Shell won’t drill in Alaska in 2014

Yesterday, Royal Dutch Shell‘s new CEO told investors that the company has decided to cancel its Alaska exploration program for 2014.

The decision comes on the heels of last week’s decision against the Department of Interior by the Ninth Circuit Court of Appeals which threw Alaska’s offshore leases into question. The court ruled that Shell’s 2008 lease in the Chukchi Sea underestimated the amount of recoverable oil and therefore invalidated plans to mitigate potential damages from its production.

“This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” Shell CEO Ben van Beurden told investors.

Although Shell has spent almost $6 billion so far on its Arctic offshore effort, it has yet to extract oil or even drill a single, complete well, the Anchorage Daily News reports.

Shell began exploration in the summer of 2012, but some high profile missteps, including the grounding of the conical drilling rig Kulluk, caused the company to abandon plans for further exploration during the 2013 season.

“The Arctic Ocean has proven to be logistically challenging for drilling and mobilization, and a bottomless pit for investment,” Lois Epstein, an engineer and Arctic program director for The Wilderness Society, said in a statement.

But U.S. Sen. Lisa Murkowski, R-Alaska, blames bureaucratic rather than technical challenges for the aborted 2014 season. 

“Companies willing to invest billions of dollars to develop our country’s resources must have confidence that the federal agencies responsible for overseeing their efforts are competent and working in good faith. I’m not convinced that has been the case for Alaska,” she said in a statement.

After dismal fourth-quarter earnings, with a 71 percent drop in profits from a year earlier, Shell’s new CEO told investors that after 10 years of trying to boost production with expensive long-term projects, the company will now focus on cost reduction. In 2013, capital spending was $46 billion, including $8 billion of acquisitions. This year, Shell expects capital spending of about $37 billion, including $2 billion of previously announced acquisitions. The company said it will also increase the pace of asset sales, which are expected to be $15 billion for 2014-2015.

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