This is Shell’s last appearance in The Explorers - at least for the foreseeable future.
After more than a decade of operations costing approximately $6 billion and spawning a series of legal challenges, regulatory delays, logistical problems and technical flubs, the company officially ended its offshore Alaska exploration campaign in September 2015.
Shell made the announcement after drilling its Burger J well in the Chukchi Sea to 6,800 feet without finding enough oil or natural gas to justify the high cost of development.
Leaving and returning
The decision ended the second chapter in the history of Shell in Alaska.
Shell was one of the original North Slope explorers during the initial wave of activity leading to the discovery and development of Prudhoe Bay, and it remained active across Alaska until it officially left the state 1998. During those four decades, the company gained a reputation as a pioneering explorer with a penchant for offshore activities in the Beaufort Sea, the Chukchi Sea, the Gulf of Alaska, the Bering Sea and Cook Inlet.
The departure was big news at the time. In retrospect, the decision to leave feels more like a hiatus for the purposes of developing a new strategy. Shell acquired Alaska leases in 2001, relinquished those in 2004 and then launched its current campaign through acquisitions at a Beaufort Sea lease sale in 2005 and a Chukchi Sea lease sale in 2008.
The Beaufort and Chukchi exploration campaigns typified the frontier oil exploration in the 21st century. They were ambitious, difficult, costly, exciting and controversial.
And in both cases, activities fell far short of plans.
Initially, Shell planned a four-well program for the Beaufort Sea during the open water season in 2007. The program was particularly focused on the Sivulliq prospect, which had been known as Hammerhead when Shell explored in the late 1980s and early 1990s.
A legal challenge from local groups scuttled those plans for 2007 and 2008. By scaling back its exploration program, Shell was able to gain federal approval in late 2009.
A federal moratorium on outer continental shelf drilling operations after the Deepwater Horizon oil spill in the Gulf of Mexico in April 2010 thwarted the program that year, and a subsequent appeal against an air quality permit prevented the program again for 2011.
Chukchi program
Similar obstacles were occurring in the Chukchi Sea.
After a seismic program, Shell proposed a one-well program in 2010 with three potential targets starting with the Burger prospect, which the company had previously explored.
That program was also delayed by legal challenges, this time to the validity of the entire Chukchi lease sale, which effectively prohibited any drilling activities in 2010 or 2011.
All those obstacles seemed to have been surmounted by early 2012, when Shell announced a three-well program in the Chukchi and a two-well program in the Beaufort.
This time, the delays were internal. A barge bringing a containment dome to the Arctic was running late, leaving Shell without enough time to make sure the dome would properly lessen the impact of a potential oil spill. As the season progressed, Shell only had time to drill the top-hole section of one Beaufort well and one Chukchi well. At the end of the season, the Kulluk drill ship ran aground and was damaged beyond repair.
Recovering from those problems prevented Shell from exploring in 2013 and additional lawsuits forced the company to cancel its plans for 2014, too. After Shell acquired the large natural gas firm BG Group in April 2015, the company decided to reduce exploration spending. Shell also cut capital costs in response to falling crude oil prices.
That precluded any additional work in the Beaufort Sea. Instead, Shell planned a small program in the Chukchi, in the hopes of finally determining the size of the resource.
In mid-2015, after a decade of work on its Arctic OCS program, Shell finally completed an exploration well in the Chukchi Sea only to be stumped by economics. Given the weak results, the high costs of Arctic exploration and “the challenging and unpredictable federal regulatory environment in offshore Alaska,” the company cancelled its program.
Aftermath
The decision was the first in a series of setback for Alaska OCS exploration.
Just three weeks after Shell announced the end of its Alaska OCS program, the U.S. Department of the Interior cancelled upcoming lease sales in the Chukchi Sea and Beaufort Sea. “In light of Shell’s announcement, the amount of acreage already under lease and current market conditions, it does not make sense to prepare for lease sales in the Arctic in the next year and a half,” Interior Secretary Sally Jewell said in a statement.
And a month later, Statoil relinquished its federal Chukchi Sea leases and closed its Anchorage office, citing poor the results from exploration activities on nearby leases.
With those developments, and a prior decision by ConocoPhillips to cancel immediate exploration plans for the Chukchi Sea, Alaska OCS development is currently dormant.
