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Shell abandons Arctic drilling programme

28 September 2015

Royal Dutch Shell has suspended Arctic oil and gas exploration off the coast of Alaska after "disappointing" results from a key well in the Chukchi Sea. The company said it did not find sufficient amounts of oil and gas in the Burger J well to warrant further exploration, and that it would end its exploration programme off Alaska "for the foreseeable future".

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Stock image

The company has spent about $7bn (£4.5bn) on Arctic offshore development in the Chukchi and Beaufort seas and said financial charges as a result of halting exploration would be disclosed during its third quarter results. The total loss is expected to be around $4.1bn, Shell said.

Marvin Odum, president of Shell USA, said: "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 US Geological Survey estimates that the Arctic holds about 30% of the world's undiscovered natural gas, as well as 13% of its oil. According to Shell, this amounts to around 400 billion barrels of oil equivalent, 10 times the total oil and gas produced in the North Sea to date.

The high costs of Arctic exploration at a time of low oil prices could well be the primary reason for the decision, but opposition from environmentalists has also been effective with the prospect of further reputational damage a real risk.

Hillary Clinton, a Democratic hopeful for the US Presidency, has said she would block new permits for Alaskan offshore drilling because of the risk factors involved.

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