After investing an estimated $5 billion in recent years into oil exploration in the offshore Alaskan Arctic, Shell announced Thursday that it will abandon any renewed drilling effort this year.
The company cited a federal appeals court decision last week that found the Interior Department had awarded permits to Shell based on inadequate information, a major triumph for environmental groups that had been battling Shell for years.
“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,” said Ben van Beurden, who took over as the company’s chief executive four weeks ago. “We will look to relevant agencies and the court to resolve their open legal issues as quickly as possible.”
The statement leaves open Shell’s option to resume exploration of the Arctic waters in the future. The company has run into enormous technical and weather-related problems in the last few years, including losing control of one rig that ran aground in stormy seas. And several years before that, Shell was fined $1.1 million for violating the Clean Air Act.
In announcing the decision to drop the Alaska exploration this year, Van Beurden said the company’s overall expenses are too high. The firm announced a 71% drop in fourth-quarter profits on Thursday.
Although the Arctic waters are thought to hold enormous reserves, the cost of exploration and production is extremely high. In addition, U.S. oil production is surging in North Dakota, Colorado and Texas, bringing lower-cost oil to refineries that are much closer to big markets.
Alaska’s senators both decried the judicial decisions that forced Shell’s decision.
“It is simply unacceptable that judicial overreach is getting in the way of letting Alaskans develop our own natural resources,” said Sen. Mark Begich (D-Alaska). “Development in the Arctic has already been subjected to unprecedented safety standards -- far more than domestic production anywhere else.”
But environmental groups said they hope Shell’s decision is the first step toward a total abandonment of Arctic drilling.
“We are pleased to hear that Shell’s CEO has made the most reasonable decision about drilling in the Arctic this year after the company has demonstrated incompetence for two years, breaching multiple health, safety and environmental regulations,” said Greenpeace Arctic Campaign Leader Gustavo Ampugnani. “We are still waiting for the Obama administration to cancel the lease sale, following the court ruling.”