Royal Dutch Shell plc announced Monday that it will cease exploration activity offshore Alaska after failing to make a commercial find at the Burger J well, located in Alaska’s Chukchi Sea.
The well was drilled to a total depth of 6,800 feet and although indications of oil and gas were found at Burger J, they were “not sufficient to warrant further exploration in the Burger prospect”, according to Shell. The Burger J well will now be sealed and abandoned. Due to the Burger J result, the high costs associated with the project and the challenging and unpredictable federal regulatory government in offshore Alaska, Shell has stated that it will stop exploring offshore Alaska for the foreseeable future.
With the balance sheet carrying value of Shell’s Alaska position coming in at approximately $3 billion, and a further $1.1 billion of future contractual commitments lined up in the area, Shell expects to take a substantial financial hit as a result of this decision. The company currently holds a 100 percent working interest in 275 Outer Continental Shelf blocks in the Chukchi Sea and has indicated that it will safely de-mobilize people and equipment from the region.
Marvin Odum, director for Shell upstream Americas, commented in a company statement:
“The Shell Alaska team has operated safely and exceptionally well in every aspect of this year’s exploration program. 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.”
Before the unsuccessful Burger J drilling campaign, Shell, which has spent about $7 billion on exploration in the Arctic, suffered another setback in the region in 2012 when an enormous drilling rig broke free and grounded, which led to the coast guard having to rescue 18 workers. The Obama administration gave the company permission to resume drilling for oil and gas in the area, for the first time since the 2012 incident, on August 17, 2015. The US Geological Survey estimates that the Arctic holds around 400 billion barrels of oil equivalent, which is roughly ten times the total oil and gas produced in the North Sea to date.