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Shell Abandons Controversial Arctic Drilling Campaign After Spending an Estimated $7 Billion

The company said it was unable to find "sufficient" amounts of oil and natural gas to warrant continued drilling.
Photo by Jim Paulin/AP

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Royal Dutch Shell has ditched its hard-fought push to find oil and natural gas off the remote Alaskan coast "for the foreseeable future," saying this summer's drilling turned up weak prospects at high cost.

In a statement issued Monday morning, the company said its crews found no signs of oil and gas "sufficient to warrant further exploration" in the Chukchi Sea.


"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," Marvin Odum, the head of Shell's North American exploratory arm, said in the statement. "However, this is a clearly disappointing exploration outcome for this part of the basin."

Monday was the last day Shell could drill under its permits. In addition to the disappointing results and high costs, the company blamed an "unpredictable federal regulatory environment" for the decision. The Obama administration disappointed environmentalists by approving Shell's drilling plans, but not before placing several restrictions on the company that effectively limited it to drilling one well at a time.

"We drilled only one complete well in eight years — in large part due to untimely and indefensible permits," Shell spokesman Curtis Smith told VICE News via e-mail. "That's not certainty. In normal course, this exploration program would have taken significantly less time."

Related: The Obama Administration Gives Shell the Final Go Ahead for Arctic Oil Drilling

The announcement came as a happy surprise to environmentalists, who harried Shell in court and on the water in an unsuccessful attempt to halt the project. They argued that the region's harsh conditions would raise the risk of a major spill, which would be all but impossible to clean up.

"After 10 years, the Arctic appears to have gotten the better of one of the most sophisticated and well-financed companies in the world," said Mike LeVine, senior Pacific counsel for the conservation group Oceana. "Rather than focus on the surprise, though, it seems more important to focus on the future. We can stop arguing about Shell and start focusing on what the future of the Arctic region will look like."


The company said it will cap the 6,800-foot well it drilled this summer and walk away, writing off an estimated $4.1 billion in the process. The entire effort is publicly estimated to have cost the company at least $7 billion since 2008, when it obtained leases on the seabed about 75 miles northwest of the Alaskan shore.

Greenpeace, whose activists boarded one of Shell's drill ships in the Pacific and blockaded one of its icebreakers in Portland, Oregon, exulted in the decision Monday. Greenpeace spokesman Travis Nichols said the depth of public opposition to the project "caught them flat-footed," and the results should boost efforts to protect the Arctic.

"Shell sunk $7 billion into this. They bullied regulators and ran roughshod over public opinion, doubling down on this huge bet, and they busted," Nichols said. "I think that's going to be a big warning sign to other oil companies."

Smith said Shell wasn't surprised by the opposition, which he said played no role in Monday's announcement.

Related: Obama Is Heading to Alaska to Highlight Climate Change Despite Arctic Drilling Approval

The Arctic's rapidly warming climate has created an opening for oil companies to get at the vast stores of hydrocarbons estimated to lie underneath the sea floor, even as scientists warn that those fossil fuels are driving climate change. But the price of crude has plunged from more than $100 a barrel to less than $50 in the past year and a half, making it harder for more difficult plays to break even.


Shell has said that even if it had found oil or gas, it would have taken as long as 2030 to get those products to market, so the immediate price of oil wasn't much of a factor. But Chevron put a proposed project off Canada's Arctic shores on ice last year, citing the slumping market, and two other companies — ConocoPhillips and Norway's StatOil — have backed away from similar projects.

"The low price of oil certainly doesn't justify continued investment, and moving forward, we are hopeful that meaningful action to address climate change will mean we're no longer pursuing oil in remote and dangerous places like the Arctic Ocean," LeVine said.

This summer was Shell's second attempt to drill in the Chukchi Sea, after a 2012 season that was plagued by mishaps and led to a guilty plea by one of its major contractors.

The feds halted that year's drilling early when a containment device failed tests. An engine-room fire put the drill ship Noble Discoverer out of commission, and at the season's end, the drill platform Kulluk broke loose from its tugs and ran aground in a storm on the state's southern coast.

In December, Noble Discoverer's owners pleaded guilty to eight federal felony counts and paid $12.2 million in fines for trying to cover up the failure of a key piece of anti-pollution gear and the subsequent dumping of oily water from its engine room. The same piece of equipment broke down during a Coast Guard inspection in Honolulu, Hawaii in April, resulting in the ship being held for repairs for a day and raising alarms among environmentalists about this season.

On the Line: Robert S. Eshelman Discusses Climate Change

Follow Matt Smith on Twitter: @mattsmithatl