Shell’s dreams of finding black gold beneath the chilly Arctic waters have been put on ice for the foreseeable future, after the oil major’s drilling off Alaska came up short.
It said it found ‘indications of oil and gas’ in its Burger J well in Alaska’s Chukchi Sea, but that ‘these are not sufficient to warrant further exploration’. It also blamed ‘the high costs associated with the project, and the challenging and unpredictable regulatory environment’.
Environmental campaigners, galvanised by the prospect of oil spills in the Arctic’s untouched waters, claimed victory, with Greenpeace UK executive director John Sauven declaring ‘the people won’.
But, with oil having plunged from $115 a barrel last June to less than $50 now, the project was always a risky bet. Companies from Norway’s Statoil to American majors Exxon and Chevron have all shelved projects in the far north.
It won’t be a decision Shell took lightly either, having sunk around $7bn into a project that involved towing two enormous oil rigs more than 2,000 miles to the drilling site. It said the value of its ‘Alaska position’ on its balance sheet is around $3bn, while it has another $1.1bn of ‘future contractual commitments’. That will no doubt mean a multibillion-dollar writedown when it announces its third-quarter results next month.
So it’s an icy blow for Shell, although investors were actually relatively unconcerned – shares were down a mere 0.32% to 1,552p in mid-morning trading in London, while the FTSE 100 fell more than 1%. Nonetheless, chief executive Ben van Beurden had better hope the company gets value from its impending £47bn mega-acquisition of BG Group.