Shell to Sell All Alaskan Oil Production Property : * Energy: Costly, unsuccessful offshore drilling is abandoned as the financially pressed company continues its cost-cutting moves.
Shell Oil Co. said Thursday that it will sell all of its oil and gas production properties in Alaska and suspend drilling in the Chukchi Sea, where Shell and its partners have spent $190 million and three years exploring unsuccessfully for oil.
The moves are part of a restructuring of the financially strapped company, which earlier announced up to 4,700 layoffs and put up for sale its Wilmington refinery and other properties.
Because Shell was one of the major leaseholders in the Chukchi Sea, the action could also signal some disenchantment with drilling prospects in an area off northwestern Alaska once thought to be a prime candidate for huge oil discoveries.
“I can’t call it good news,” said Ken Boyd, deputy director of Alaska’s Division of Oil and Gas.
Other industry officials and analysts said that interest in the area remains strong, however.
Chevron Corp., for instance, is sinking a well about 100 miles east of Shell’s holdings. “We think the area has a lot of potential,” said Tom Cook, exploration representative of Chevron U.S.A. in Alaska, which has taken over use of Shell’s drilling rig in the Chukchi Sea.
Meanwhile, Atlantic Richfield Co., a major operator on Alaska’s North Slope, is preparing to drill a well in the Cabot Prospect in the Beaufort Sea, near the shore about 25 miles east of Barrow.
Shell is selling its Middle Ground Shoal production unit in the Cook Inlet, which includes two offshore platforms and an onshore processing plant; a 33% share of the Beluga River natural gas-producing area and a 0.14% interest in the massive Prudhoe Bay oil field on the North Slope.
All told, Shell’s interest in the fields amounts to daily production of 7,500 barrels of oil and 23.1 million cubic feet of gas. If the properties are sold, Shell will lay off its 50 Alaska employees and close its Anchorage office.
“If we do not get what we consider a satisfactory price, we will continue to operate these properties,” Shell’s Holly R. Hutchins said in Houston.
Hutchins said the actions do not mean Shell is giving up on Alaska, though analysts say it has never been a major player there.
The oil company remains a partner of Amoco Corp. in exploratory drilling on the Galahad Prospect in the Beaufort Sea. Shell also continues to hold exploration acreage in the Chukchi, the North Aleutian Basin and the North Slope. It plans to bid on leases in the Arctic National Wildlife Refuge if Congress approves drilling there.
The Alaska sale plan is part of Shell’s general restructuring, analysts said. “What they’re trying to do is improve the efficiency and profitability of their U.S. operations,” said Thomas Lewis, an industry analyst at Duff & Phelps Inc. in Chicago.
Shell, owned by Netherlands-based Royal Dutch Shell Group, has seen profits plummet as a result of slack gasoline sales and an explosion three years ago at a Norco, La., refinery, which is still being repaired. In the second quarter, Shell reported a loss of $68 million, compared to a $161-million profit a year earlier.
Shares of the parent company fell 50 cents, to $81.25, in trading Thursday on the New York Stock Exchange.
In addition to the Wilmington refinery and Alaska operations, Shell is selling oil and gas producing properties elsewhere in California and in Texas and the Gulf of Mexico.
Shell may have been squeezed by the high cost of exploratory drilling in the Chukchi, where ice blankets the sea as much as 10 months of the year. Environmental protection costs have risen too, under Alaska spill-prevention laws enacted since the wreck of the tanker Exxon Valdez in 1989.
As a result, a single well in Alaska can cost between $40 million and $75 million, about three to four times as much as a comparable offshore well in the “Lower 48.” To justify such expense, an oil field would have to hold at least 1 billion barrels of reserves.
British Petroleum, the other major operator on the North Slope, does not believe the prospects in the Chukchi justify the costs. “There are technical challenges to be overcome, and huge economic challenges,” said Paul Laird, a BP spokesman.
Hutchins said that Shell and its partners, to date, have spent $190 million drilling in the Chukchi Sea. That was in addition to Shell’s $271-million investment in leases in the area.
Shell in Alaska
* Headquarters: Anchorage
* Employees: 50
* Production properties: Middle Ground Shoal unit in the Cook Inlet; a 33% share of the Beluga River natural gas producing area, and a 0.14% interest in Prudhoe Bay
* Total production: 7,500 barrels of oil a day and 23.1 million cubic feet of gas a day
* Other holdings: Exploration acreage in the Chukchi Sea, the Beaufort Sea, the North Aleutian Basin, and on the North Slope.
* Total cost of drilling program to Shell and partners: $190 million * Total cost of leases to Shell and partners: $390 million * Total wells drilled by Shell: 4
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