Shell, Conoco drop Chukchi leases

Shell and ConocoPhillips are relinquishing their oil and gas leases in the Chukchi Sea, with Shell retaining just one lease around the Burger J well that the company drilled in 2015. Statoil, the other oil major with exploration interests in the Chukchi, announced in November 2015 that it was going to relinquish its leases in the region following a decision to terminate its Chukchi exploration program.

“After extensive consideration and evaluation, Shell will relinquish all but one of its federal offshore leases in Alaska’s Chukchi Sea,” Shell spokesman Curtis Smith told Petroleum News in a May 10 email. “Separate evaluations are underway for our federal offshore leases in the Beaufort Sea.”

Smith said that Shell’s action is consistent with the company’s earlier decision not to explore in offshore Alaska for the foreseeable future and reflects the outcome of drilling the Burger J well in 2015 coupled with the high cost of the exploration project.

“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,” Smith said.

Shell will remove its remaining equipment from Alaska drilling sites during the summer of 2016, Smith said. He said that Shell continues to believe that offshore Alaska and the broader Arctic have strong exploration potential and could ultimately become important sources of energy for Alaska, the United States and the world.

ConocoPhillips spokeswoman Natalie Lowman told Petroleum News in a May 10 email that BOEM had accepted relinquishment of her company’s Chukchi leases on April 26.

“Given the current environment, our prospects in the Chukchi Sea are not competitive within our portfolio,” Lowman said. “This will effectively eliminate any near term plans for Chukchi exploration for the company.”

“It’s sad but not surprising to see companies pulling back from Alaska’s Arctic offshore,” said Kara Moriarty, president and CEO of the Alaska Oil and Gas Association. “Low oil prices combined with high uncertainty about federal regulations and restrictions makes a clear business case for companies to cut losses and move on to other parts of the world with more stable and predictable rules. … The investment that was slated to come our way would have been staggering, with thousands of jobs, billions in revenues, and substantial oil volumes that would sustain the trans-Alaska pipeline for decades.”

Shell paid $2.1 billion for its Chukchi Sea leases in a 2008 lease sale, in a strategic move to try to establish a new oil province to bolster its global portfolio of oil resources. But after a series of delays to its drilling plans, and having spent several billion dollars on its Chukchi venture, the company decided to pull out of its Arctic offshore exploration after disappointing results from the Burger J well.

ConocoPhillips also purchased leases in the 2008 lease sale and subsequently developed detailed plans to test the Devil’s Paw prospect, the site of a major Chukchi Sea geologic structure. In 2010 the company commented that it had shifted its exploration focus from onshore Alaska to the Chukchi. But, as the company watched Shell’s difficulties in moving forward with its Chukchi program, ConocoPhillips eventually put its Chukchi plans on hold.

Environmental organizations, most of which are adamantly opposed to Arctic offshore oil exploration and development, have been happy to see the lease relinquishments.

“Today we are an important step closer to a sustainable future for the Arctic Ocean,” said Michael LeVine, Pacific senior counsel for Oceana. “After spending more than a decade and billions of dollars, even Shell has had to recognize that offshore oil exploration in the Arctic is not worth the environmental or economic risks.”

- ALAN BAILEY