Royal Dutch Shell has announced that it will stop exploring for oil and gas in the Arctic after its first well in the region’s Chukchi Sea turned out to be a dud. Shell had spent around $7bn on Alaska since 2007 – around a fifth of the group’s exploration budget. The whole episode will cost Shell $9bn, according to Deutsche Bank.
What the commentators said
The Arctic adventure was “a tale of corporate hubris and… chronic misjudgement by a succession of Shell bosses”, said Robin Pagnamenta in The Times. Not only has Shell not found any oil, but “it has also saddled itself with a nasty reputation for environmental recklessness and incompetence”.
Still, you can see why it happened. In 2008 it was attempting to top up the group’s dwindling reserves after an accounting scandal. The Arctic, which, according to the US Geological Survey holds 90 billion barrels of oil, seemed an obvious bet, especially with the price of black gold at over $140 a barrel.
But the reserves might not have been recoverable until 2030, added Fiona Maharg-Bravo on BreakingViews.com, and when the oil price slumped last year, the whole thing became “an unaffordable luxury”. The numbers haven’t added up since oil fell below $100, said Nils Pratley in The Guardian, which happened a year ago. So why did it take so long to beat a retreat? Perhaps, having spent so much, Shell felt it had to hang on and find out what lay beneath its exploratory well.
But “one suspects an equal role was played by old-fashioned corporate pride”. Both environmentalists and shareholders will be relieved, said Maharg-Bravo. Shell will now be able to spend around $800m a year on more promising projects, or shoring up the group’s dividend. It will also be able to concentrate on its $70bn takeover of BG. Ditching the Arctic is a step forward.