Shell abandons offshore Alaska oil exploration

Shell will stop further exploration activity in offshore Alaska.

The oil major announced on Monday it had found indications of oil and gas in the Burger J prospect, but not enough to warrant further exploration.

As a result of that, as well as the high costs associated with the project and the challenging and unpredictable federal regulatory environment in offshore Alaska, the oil giant has decided to stop exploration in the area.

Shell Upstream Americas director Marvin Odum said the company continues to see potential in the basin and the area is likely to be strategically important for Alaska and the US.

“However, this is a clearly disappointing exploration outcome for this part of the basin.”

The company said it expected to take financial charges as a result of this announcement and an update will be provided with the third quarter results.

RBC Capital Markets commented there is a positive aspect to the decision.

"Although the poor well result may be taken negatively initially, Shell's insistence to drill in the Arctic has been a key point of contention for investors, in our view, given the limited visibility on what is likely to be a pro-longed payback period.

"With an increasing number of options for Shell's capital going forward (particularly once the BG deal closes), we think the budget for exploration drilling offshore Alaska would be better spent elsewhere, especially at sub $50 oil."

At 0927 BST, Royal Dutch Shell shares were at 1,554p, up 2p (0.13%) after dipping at opening.