Arctic Drilling Battle Halts Abruptly as Shell Comes Up Dry

After a long Washington battle, the company is dropping its multibillion-dollar effort to find oil off Alaska’s coast.

Greenpeace activists stage a protest on the roof of a Shell petrol station in Prague, May 10, 2012.  (MICHAL CIZEK/AFP/GettyImages)

One of the biggest environmental fights in recent years is ending with a whimper.

Royal Dutch Shell said Monday that it’s abandoning oil and gas exploration off Alaska’s northern coast after an expensive well came up essentially dry.

The decision ends, at least for the foreseeable future, a key battle in the years-long political and lobbying war over Arctic offshore drilling that has reached into the 2016 presidential campaign.

Green groups have fought to prevent Shell from drilling in the Arctic Ocean, and President Obama’s cautious endorsement of Arctic offshore development has been a source of tension between the White House and environmentalists.

Shell began full-scale drilling of a well in what’s called the Burger prospect last summer after years of seeking Obama administration permission, but the company said Monday that “indications” of oil and gas weren’t enough to “warrant further exploration.”

“Shell will now cease further exploration activity in offshore Alaska for the foreseeable future,” Shell said in a statement Monday.

The company also dinged federal regulators in laying out why it’s putting the effort on ice after spending around $7 billion over seven years on leases, planning, and development costs.

“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 said.

Shell’s decision on leases in the Chukchi Sea that it spent more than $2 billion to obtain in 2008 could deter industry interest in the U.S. Arctic waters more broadly.

Other companies with leases in the Beaufort and Chukchi Seas off Alaska’s coast, including ConocoPhillips and Statoil, had been watching Shell’s expensive attempt to find what could be huge resources there.

While Obama has come under heavy criticism from environmental groups for allowing Shell to begin drilling, GOP critics say the Obama administration has moved too slowly in allowing Arctic development and imposes too many regulatory hurdles.

Hillary Clinton broke with Obama in mid-August when she declared that she’s flatly against drilling in the Arctic, a stance that drew immediate criticism from GOP White House hopeful Jeb Bush, who is slated to lay out his energy platform on Tuesday.

Shell’s white flag is welcome news for environmentalists who have spent years battling to keep the area off-limits to oil rigs, arguing that offshore oil and gas development there presents huge risks to an ecosystem that provides a habitat for polar bears, bowhead whales, and other fragile species.

“Shell’s announcement is very good news for the marine environment, sensitive coastal lands, and the Arctic communities that would be devastated by a major oil spill,” said Lois Epstein, director of the Wilderness Society’s Arctic program.

Green groups and some researchers also say tapping Arctic oil is out of step with confronting climate change.

The battle over Shell’s drilling campaign has been the most direct collision over development of waters in the U.S. Arctic that, according to federal estimates, could contain 23 billion barrels of recoverable oil.

But other fights and decisions remain, such as whether Interior Department regulators will extend the duration of leases in the region that expire over the next several years and whether Interior will auction off new tracts as soon as next year.

"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 U.S. However, this is a clearly disappointing exploration outcome for this part of the basin,” said Marvin Odum, Shell’s top American executive, in a statement Monday.

Shell had begun preliminary drilling off Alaska’s Arctic coast in the summer of 2012, but after a series of problems and mishaps, the company did not win federal permission to drill into oil-bearing zones that year.

However, the industry contends that Arctic resources can be developed safely. “The Shell Alaska team has operated safely and exceptionally well in every aspect of this year's exploration program,” Odum said.

Lisa Murkowski, a GOP senator from Alaska who strongly backs offshore drilling, said she’s “extremely disappointed” in the decision, and said blame lies with Obama administration regulators.

“In the more than seven years that Shell has held leases in the Chukchi, it has only recently been allowed to complete a single well. What we have here is a case in which a company’s commercial efforts could not overcome a burdensome and often contradictory regulatory environment,” said Murkowski, who is chairwoman of the Senate Energy and Natural Resources Committee.

But Democratic lawmakers opposed to Arctic offshore drilling are pleased. Sen. Jeff Merkley of Oregon called it “tremendous news” and gave credit to opponents who have long battled development. “The Arctic sea is a unique, dangerous and incredibly fragile environment, and offshore Arctic drilling is simply not worth the risk,” he said.

This story has been updated.