There's Good News Tonight: Shell Stops Arctic Drilling!

Latest:  The Administration took a low political risk to protect the Arctic from oil exploitation by canceling all lease sales for the next two years in the Chukchi and Beaufort Seas.  But the move is little more than PR because this administration will announce it's new five year plan for 2017-2020 which will probably include the Arctic as well as the Atlantic coast from Virginia to Georgia.

The Paddle in Seattle, credit: Getty Images

{28.09.15} Royal Dutch Shell suspends Arctic drilling indefinitely. The announcement came this early this morning Eastern Time befitting the fact that "money never sleeps". This news is good, but its not because the international oil giant has suddenly decided to listen to Americans who do not want the Arctic despoiled by a catastrophic oil spill almost certain to happen. No friends, the decision is the result of hard econometrics. Shell did not find sufficient indications of gas and oil under its leases to justify the tremendous expense of offshore drilling in Arctic waters prone to some of the harshest climatic conditions on the planet.

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.