BUSINESS

Shell Abandons Alaska Drilling: Climate Groups Thrilled, Canadian Drillers Worried

09/28/2015 01:24 EDT | Updated 09/28/2016 05:12 EDT

CALGARY — Royal Dutch Shell's decision to scrap plans to explore for oil off Alaska's coast is sending a discouraging signal to those who want to see Canada's Arctic offshore resources developed.

Shell drilled a well in the Chukchi Sea this summer that indicated the presence of oil and gas, but said Monday that the results weren't good enough to warrant further exploration for the "foreseeable future.''

"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, who directs Shell's upstream Americas business.

The company said its decision to walk away from Alaska is based on the disappointing results of the well, along with high costs and a "challenging and unpredictable'' U.S. regulatory environment.

In all, Shell has spent upwards US$7 billion on Arctic exploration.

A successful program in the Chukchi Sea would have helped along development of resources in the Beaufort Sea off the coast of the Northwest Territories — an even more challenging operating environment than Alaska, said energy consultant Doug Matthews.

"The loss for Canada is we really could have learned something from the Shell operation about how to better operate in the Arctic waters,'' he said in an interview from Tuktoyaktuk, N.W.T.

The National Energy Board, which has authority over the Arctic offshore but next to no experience to draw from, could have learned from the U.S. regulatory approach.

"This would have been a very good laboratory for our purposes and that's gone,'' Matthews said.

Shell's decision is welcome news for environmental groups. After the U.S. government gave the green light to the company's exploration plans in May, opponents mounted massive protests aimed at stopping drilling equipment stored in Seattle from moving north.

Matthews said environmental groups can't take credit for Shell's Alaska exit, but the move is likely to embolden them when it comes to other energy developments.

The probability that Canadian Beaufort resources will one day be exploited was already looking dicey.

In June, Imperial Oil and its partners deferred exploration in the Beaufort and asked for a seven-year extension to their licence, which expires in 2020. Chevron Canada said in December that it had put its plans in the region on ice indefinitely.

Both cited the National Energy Board's requirement that companies show they can kill a ruptured oil well in the Arctic offshore in the same season it's drilled — a difficult and costly proposition in a region that's covered in ice for much of the year.

Follow @LaurenKrugel on Twitter.

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