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The decision brings to an end almost a decade of efforts that could ultimately cost the Anglo-Dutch group more than $8bn, a sum described by analysts as “staggering” for a dry well.
It makes large-scale development of the Arctic, seen as the last big oil and gas frontier, unlikely for years to come.
Shell said it did not find sufficient amounts of oil and gas in its Burger J well, in the Chukchi Sea, to warrant further exploration, and said it would take billions of dollars in writedowns. It also ruled out a return to the region “for the foreseeable future”, blaming the project’s high cost and a “challenging and unpredictable” US regulatory environment.
Marvin Odum, upstream Americas director, said the area was “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 expects to suffer losses of up to $4.1bn with its third-quarter results, reflecting an asset writedown and the cost of future contractual commitments. It will try to farm out its 30-strong fleet of vessels, including two drilling rigs.
The collapse in oil prices since last June, from more than $115 a barrel to less than $50 now, has called into question the viability of difficult, high-cost production in areas such as the Arctic.
The Burger prospect is in a largely unexplored area estimated by the US as potentially holding 4.3bn barrels of recoverable oil.
Industry rivals have been watching to see whether Shell could overcome severe technical, regulatory and legal challenges. Its inability to find commercially viable reserves will send a signal that, at a time when companies are seeking to save every possible dollar, Arctic exploration does not justify the cost.
Shell has spent $7bn on offshore Arctic development in the Chukchi and Beaufort seas since 2007, or about 20 per cent of its exploration budget. Like its rivals, though, the company is slashing spending. Its proposed £36.4bn takeover of BG Group, which brings billions of barrels in reserves, will give it cheaper resources to develop.
Environmental groups, which opposed Shell’s drilling programme, claimed victory.
Greenpeace’s UK executive director John Sauven said: “Big oil has sustained an unmitigated defeat. They had a budget of billions, we had a movement of millions. For three years we faced them down, and the people won.
“Now President Obama should use his remaining months in office to say that no other oil company will be licensed to drill in the American Arctic.”
Michael Brune, executive director of the Sierra Club, said it was “joyous news”, adding that he hoped Mr Obama would now cancel sales of new leases off the coast of Alaska, including three scheduled for 2016-17.
Mindy Lubber, president of Ceres, a group that works with investors on environmental and social issues, said Shell’s decision showed that the threat of “stranded assets” — resources that cannot be profitably developed — was becoming a problem for oil and gas groups.
Eni, the Italian energy group, is about to bring online its Goliat project in the Barents Sea, but that field was discovered more than a decade ago and had billions of dollars spent on bringing it to production before oil prices plunged.