Shell is abandoning hopes of drilling in the Arctic waters off Alaska this year, the latest blow to the company’s effort to exploit huge potential in the petroleum-rich but sensitive region.
The decision came as Shell reported a steep drop in earnings and its new CEO announced plans to restructure operations to improve the company’s cash flow.
CEO Ben van Beurden cited last week’s court ruling that threw offshore Arctic oil leases into question. The 9th U.S. Circuit Court of Appeals agreed with environmental and Alaska Native groups that the federal government had underestimated how much oil drilling would happen when it sold the leases in 2008.
Van Beurden told investors that the ruling raised “substantial obstacles” for Shell’s plans in Alaska waters.
“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,” he told the investors Thursday. “We will look to relevant agencies and the court to resolve their open legal issues as quickly as possible.”
Van Beurden told reporters in London that, in addition to not drilling the Arctic waters in 2014, “we are reviewing our options there.”
Shell in 2012 became the first company in decades to explore for oil off the northern coast of Alaska, but a series of mishaps doomed the effort. Those included the grounding of a drilling rig, safety and environmental violations, and fines for breaking air pollution limits. Ken Salazar, the interior secretary at the time, said Shell had “screwed up” the historic Arctic effort.
The problems led Shell to drop plans to continue the effort last year, but it had interest in resuming this year if the federal government agreed to issue permits.
Shell has spent almost $6 billion so far on its Arctic offshore effort and has yet to extract oil.
Environmental groups hailed Shell’s decision to suspend the effort.
“Shell is finally recognizing what we’ve been saying all along, that offshore drilling in the Arctic is risky, costly and simply not a good bet from a business perspective,” said Jacqueline Savitz, Oceana’s vice president for U.S. oceans.
Greenpeace urged other companies that are considering offshore Arctic drilling to learn from Shell’s experience and “conclude that this region is too remote, too hostile and too iconic to be worth exploring.”
Alaska Republican Sen. Lisa Murkowski said she was disappointed that Shell wouldn’t be going ahead this year. She said it was understandable given the uncertainty due to the federal court ruling on its leases.
“Companies willing to invest billions of dollars to develop our country’s resources must have confidence that the federal agencies responsible for overseeing their efforts are competent and working in good faith. I’m not convinced that has been the case for Alaska,” Murkowski said.
Alaska Democratic Sen. Mark Begich blamed “judicial overreach” for the situation.
“I’ll be talking with Interior Secretary Sally Jewell today, and expect her agency to move quickly to address the court’s questions and concerns and do everything possible to get this process back on track,” Begich said.
Shell’s decision came as the company told investors that its fourth-quarter profits had plummeted, in part because of expensive exploration projects around the world. Van Beurden said project delays in several countries and Nigeria’s worsening security situation had contributed to a changing outlook for the Dutch oil company.
He said Shell would reduce its capital spending this year by about $10 billion, increase sales of its assets and attempt to improve its operational performance.
“We are making hard choices in our worldwide portfolio to improve Shell’s capital efficiency,” he said.
CORRECTION: An earlier version of this story misspelled the name of the conservation group Oceana.