Market Overview

Shell Halts Arctic Oil Exploration

Shell Halts Arctic Oil Exploration

Royal Dutch Shell (NYSE: RDS-A) says it is stopping its oil exploration efforts in the Arctic waters off the Alaskan coast for the year. The announcement came as Shell announced a steep drop in its its fourth-quarter 2013 earnings

The company's new CEO, Ben van Beurden, cited several factors, including a worsening security situation in oil-rich Nigeria, delays on several projects and the company's need for restructuring and improving profitability in its North American operations, as behind his company's decision.

And van Beurden mentioned the recent ruling by the 9th U.S. Circuit Court of Appeals – which sided with environmental and native Alaskan groups in challenging the validity of the company's offshore oil leases.

“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,” van Beurden told investors on Thursday. “We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible.”

The Anchorage Daily News reports Shell has spent close to $6 billion on its Arctic offshore project, which has yet to extract any oil. The company says the Arctic is estimated to hold about 30 percent of the world's undiscovered natural gas – and 13 percent of its undiscovered oil

"We needed more certainty and didn't get it, making it impossible to justify the commitment of resources needed to explore safely in 2014," Pete Slaiby, Shell's vice president for Alaska, said in an email to the newspaper.

Other oil companies also appear to be having second thoughts about their Arctic projects. Last April, ConocoPhilips (NYSE: COP) said its 2014 drilling plans in Alaska's Chukchi Sea were “on hold due to regulatory uncertainties.” And according to the Anchorage Daily News, the Norwegian multinational Statoil (NYSE: STO) announced in 2012 it was delaying exploration plans in the area as well.

Environmental groups, needless to say, applauded Shell's action. Lois Epstein, Arctic program director for the Wilderness Society, told the Washington Post that van Beurden's decision was “both sensible and inevitable.”

“The Arctic Ocean has proven to be logistically challenging for drilling and mobilization,” she added, “and a bottomless pit for investment.”


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