Shell may take $4 billion hit as it drops Alaska oil, gas exploration plan

A BlackBerry phone (Photo: Rpisarenko/Wikimedia Commons)A BlackBerry phone (Photo: Rpisarenko/Wikimedia Commons)

Anglo-Dutch oil company Shell announced it will be closing down its operations in Alaska’s Chukchi Sea due to the high costs and strict regulations that govern the exploration for oil. Director of Shell Upstream Americas, Marvin Odum reported that the company is disappointed at the exploration results that came from the Burger J exploration well in the region, and will now cease further exploration activity off Alaska's coastline for the foreseeable future.

Burger J refers to a location 150 miles from the coast of Barrow, Alaska, with an average depth of around 150 feet of water. Shell drilled there to 6,800 feet, but did not find evidence of enough oil and gas to continue operations at the site. "The well will be sealed off and abandoned in accordance with U.S. regulations," the Den Haag-based firm said in a statement.

"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.”

Shell will now cease further exploration activity in offshore Alaska for the foreseeable future. The firm says the dismal result could have a serious impact on its financial results. Though more concrete figures will not be provided before the third quarterly report of 2015, it has estimated the value of Shell's Alaska operation at 3 billion dollars, and another 1.1 billion in future contractual agreements.

The oil company has spent many years trying to conduct exploratory drilling options in the Arctic, as geologists estimate a possible 20 percent of the planet's untouched oil reserves as well as a 3,400 billion cubic meters of natural gas to be in the region. Environmental organisations are welcoming the decision of the company to stop drilling in Alaska, yet they fear for a possible environmental disaster that could await the Arctic.

The World Wildlife Fund (WWF) says that drilling in the Arctic is irresponsible due to the fragile ecosystem that survives there, and an escape of oil could create a major environmental catastrophe.