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Page added on September 28, 2015

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Shell Pulls the Plug on Arctic Exploration

Geology

Royal Dutch Shell plc announced Monday that it will cease exploration activity offshore Alaska after failing to make a commercial find at the Burger J well, located in Alaska’s Chukchi Sea.

The well was drilled to a total depth of 6,800 feet and although indications of oil and gas were found at Burger J, they were “not sufficient to warrant further exploration in the Burger prospect”, according to Shell. The Burger J well will now be sealed and abandoned. Due to the Burger J result, the high costs associated with the project and the challenging and unpredictable federal regulatory government in offshore Alaska, Shell has stated that it will stop exploring offshore Alaska for the foreseeable future.

With the balance sheet carrying value of Shell’s Alaska position coming in at approximately $3 billion, and a further $1.1 billion of future contractual commitments lined up in the area, Shell expects to take a substantial financial hit as a result of this decision. The company currently holds a 100 percent working interest in 275 Outer Continental Shelf blocks in the Chukchi Sea and has indicated that it will safely de-mobilize people and equipment from the region.

Marvin Odum, director for Shell upstream Americas, commented in a company statement:

“The Shell Alaska team has operated safely and exceptionally well in every aspect of this year’s exploration program. 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 US. However, this is a clearly disappointing exploration outcome for this part of the basin.”

Before the unsuccessful Burger J drilling campaign, Shell, which has spent about $7 billion on exploration in the Arctic, suffered another setback in the region in 2012 when an enormous drilling rig broke free and grounded, which led to the coast guard having to rescue 18 workers. The Obama administration gave the company permission to resume drilling for oil and gas in the area, for the first time since the 2012 incident, on August 17, 2015. The US Geological Survey estimates that the Arctic holds around 400 billion barrels of oil equivalent, which is roughly ten times the total oil and gas produced in the North Sea to date.

RIGZONE



29 Comments on "Shell Pulls the Plug on Arctic Exploration"

  1. ghung on Mon, 28th Sep 2015 11:51 am 

    Arctic – 2, Shell – 0

    Pack your shit and go home. This isn’t the oil bonanza you were looking for.

  2. BC on Mon, 28th Sep 2015 12:04 pm 

    400B bbl is equivalent to over 50 years’ worth of current US consumption. However, it will require oil at $100+ for years to profitably extract it, whereas the 5- and 10-year rate of real GDP per capita does not grow with the 5- and 10-year price of oil above $40.

    Those 400B bbl will remain over a mile underground for the foreseeable future, if not forever.

    The definition of Peak Oil and LTG.

  3. Plantagenet on Mon, 28th Sep 2015 12:22 pm 

    Good bye Shell. Don’t let the swinging door hit you in the keister as you leave.

  4. Chris Hill on Mon, 28th Sep 2015 1:02 pm 

    Sounds to me like the thing to watch for is how these companies invest. If they go the way of so many non-energy companies and start buying back stock instead of investing in new business, you know fossil fuel energy is going away, and maybe even civilization.

  5. shortonoil on Mon, 28th Sep 2015 1:03 pm 

    Shale, bitumen, arctic, ultra deep water, high sulfur extra heavy would be the first to go. That was our call almost two years ago. Two down, three to go.

    http://www.thehillsgroup.org/

  6. rockman on Mon, 28th Sep 2015 1:16 pm 

    Patience ghung: there were many dozens of wells drilled in the N Sea before the first significant oil field was discovered. Of course not saying there will ever be a major discovery in the Arctic by Shell or anyone else. But this one well certainly doesn’t necessarily mean they’ll stop trying.

    In the entire history no major field was ever discovered before numerous dry holes were drill in that trend. Despite the common misconception finding oil has never been easy. Folks look at the old big fields and think those were nuggets laying on the ground just waiting for someone to come along and pick them up Not even close to the reality of oil exploration.

  7. ghung on Mon, 28th Sep 2015 1:48 pm 

    Yeah, Rock, there’s always next year, and another few billion to spend. The good news is that a lot of folks got paid well to drill anther dry hole, so it wasn’t a total loss, eh?

    https://www.youtube.com/watch?v=jHPOzQzk9Qo

  8. penury on Mon, 28th Sep 2015 3:49 pm 

    This is more or less following the outline for “end of oil” era. We will not run out of oil, we (humans) will simply no longer be able to locate, drill or produce fossil fuels at a price (either money equivalents) or labor which can be paid. Game Over.

  9. rockman on Mon, 28th Sep 2015 4:14 pm 

    p – So true. And when one sheds their USA coveralls you realize hundreds of millions had reached that phase decades ago. And tens of millions have never been there. But in the future millions of US citizens will be going to that bad place they’ve never been before.

  10. BobInget on Mon, 28th Sep 2015 5:51 pm 

    Are there any petroleum historians about?

    Has there ever been a more expensive dry hole? BBC estimates fifty Billion dollars once all contractors, marine contracts are terminated. If one compares that with today’s 500 million dollar loss for which must be a serous record.

    Volkswagen’s 22.4 Billion haircut doesn’t even come close to what Shell dropped in cold cash.

    While the Glencore loss is spread across the entire commodity spectrum and VW’s loss is another car maker’s gain, Shell’s lost bet speaks loudly of peakoil.

    In the history of major finds, Rockman,
    is only selectively correct.

    North Sea drillers had given up too early.
    After many tries one operator decided to drill deeper before pulling the plug.
    Cantrell, Mexico’s super GMO field was discovered by a fisherman named Cantrell.

    Many fields we call ‘elephants’ have been know long before uses for oil were fully exploited.

    “The U.S. Interior Department has estimated that the Arctic holds 13 percent of the world’s undiscovered oil reserves, and 30 percent of its yet-to-be found natural gas reserves”.

    “Shell had deployed two drilling rigs and a 28-vessel fleet at a site 75 miles northwest of the native village of Wainwright. It had doubled down on the Arctic, pressing ahead with exploration while abandoning exploratory work elsewhere in the world”.

    The NYT says Shell quit because ‘oil prices were too low’. I’ll say the multi billion dollar loss Shell will declare will dwarf any other

    “Shell’s entire net profit in the second quarter this year was $3.4 billion”.

    Finding oil on Wall Street is far simpler.

    ” near term Shell has plenty to focus on as it completes its $70 billion acquisition of BG Group. The purchase is intended to streamline Shell’s focus on assets offshore Brazil and liquefied natural gas, moving Arctic exploration down the company’s list of priorities”. WSJ

  11. BobInget on Mon, 28th Sep 2015 5:57 pm 

    PS
    I forgot to add, Exxon and ENI, an Italian oil company are still drilling. If they both come up ‘dry’ it will be a while before technology
    catches up with Far North.

    “Even if Shell had found oil in the Arctic, the challenges of bringing those resources to production have been underscored by a project in the Barents Sea. Italian energy company Eni SpA and Norwegian peer Statoil ASA are just now moving into production on the giant Goliat field—15 years after it was discovered.” WSJ

  12. Nony on Mon, 28th Sep 2015 5:58 pm 

    P and R: Well, in the last month, somehow the world managed to find 80 MM bpd of oil at less than $50/bbl.

    How does that fit into your running out of resource at reasonable prices meme? I think a better one is that shale and OPEC are just cheaper than Arctic deepwater. It’s oil on oil competition. Just like the gas on gas competition. You know…where Rockman got his butt kicked out of shallow Gulf gas drilling because shale gas crashed the markets.

  13. rattus on Mon, 28th Sep 2015 7:40 pm 

    Nony: “Well, in the last month, somehow the world managed to find 80 MM bpd of oil at less than $50/bbl.”

    This is called a fallacy of unwarranted assumption.

    “The fallacy of unwarranted assumption is committed when the conclusion of an argument is based on a premise (implicit or explicit) that is false or unwarranted.”-wikipedia

    Where the hell did you get that every single one of those 80MM bpd of oil cost less than 50$/bbl to find, extract, process and distribute?

    Putting that first fallacy aside, there is also an implicit assumption here that if we found those 80MMbpd at that price last month, we WILL find, at the same cost, as many barrels the next month.

    And that was just the first sentence!

  14. makati1 on Mon, 28th Sep 2015 7:43 pm 

    Rockman, you summed it up pretty well. Those that never had, will never miss, and those who had in abundance will endure the most pain.

  15. JuanP on Mon, 28th Sep 2015 8:02 pm 

    I am glad for this. After following Shell’s Arctic misadventures for years, I was expecting this to happen. It was one fuck up after another from beginning to end. I am glad there were no major spills.

  16. Davy on Mon, 28th Sep 2015 8:36 pm 

    It is said above “Those that never had, will never miss” That needs to be corrected to those that starve will die it does not matter if they had or had not. Starvation is an equal oppotunity killer. The pain does not change just becuase you have had or not.

  17. BC on Mon, 28th Sep 2015 8:50 pm 

    Nony, really? If you presume that the majority of us on this site are that moronic, I suggest that you spend your valuable time and finite intellectual energy elsewhere, because, well, is it not obvious?

    Somewhere along the line, you did not get the memo.

    If you think otherwise, then send me an email and we can meet and talk. I’d be pleased to buy you as many drinks of your favorite adult beverage as you like to inform you.

    Otherwise, you buy and inform me (and us).

  18. Nony on Mon, 28th Sep 2015 9:57 pm 

    BC, you’re right. I will give it a rest on here (call me out if I backslide). Thank you for the kind comment. Take care IRL.

  19. rockman on Tue, 29th Sep 2015 7:21 am 

    Bob – “Has there ever been a more expensive dry hole? BBC estimates fifty Billion dollars once all contractors, marine contracts are terminated.” Utter BS. All I can guess is that they are guessing what portion of the annual Shell budget they assign to that project. Just a rough guess but if one is talking about the drilling costs alone I’ll toss out a few hundred $million. Rather cheap compared to the $2+ BILLION they paid the govt for the leases.

    I tried unsuccessfully to pull up Shell USA budgets. Yes…there are two Shell Oil companies…a fact much of the MSM misses. There is Shell Oil USA and Royal Dutch Shell which owns a controlling interest in Shell USA. But they have separate budgets. Nearly all the MSM stories are focused on RDS.

    And again I suppose it’s because folks are more focused upon energy today that they think this Shell venture is something new. But:

    “Exploratory drilling for oil and gas in the Arctic Islands has been in progress since 1961. A majority of the reserves are thought to lie offshore. To drill the offshore structures a method has been developed by which the natural ocean ice is artificially thickened into ice platforms which carry the weight of conventional land drilling rigs. The first ice platform well was drilled in 1974; to date 22 platforms have been built and 13 offshore wells drilled. Ice platform design includes the analysis of stresses in the ice and deflections due to ice creep under long term heavy loads. Deflections are found to be the critical factor with loss of freeboard a possible result. The arctic environment poses numerous difficulties for construction and drilling operations and logistics are a large part of the effort. Construction of the ice platform in done by flooding the ice with sea water, using submersible electric pumps. During construction and drilling the ice platform is monitored and strains, deflections, strength, temperature, ice movement and other measurements are taken. Special equipment has been developed specifically for ice platform drilling and a subsea completion was made using the ice as a working surface. Further developments of ice platform technology are expected for oil and gas production.”

    I recall the 1974 ice island well cost $100 million in 1974 $’s. In today’s $’s that should be well above $500 million. And not only was it a dry hole but analysis of the potential source rocks revealed no geochemical history indicating any oil generation in that region. That well was drill by a consortium of big companies.

  20. Nony on Tue, 29th Sep 2015 7:39 am 

    The regulatory environment limited their drilling. See letter from Alaska senator.

    http://www.energy.senate.gov/public/index.cfm/2015/9/sen-murkowski-comments-on-shell-s-arctic-drilling-program

  21. Kenz300 on Tue, 29th Sep 2015 9:59 am 

    Climate Change is real….. we will all be impacted by it…..

    It is time to speed up divestment in fossil fuels and move to safer, cleaner and cheaper forms of energy production.

    Top 10 Clean Energy Trends Driving the Global Clean Energy Revolution – Renewable Energy World

    http://www.renewableenergyworld.com/articles/slideshow/2015/08/top-10-clean-energy-trends-driving-the-global-clean-energy-revolution.html

  22. JuanP on Tue, 29th Sep 2015 11:29 am 

    OilPrice. Conm article on this, http://oilprice.com/Energy/Crude-Oil/With-Shells-Failure-US-Arctic-Drilling-Is-Dead.html

  23. GregT on Tue, 29th Sep 2015 11:44 am 

    Nony:

    “I will give it a rest on here (call me out if I backslide).”

    You managed to give it a rest for 9 hours and 42 minutes, before you backslid. Consider this a call out.

  24. Mike989 on Tue, 29th Sep 2015 12:11 pm 

    In the 10 years this would need development there wil be NO new ICE vehicles on the road.

    Geometric Growth in Solar, Wind, EV’s and Batteries.

    There will never be a market.

  25. GregT on Tue, 29th Sep 2015 12:49 pm 

    320 thousand new EVs sold globally in 2014, compared to 75 million new ICE vehicles. ICE vehicle sales continue to rise year over year.

    An estimated 740 thousand total EV’s globally, vs 1.2 billion ICE vehicles or .06%.

    There will never be a substantial market for EV’s Mikey.

  26. Davy on Tue, 29th Sep 2015 2:39 pm 

    Fancy words from Mike. Mike fancy words and big talk is empty here on this board. We chew comments like yours up and spit them out because there is no juice.

    You are a joke Mike. I wish so much that you were real but wishing is not having. Your message is flawed and what is worse it deceives the sheeples into a false sense of security.

  27. apneaman on Tue, 29th Sep 2015 5:09 pm 

    Shell abandons oil exploration in Alaska but stays in the Arctic

    https://www.newscientist.com/article/dn28256-shell-abandons-oil-exploration-in-alaska-but-stays-in-the-arctic/

  28. apneaman on Tue, 29th Sep 2015 5:23 pm 

    More fap material for planty

    The Oil-Sands Glut Is About to Get a Lot Bigger

    http://www.bloomberg.com/news/articles/2015-09-03/canada-oil-sands-fork-over-billions-for-500-000-unneeded-barrels

  29. Kenz300 on Wed, 30th Sep 2015 10:55 am 

    Oil companies need to wake up and take their heads out of the sand……..

    Fossil fuels are killing the planet….. they need to transition their business models to safer, cleaner and cheaper alternative energy sources.

    Time to become ENERGY companies and focus less on fossil fuels.

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