Shell's Arctic drilling vessel the Noble Discoverer arrives in Everett, Wash. in this May 12, 2015 file photo. Shell is among oil companies that have relinquished 2.2 million acres of drilling rights in U.S. Arctic waters.Daniella Beccaria/The Associated Press
After plunking down more than $2.5-billion (U.S.) for drilling rights in U.S. Arctic waters, Royal Dutch Shell, ConocoPhillips and other companies have quietly relinquished claims they once hoped would net the next big oil discovery.
The pullout comes as crude oil prices have plummeted to less than half their June, 2014, levels, forcing oil companies to slash spending. For Shell and ConocoPhillips, the decision to abandon Arctic acreage was formalized just before a May 1 due date to pay the U.S. government millions of dollars in rent to keep holdings in the Chukchi Sea north of Alaska.
The U.S. Arctic is estimated to hold 27 billion barrels of oil and 132 trillion cubic feet of natural gas, but energy companies have struggled to tap resources buried below icy waters at the top of the globe.
Shell last year ended a nearly $8-billion, mishap-marred quest for Arctic crude after disappointing results from a test well in the Chukchi Sea. Shell decided the risk is not worth it for now, and other companies have likely come to the same conclusion, said Peter Kiernan, the lead energy analyst at the Economist Intelligence Unit.
"Arctic exploration has been put back several years, given the low oil price environment, the significant cost involved in exploration and the environmental risks that it entails," he said.
All told, companies have relinquished 2.2 million acres of drilling rights in the Chukchi Sea – nearly 80 per cent of the leases they bought from the U.S. government in a 2008 auction. Oil companies spent more than $2.6-billion snapping up 2.8 million acres in the Chukchi Sea during that sale, on top of previous purchases in the Beaufort Sea.
Shell relinquished 274 Chukchi leases and others in the neighbouring Beaufort Sea. In doing so, the company forfeits what it paid the U.S government for the rights to drill in those tracts – and the millions of dollars it spent on annual rent since then.
"These actions are consistent with our earlier decision not to explore offshore Alaska for the foreseeable future," Shell spokesman Curtis Smith said by e-mail. The decision also reflects the high costs of operating off Alaska's northern coast and evolving regulatory standards, Mr. Smith said.
Other energy companies have followed Shell out of the Arctic, according to Interior Department records obtained by the conservation group Oceana under a Freedom of Information Act request and reviewed by Bloomberg News.
ConocoPhillips formally relinquished its 61 Chukchi Sea leases on April 26, and spokeswoman Christina Kuhl said the company will end Interior Board of Land Appeals proceedings that aimed to extend their life.
Statoil dumped 16 Chukchi Sea leases and its working interest stakes in 50 others in the U.S. Arctic last November, conceding the portfolio was "no longer considered competitive."
Iona Energy Inc., a Canadian oil and gas company that began insolvency proceedings last November, ceded its one lease in the Chukchi Sea on March 31. Italy's Eni SpA also gave up four leases in the Chukchi Sea on April 28.