Chukchi Sea

Shell Oil pulls out of Arctic Sea oil drilling, citing bad economics rather than kayaktivists

This summer Royal Dutch Shell worked in the Chukchi Sea to drill for oil, in the open ocean above the arctic circle.  That’s a recipe for disaster, which Shell itself admitted would, if oil drilling were fully developed there, cause a large number of large oil spills in a terrain which would be almost impossible to clean up or even control the oil spill.   Today, the company announced it was ceasing operations in the Chukchi Sea after drilling a dry hole (not finding enough oil to warrant further exploration).

My Facebook feed is full of postings from environmental groups proclaiming that “WE” have achieved a big victory over big business.  The truth is nothing of that sort.

Shell did not withdraw from the Arctic because of Kayakers.  As brave as the Kayaktivists were, that didn’t stop Shell from drilling in the Arctic.

Shell did drill one hole, to a depth of 6800 feet at a well in 150 feet of water.   According to the press release (below), they did find some oil and natural gas in that hole.  But it wasn’t enough to be worthwhile for further exploration, in the Burger area.  The drilling occurred in the “Burger J” region, specifically.

As a result, Shell will plug up the hole and abandon the site, as is required by federal law.

This same pattern played itself out in Eastern Europe, with plans by several oil companies to start hydraulic fracturing (fracking) operations in Poland, Romania, Ukraine and elsewhere.  There were brave environmentalist groups in Romania, for example, fighting the good fight, demanding that Chevron stop their drilling operation, demanding that the government cease support for fracking, etc.  What happened?  Chevron drilled its hole, took samples back to a laboratory, then a few months later quietly announced it was ceasing operations and pulling out of the country.

It wasn’t just Romania, but several other countries, and it wasn’t just Chevron.  In Ukraine, both Chevron and Royal Dutch Shell had rights to start fracking operations, but earlier this year both companies pulled out of Ukraine partly because of the slumping global price for oil, and partly because of the civil war in Ukraine.

Notice that in the press release below, Shell reminds us they own 100% working interest in 275 blocks in the Chukchi Sea.  All of the oil companies have equipment, expertise, core competency, institutional know-how, etc, in operating fossil fuel recovery operations.  Just because these companies have pulled out of certain areas doesn’t mean they’ll never return.

This Royal Dutch Shell announcement, like others before it over the last couple years, may have to do with global oil prices.  The global oil price may be too low for profitable fossil oil extraction from the Chukchi Sea.  Similar things were said when these companies pulled out of Romania, Poland, Ukraine and other countries – that the economics didn’t work.

Yes, we can and should be happy that for the moment the Chukchi Sea is safe from oil company operations and the oil spills those operations would bring.  We should also be eternally vigilant for the day these companies move to restart operations in those and other areas.

Oil exploration blocks around Alaska

Oil exploration blocks around Alaska

The areas of current interest for off-shore oil exploration are marked with the beige colors, and include the Chukchi Sea, Beaufort Sea, and Cook Inlet.

An in-depth NY Times article on this discusses the economic quandary I just discussed, Bloomberg News concurred, as does Reuters.  The Financial Times notes that Shells effort to acquire the BG Group gives Shell access to more attractive fields elsewhere.   Additionally, Shell’s current CEO, Ben van Beurden, is described by the Times as having always been skeptical of success with Arctic oil drilling, but saddled with the fact that this project was launched by his predecessor.

The Chukchi Sea operation had lots of troubles.  The ice-breaker leased from Finland ran into an uncharted shoal in the Aleutians, and had to head back to Portland for repairs, where it was greeted by a flotilla of Kayaktivists.  In earlier years there’d been storms and other accidents that forced delays, and this year a violent storm forced Shell to cut back its drilling plans.  The agreement Shell had to operate under forced the company into a very limited drilling season, meaning any setback of any kind runs the risk of losing an entire season worth of working time.

Again — Shell says below this pull-out was due to economic considerations.  Those economics are not just the global low price of oil, but also the extreme expense of trying to drill for oil in the arctic.

Retrieved from:

Shell updates on Alaska exploration

Shell today provides an update on the Burger J exploration well, located in Alaska’s Chukchi Sea. The Burger J well is approximately 150 miles from Barrow, Alaska, in about 150 feet of water. Shell safely drilled the well to a total depth of 6800 feet this summer in a basin that demonstrates many of the key attributes of a major petroleum basin. For an area equivalent to half the size of the Gulf of Mexico, this basin remains substantially under-explored.

Shell has found indications of oil and gas in the Burger J well, but these are not sufficient to warrant further exploration in the Burger prospect. The well will be sealed and abandoned in accordance with U.S. regulations.

“The Shell Alaska team has operated safely and exceptionally well in every aspect of this year’s exploration program,” said Marvin Odum, Director, Shell Upstream Americas. “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. However, this is a clearly disappointing exploration outcome for this part of the basin.”

Shell will now cease further exploration activity in offshore Alaska for the foreseeable future. This decision reflects both the Burger J well result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska.

The company expects to take financial charges as a result of this announcement. The balance sheet carrying value of Shell’s Alaska position is approximately $3.0 billion, with approximately a further $1.1 billion of future contractual commitments. An update will be provided with the third quarter 2015 results.

Shell holds a 100% working interest in 275 Outer Continental Shelf blocks in the Chukchi Sea.

Operations will continue to safely de-mobilize people and equipment from the Chukchi Sea.

About David Herron

David Herron is a writer and software engineer living in Silicon Valley. He primarily writes about electric vehicles, clean energy systems, climate change, peak oil and related issues. When not writing he indulges in software projects and is sometimes employed as a software engineer. David has written for sites like PlugInCars and TorqueNews, and worked for companies like Sun Microsystems and Yahoo.
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