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Shell Suspends 2014 Offshore Drilling Plans In Arctic

By Joanna M. Foster on January 30, 2014 at 9:44 am

"Shell Suspends 2014 Offshore Drilling Plans In Arctic"

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Shell Arctic Drill Ship

CREDIT: AP Photo/U.S. Coast Guard

Shell Oil announced Thursday that it is suspending efforts to drill for oil in the Arctic Ocean in 2014. The announcement came as the company’s new CEO Ben van Beurden addressed investors to confirm that the company’s fourth-quarter profits had dropped by 71 percent to $2.1 billion.

“Our ambitious growth drive in recent years has yielded a step-change in Shell’s portfolio and options, with more growth to come,” said Van Beurden in a statement. “But at the same time we have lost some momentum in operational delivery, and we can sharpen up in a number of areas.”

Shell’s decision to suspend its Arctic offshore operations comes after a federal appeals court ruled last week that the U.S. government had not properly assessed the risks of drilling in the Arctic before it sold leases for exploration drilling back in 2008. The environmental impacts considered were for the extraction of one billion barrels of oil — a number which the court ruled was “arbitrary and capricious.”

Shell’s Arctic ambitions have, so far, been thwarted at every turn. The company also suspended drilling off Alaska altogether in 2013, after a disastrous first year in 2012. Late permits, dangerous ice conditions and embarrassing equipment failures, all forced Shell out of the Arctic before a single well had been completed. Even as the company was moving equipment to warmer waters, one of its drill ships, the Kulluk, ran aground. Shell also had to pay $1.1 million in fines for air quality violations.

To date, Shell has invested well over $5 billion in its Arctic drilling projects and spent six years fighting legal challenges from environmental groups worried about the fragile Arctic ecosystem, as well as the climate consequences of burning what Shell has referred to as its “multibillion barrel prize.”

“‪The recent Ninth Circuit Court decision against the Department of the Interior raises substantial obstacles to Shell’s plans for drilling in offshore Alaska,” said Van Beurden in a statement. “As a result, Shell has decided to stop its exploration programme 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. We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible.”‬

Van Beurden also announced on Thursday that the company is slashing its exploration and development spending from $46 billion to $37 billion this year, according to the Guardian.

Shell is not the only company to indicate that its future involvement in the Arctic is uncertain at best. The vice president of Russia’s second largest oil company, Lukoil, has publicly said that Arctic drilling is too risky of an investment. Total S.A., the fifth-largest oil and gas company in the world, has indicated that it wouldn’t seek to drill in the Arctic because an accident there would be a “disaster,” and Norway-based oil and gas company Statoil said last year that it was considering walking away from its Arctic leases. After watching Shell’s missteps, ConocoPhillips announced last spring that was also suspending its plans to drill in the Arctic Ocean in 2014.

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