Shell announced on Thursday that it has called off its plan to do exploratory oil and gas drilling in Arctic waters off Alaska this year – and what it will do in future years is not clear.
The company’s new CEO, Ben Van Beurden, pointed directly to a recent federal appeals court ruling that casts doubt over the federal oil and gas lease sales in the Chukchi and Beaufort Seas.
“We are frustrated by the recent decision by the Ninth Circuit Court of Appeals in what is a six-year-old lawsuit against government,” Van Beurden said. “And the obstacles that were introduced by that decision simply make it impossible to justify the commitments of costs, equipment and people that are needed to drill safely in Alaska this year.
“So, we have to wait for the courts and the U.S. Administration to this legal issue and given all of this, we will not drill in Alaska in 2014 and we are reviewing our options here.”
The ruling by a panel of the Ninth Circuit Court of Appeals came in a lawsuit filed by environmental groups and the Native Village of Point Hope that claimed federal authorities underestimated the amount of oil and gas exploration and development activity the sales would generate and the impacts that would result from those activities.
Up until now, Shell has been leading that industry push, but its exploration ventures in 2012 ran into problems, including a drilling rig that went adrift and grounded south of Kodiak.
Van Beurden took the helm of Shell a month ago as the company was putting out signals to the financial community that its earnings would be down. Today he announced the figures on its financial performance for the past year, and they were not pretty. Profits were down 71 percent from the year before. He said the company has “lost momentum,” and he’s setting a new course – divesting some stagnant assets and cutting capital expenditures by 20 percent.
“Frankly, I believe we got a little ahead of ourselves and some of these long-term plays and O want to moderate our investment base here,” Van Beurden said.
He said Shell ended up with a “cash flow deficit” last year, and the company needs to concentrate its reduced $37 million capital budget on areas that will show a return.
Late last year, ConocoPhillips, the other company that had plans to drill in the Chukchi this year, quietly shelved its plans as well.