Royal Dutch Shell’s announcement that it will stop drilling at the Burger J well has come as a surprise to many who expected Shell’s exploration of the arctic well to be a lucrative venture. The company had expected to earn a decent return down the road on any gas and oil discovered there. However, with current oil values holding at less than $50 a barrel, the cost of continuing to drill in the arctic cannot be justified. Shell is expected to take an indeterminate loss as a result of the decision to stop drilling in the arctic.
It was only just this past August that the company received approval from the U.S. Bureau of Safety and Environmental Enforcement to continue drilling deeper in the Burger J well, located in the Chukchi Sea, approximately 150 miles from the coastal Alaskan city of Barrow. Shell has reportedly spent approximately $7 billion studying the arctic well. The company stated that it had discovered signs of oil and gas there, but it no longer appears there are sufficient quantities to warrant continued exploration of the well, prompting Shell to cease drilling.
While this was not the outcome Shell and its shareholders had anticipated or desired, there are many people who are relieved to know that the company has stopped its arctic drilling for now. Various environmental groups worldwide had opposed Shell’s drilling operation due to the high risk of major oil spills that would be nearly impossible to clean up due to the amount of ice cover in arctic waters. Even presidential hopeful Hillary Clinton denounced arctic drilling, stating that, “Given what we know, it’s not worth the risk.”
Is this really the end of Shell’s arctic drilling? The company stated that it had only stopped drilling in the Burger J well and surrounding areas “for the foreseeable future,” which leaves the door open for possible drilling again down the road. Considering that Shell has been drilling in the Arctic Ocean since 2007 and had planned to continue before its sudden announcement, it is plausible that the company will attempt further exploration in the future should oil prices rise significantly above $50 a barrel in the years to come.