offshore drilling in the Arctic is risky, costly and simply not a good bet from a business perspective,” said Jacqueline Savitz, Oceana’s vice president for U.S. oceans. …
Political leaders faulted the federal government and court rulings and downplayed Shell’s own difficulties.
Alaska Republican Sen. Lisa Murkowski said she was disappointed that Shell wouldn’t be going ahead this year. She said it was understandable given the uncertainty due to the federal court ruling on its leases.
“Companies willing to invest billions of dollars to develop our country’s resources must have confidence that the federal agencies responsible for overseeing their efforts are competent and working in good faith. I’m not convinced that has been the case for Alaska,” Murkowski said in a statement.
Alaska Democratic Sen. Mark Begich blamed “judicial overreach” for the situation.
Aw, Shell. Better luck next year? Let’s hope not.
- New Shell CEO Ben van Beurden sets agenda for sharper performance and rigorous capital discipline , Shell
- Shell says it won’t drill in Alaska in 2014, cites court challenge , Washington Post
- Shell won't drill offshore in Alaska Arctic this year; 'reviewing our options,' CEO says , Anchorage Daily News