Alastair Grant, Associated Press
AMSTERDAM — Oil companies' rush to find reserves off Alaska's Arctic shores suffered a setback on Thursday after Shell said it would suspend its operations in the region — and possibly withdraw for good.
While Royal Dutch Shell PLC is the main company to have purchased leases for oilfields off Alaska's Arctic shores, it has hit technical and legal hurdles obtaining actual drilling permits. While other companies are still seeking to exploit deep-water Arctic fields nearby in Canada, Shell's troubles may indicate the troubles outweigh the potential economic benefits.
"We will not drill in Alaska in 2014, and we are reviewing our options there," Shell CEO Ben van Beurden told reporters in London.
Shell received a negative Federal court decision last week. Environmentalists are still challenging whether the government's 2008 decision to open the area to exploration was correctly granted in the first place: it is covered by sea ice for much of the year.
Asked directly whether Thursday's retreat means the project is finished, Van Beurden said that depends in part on how the ongoing lawsuit proceeds.
Environmental activists cried victory.
"Shell's Arctic failure is being watched closely by other oil companies, who must now conclude that this region is too remote, too hostile and too iconic to be worth exploring," Greenpeace International Arctic oil campaigner Charlie Kronick said in a reaction.
"In an era of declining profits, increasing costs and unprecedented levels of public scrutiny, the Arctic is simply not worth the risk," he said.
Shell's troubles in Alaska are only the most visible in a series of setbacks for the company in the U.S., and Van Beurden hinted he won't prioritize investments there in the future.
While oil prices remain high globally, "North America natural gas prices and associated crude markers remain low, and industry refining margins are under pressure" Van Beurden said.
He said Shell's investment priorities would be liquefied natural gas, or LNG, projects in places such as Brazil and the massive floating LNG "Prelude" project off Australia's west coast.
Last month, Shell said it was scrapping a $20 billion dollar project to develop an onshore natural gas-to-diesel facility in Louisiana.
Van Beurden's predecessor, Peter Voser, spent billions building up the company's portfolio of U.S. shale properties to $26 billion, only to write $2 billion off their value last summer.
"Yes, we went into North America in a big way. You could argue that we went a little bit too far too soon. But we are where we are," Van Beurden said.
He described the North American shale market as "a different game, a very efficient market, and the sort of pressures you have there are therefore fundamentally different from what you would have in places like Russia, Argentina."
Still, Shell's Arctic misadventures stand out.
After purchasing licenses for $2.1 billion in the Chukchi sea off Alaska's coast in 2008, Shell began preliminary drilling in the summer of 2012.
But it was unable to get far after difficulties deploying an oil containment system it had on standby in the event of a spill — required after the BP disaster in the Gulf of Mexico — and then was forced to retreat because of approaching winter ice.
Then one of its rigs was damaged while being transported on Dec. 31, 2012, and no drilling took place in 2013.
CFO Simon Henry said Thursday Shell wrote around $1 billion off the value of its Alaskan business in 2013.
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