|The Paddle in Seattle, credit: Getty Images|
Shell joins ExxonMobil in giving up on the Arctic for now. It found oil in Russia's Kara Sea, but geopolitics got in the way of its discovery as sanctions have been imposed on trade with Russia. A half a dozen other companies have already put their plans on ice. Shell's Burger J prospect lies 150 miles from Barrow, Alaska, the closest supply base. It sent 30 vessels in addition to the two large sea-going drilling rigs [photo] to attempt to locate economic quantities of oil and gas during the brief Arctic summer. The logistics alone are hugely expensive, and the company was prevented from simultaneously drilling a second exploratory well nine miles away because of the noise impact on marine mammals. However, Berger J was the best prospect the company had among its Chukchi Sea leases.
Shell will take a large a charge-off on its investment of $3.0 billion, most of which will be tax-deductible. It has already spent $7 billion on exploration in the Alaskan Arctic. Not only does the decision reflect the extreme difficulty of operating in a remote and still harsh climate, but also the huge subsidies oil companies receive from the federal government for exploration. It is not unknown for companies to drill a well they know will not produce just to received the tax benefits of such an operation*. A Shell spokesperson said that "only more exploration will [prove] this basin. But that exploration in not in our immediate future. The whales, walruses and polar bears that still live on the melting sea ice would be thankful for that decision and the many humans that made it possible.
*this scenario actually occurred while US Person was a landman in Getty Oil's Offshore Division in Houston, Texas.