WASHINGTON — Shell is abandoning hopes of drilling in the Arctic waters off Alaska this year, the latest blow to the company's effort to exploit huge potential in the petroleum-rich but sensitive region.
The decision came as Shell reported a steep drop in earnings and its new CEO announced plans to restructure operations to improve the company's cash flow.
CEO Ben van Beurden cited last week's court ruling that threw offshore Arctic oil leases into question. The 9th U.S. Circuit Court of Appeals agreed with environmental and Alaska Native groups that the federal government had underestimated how much oil drilling would happen when it sold the leases in 2008.
Van Beurden told investors that the ruling raised "substantial obstacles" for Shell's plans in Alaska waters.
"This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014," he told the investors Thursday. "We will look to relevant agencies and the court to resolve their open legal issues as quickly as possible."
Van Beurden told reporters in London that, in addition to not drilling the Arctic waters in 2014, "we are reviewing our options there."
Shell in 2012 became the first company in decades to explore for oil off the northern coast of Alaska, but a series of mishaps doomed the effort. Those included the grounding of a drilling rig, safety and environmental violations, and fines for breaking air pollution limits.
They also included the troubled Arctic Challenger, an oil well blowout response vessel, being retrofitted in Bellingham. The project to mount a complex oil well containment system on a barge suffered multiple delays in construction, then during testing its main feature – the blowout containment dome – was damaged. The vessel was repaired, passed inspection and is no longer in Bellingham.
Ken Salazar, the interior secretary at the time, said Shell had "screwed up" the historic Arctic effort.
The problems led Shell to drop plans to continue the effort last year, but it had interest in resuming this year if the federal government agreed to issue permits.
Shell has spent almost $6 billion so far on its Arctic offshore effort and has yet to extract oil.
Environmental groups hailed Shell's decision to suspend the effort.
"Shell is finally recognizing what we've been saying all along, that offshore drilling in the Arctic is risky, costly and simply not a good bet from a business perspective," said Jacqueline Savitz, Oceana's vice president for U.S. oceans.
Greenpeace urged other companies that are considering offshore Arctic drilling to learn from Shell's experience and "conclude that this region is too remote, too hostile and too iconic to be worth exploring."