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Shell shelves plan to drill in Alaskan Arctic this summer

 
Shell Petrol Station

Shell issued a shock profit warning two weeks ago. Photograph: Rick Wilking/Reuters

 

Powered by Guardian.co.ukThis article titled “Shell shelves plan to drill in Alaskan Arctic this summer” was written by Terry Macalister, for The Guardian on Thursday 30th January 2014 10.02 UTC

Shell’s controversial presence in the Arctic, US shale lands and the Niger delta is in doubt after the oil group announced a sweeping strategic overhaul that includes the suspension of its Alaskan drilling programme.

Taking the knife to some of his predecessor’s pet projects, new chief executive Ben van Beurden said that the Anglo-Dutch company might have gone “too quickly” into shale exploration in the US and signalled a partial or total retreat from its onshore operations in Nigeria.

Van Beurden’s plans, including a multibillion-pound programme of disposals and writedowns, were announced in the wake of a tumultuous fourth quarter that saw earnings plunge 71% to $2.1bn (£1.3bn) while oil and gas production fell 5%.

“We have not always made the right capital choices,” van Beurden said at a briefing in London as he revealed a $687m writeoff in North America from shale, gas and the damaged Arctic drilling rig Kulluk.

He blamed poor markets as well as internal failures for its problems as he dramatically pulled the plug on Shell’s controversial scheduled drilling programme in the Alaskan Arctic this summer. Van Beurden admitted the exploration drive in the Chukchi and Beaufort seas, which has cost $5bn so far, was “under review” amid a torrent of negative campaigning from green groups.

A swath of onshore shale oil and gas assets in North America, with a balance-sheet value of $24bn, are also being considered for disposal or writedowns, while $1bn has been knocked off US shale drilling planned for this year. “You could argue we went in too far, too quickly [into shale],” he said.

Van Beurden also made clear that Nigeria, once a key part of the Shell empire but a country where onshore operations have been subjected to repeated physical attacks, was being prepared for a future selloff or major scaling-back. “We have seen a very difficult security situation for a number of years … What really do we have as value-added in this?” he asked.

Van Beurden, who took over from Peter Voser at the start of 2014, confirmed that annual profits, on a current cost of supply basis, had slumped 48% to $16.7bn despite very high oil prices, although US gas prices have been low.He is expected to give more details of his strategy after a management day on 13 March. “We are making hard choices in our worldwide portfolio to improve Shell’s capital efficiency,” Van Beurden said.

“Our ambitious growth drive in recent years has yielded a step-change in Shell’s portfolio and options, with more growth to come, but at the same time we have lost some momentum in operational delivery, and we can sharpen up in a number of areas,” he added. Shares in Shell closed up 1% at £21.48.

Shell still has drilling interests in a range of territories, including the US Gulf, Brazil, Norway, Russia and Mozambique.

Group spending is to be slashed this year by 20% to $37bn and the moves to halt high-cost operations off Alaska were particularly welcomed by environmentalists.

Greenpeace campaigner Charlie Kronick said: “The company has spent huge amounts of time and money on a project that has delivered nothing apart from bad publicity and a reputation for incompetence. The only wise decision at this point is for Mr Van Beurden to cut his company’s losses and scrap any future plans to drill in the remote Arctic Ocean.”

Jacqueline Savitz, a vice-president at the Oceana conservation group, which had taken legal action to try to stop the oil company drilling, said: “Shell is finally recognising what we’ve been saying all along: that offshore drilling in the Arctic is risky, costly and simply not a good bet from a business perspective.”

The decision to shelve drilling off Alaska came alongside a $200m writeoff of expenses connected with the Kulluk drilling rig, which ran aground in 2012.

It also follows a US court ruling that the US department of the interior had failed to consider all environmental impacts of exploration in the Chukchi and Beaufort seas when it gave Shell permission to drill.

“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,” van Beurden said. “We will look to relevant agencies and the court to resolve their open legal issues as quickly as possible,” he added, indicating there could be huge writedowns emanating from the Arctic still to come.

 

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