Shell gives up nearly all its leases in Chukchi Sea

The only company to drill an exploratory oil well in Alaska’s Chukchi Sea following a 2008 federal lease sale confirmed May 10 it has relinquished nearly all of its leases.

Royal Dutch Shell PLC formally relinquished all but one of its leases in the waters off Alaska’s northwest coast, spokesman Curtis Smith said.

The news was not a complete surprise. An exploratory well drilled in 2015 did not find commercial quantities of oil. Shell announced in September it was suspending exploration in Alaska waters.

The decision also reflects the high cost of drilling off Alaska, Smith said by email.

“While we support regulations that enforce high safety and environmental standards, the unpredictable federal regulatory environment for the Alaska Outer Continental Shelf also made it difficult to operate efficiently,” he said.

Shell will retain the lease for the site on which it drilled its exploratory well.

“We are holding onto it because we believe there is value in the data gathered during our exploration efforts there,” Smith said.

The company will separately evaluate its leases in the Beaufort Sea off Alaska’s north coast, Smith said. Those expire in 2017.

Shell spent $2.1 billion on 275 Chukchi Sea leases in 2008 and $7 billion overall on Arctic offshore development. Shell officials had called drilling there “a potential game-changer,” a vast untapped reservoir that could add to America’s energy supply for 50 years. The U.S. Geological Survey estimates 26 billion barrels of conventionally recoverable oil in U.S. Arctic waters.

But Arctic drilling is fiercely opposed by environmental groups, which said a major spill would devastate habitat of whales, ice seals and polar bears.

The challenges of Arctic drilling were evident after the 2012 season when a Shell drilling vessel, the Kulluk, broke loose from its tow vessel in a fierce Gulf of Alaska storm and ran aground near Kodiak Island.

Shell faced stiff regulatory oversight, including a requirement for two rigs in a drilling area in case one was damaged in a blowout.

After Shell announced it was suspending exploration, the Interior Department said it would not extend Shell leases when they expired in 2020. Shell initially said lease terms should be extended. By relinquishing the leases, the company avoids millions in annual payments.

A drilling opponent, Oceana, filed a freedom of information request and learned leases had been formally relinquished by Shell, ConocoPhillips, Eni and Iona Energy. The environmental group announced its findings Monday night and applauded the decision.

“Hopefully, today marks the end of the ecologically and economically risky push to drill in the Arctic Ocean,” said Mike LeVine, an attorney with the group.

ConocoPhillips Alaska spokeswoman Natalie Lowman said May 10 the company already had “taken an impairment,” or written off, the Chukchi leases in its 2015 annual report.

“Given the current environment, the prospects in the Chukchi aren’t competitive,” she said.