Less than a month into 2014, Shell announced it was abandoning plans for exploratory drilling in Arctic waters this year. Yesterday the company said it was calling it quits because of a federal appeals court decision last week that cast doubt over its leases in the Chukchi Sea.
On January 22 the U.S. Ninth Circuit Court of Appeals ruled that the U.S. Department of Interior had unlawfully sold offshore oil and gas leases in the Chukchi Sea because in its environmental review it had grossly underestimated the amount of recoverable oil—and therefore the danger, as Ted Williams reported for Audubon last week. As a result, the agency will have to somehow supplement or revise its environmental review.
"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," said Shell's new CEO, Ben van Beurden in a statement. "We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible."
The legal woes are just the latest obstacle that Shell has hit in its roughly $5 billion endeavor to become the first company in decades to tap the estimated 27 billion barrels of oil beneath the frigid waters at the top of the world. Its efforts over the past two years have been marked by spectacular failures, including losing control of its drill ship, Noble Discoverer, and numerous safety and pollution problems.
"We don't know nearly enough about the Chukchi Sea ecosystems—let alone about how to clean up an oil spill in ice-locked seas—to let international corporations go around poking holes in the seafloor," said David Yarnold, president and CEO of Audubon, one of the plaintiffs, which include conservation and native groups. "We do know that the Arctic Ocean is crucial for marine birds and mammals, holding globally significant feeding and resting areas for dozens of species, and they need to be protected."
Clearly, a new direction is needed, said Susan Murray, deputy vice president, Pacific, for Oceana, another plaintiff. "The government should start over, fairly balance risks and benefits, and make a new decision about whether to allow companies to drill for oil in the Arctic Ocean."
In the meantime, Shell is focusing on getting a grip on costs. Van Beurden's new call for "rigorous capital discipline" might spell the end of the company's hugely expensive Arctic effort, including the more than $2 billion it spent acquiring leases in the sale struck down by the federal appeals court last week. As van Beurden told Reuters, recent legal difficulties in addition to costs made the exercise "impossible to justify."
As yet, the environmental costs of drilling in Arctic waters are also impossible to justify.