Shell is going to stop looking for oil in the arctic of the United States, as the oil company has not located any significant oil wells after spending $7 billion to conduct a search for natural resources in waters off of the coast of Alaska.
As a result of the failed exploration, Shell shares decreased by as much as 1.4%. As such, analysts have a mostly negative outlook for Shell stock this quarter.
French analyst Ahmed Ben Salem said, “This could be negative for third-quarter earnings because of potential impairment charges. On the other hand, in a $50 oil-price environment it’s not so bad to abandon that search because it’s expensive. Shell has enough resources already.”
Shell was looking for resources that it believed were as much as ten times as large as the amount of oil and gas produced in the North Sea.
The company faced criticism for exploring in the Arctic. Activists from the environmental group Greenpeace occupied the drilling rigs of the company.
Shell and other oil companies are planning to reduce spending since the price of oil has fallen by about 50% during the past year. There currently exists a global oversupply of oil.
Director of Shell’s Upstream Americans unit Marvin Odum said, “This is a clearly disappointing exploration outcome. While indications of oil and gas were present in the Burger J well in Alaska’s Chukchi Sea, they weren’t sufficient to warrant further exploration.”
The company had planned a drilling program that would last two years, starting in July of this year. Shell was attempting to continue work that had stopped in 2012 when the company’s primary drilling rig ran aground and was lost. As a result of air pollution violations, the company was fined by regulators.
The company’s decision to stop exploration in the region reflects both the high costs involved and the ever-changing federal regulatory environment that exists in offshore Alaska. Shell received approval for its drilling in May. Oil and gas were first discovered in the Alaskan region in the late 1980s.
Protesters from various environmental organizations have met Shell’s drilling plans with strong opposition. Last May, shareholders of Shell questioned why they should support an effort that might pollute waters and harm sea creatures.
As such, the leaders of the environmental organizations are pleased with Shell’s decision to stop drilling.
Greenpeace Executive Director in the UK John Sauven said, “Big Oil has sustained an unmitigated defeat. The Save the Arctic movement has exacted a huge reputational price from Shell for its Arctic drilling program. And as the company went another year without striking oil, that price finally became too high.”
Oil producers discovered more than 10 billion barrels of oil in the seas of the North American Arctic since the early 1970s. However, more of the resources in the region are locked under the sea floor. Pipeline capacity is unable to carry the oil to distant markets.