Royal Dutch Shell surprised many Monday after the energy conglomerate announced it would cease offshore exploration activity in the Alaskan Arctic for the foreseeable future.
Shell explained initial drilling results indicated oil and gas reserves present at the Chukchi Sea site would not be sufficient to warrant further exploration. The Burger J well would be sealed and abandoned in accordance with federal regulations, and the company expects to lose $4.1 billion on the investment.
The decision comes as a disappointment for the state government, which is keen to improve revenues in the face of a massive deficit.
Speaking Monday, Gov. Bill Walker expressed his dismay at the decision. “This is a tough day. A very tough day for Shell, a very tough day for Alaska,” he told reporters. “We’re an oil-dependent economy and we need to do everything we can to put oil – safely put oil – in the pipeline.”
As the state looks to stabilize its budget – anticipated to run more than $7 billion in deficit spending over the next two years – Walker emphasized the importance of continued development to bring in revenues. This included exploiting petroleum reserves in the 1002 area of the Alaska National Wildlife Reserve and increasing the state’s stake in natural gas development.
Ahead of a special legislative session meeting set to start Oct. 24, the governor’s office has put forward a package which includes a proposal to buy TransCanada’s share of a proposed gas pipeline and gas treatment facility.
A proponent of increased resource development in the state, Sen. Lisa Murkowski also expressed her disappointment in Shell’s decision.
“I am extremely disappointed by this decision, just as I have been deeply frustrated by the years-long path that led to it,” she said in a release. Murkowski laid blame upon bureaucratic constraints and an unclear regulatory environment.
“In the more than seven years that Shell has held leases in the Chukchi, it has only recently been allowed to complete a single well. What we have here is a case in which a company’s commercial efforts could not overcome a burdensome and often contradictory regulatory environment,” the release read.
The senator encouraged the Obama administration to work with Alaskans to develop a plan driven by local input and preferences, which would also encourage companies to make major investments in onshore and offshore projects. Murkowski further noted Arctic ambivalence could have strategic repercussions as well, with Canada and Russia likely competitors for resources.
“The Arctic is crucial to our entire nation’s future, and we can no longer rely solely on private companies to bring investments in science and infrastructure to the region,” she said. “As the Arctic continues to open, we urgently need to accelerate our national security investments in icebreakers, ports, and other necessities.”
Even at the opposite end of the state, there was disappointment in Shell’s announcement. The City and Borough of Wrangell had taken an interest in the company’s Arctic plans, last month submitting a packet of information to Shell promoting itself as a site for possible development.
Economic development director Carol Rushmore explained such self-marketing is standard practice. The city invests each year in material it puts out at annual boating, travel and industry conventions, and is a member of Southeast Conference. Included in the packet they submitted to Shell were draft plans for development of the former Institute and mill sites.
“We’ve been cautious with that,” she added of the latter. The mill site is currently private property, though last week the Assembly approved moving forward with a feasibility study for its acquisition and development.
The Assembly also approved going ahead with preparing a plan to develop the mill, the nearby Sealy mountain land area, and the former Institute property. The city received $190,000 for drawing up the plans in an FY15 allocation from the Legislature. Rushmore said she hoped to have the final RFP drafts ready to distribute by the week’s end.
The two Zimovia Highway sites have potential for mixed-use marine and industrial development, and for residential building. The studies would be contracted from private services, and a final report would be produced providing an assessment and future plan.
Assembly member Julie Decker explained the mill property’s deep water access would have made it useful for Shell’s vessel operations. She said the city had heard from Ketchikan and other interested communities in the region that Shell would consider establishing its support services somewhere in Alaska.
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