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Shell Suspends 2014 Arctic Offshore Drilling in Alaska

Published On: Jan 30 2014 06:01:07 AM AKST   Updated On: Jan 30 2014 08:37:02 PM AKST

Shell's Chukchi drilling program canceled


Royal Dutch Shell has suspended its 2014 Arctic offshore drilling operations in Alaska's Chukchi Sea, as part of a move to scale back its investments amid a sharp decline in revenue and a federal court decision.

The Associated Press reports that incoming CEO Ben van Beurden says Royal Dutch Shell will cut capital spending by around $10 billion this year and sell assets to become more efficient.

Shell's earnings have dropped by 74 percent in the fourth quarter from the same period a year ago, on a mix of higher exploration costs, lower production, and worse refining margins.

The company’s newest earnings report, the first featuring van Beurden, noted that production was down 5 percent to 3.25 million barrels per day.

In a statement released Thursday afternoon by Shell Alaska spokesperson Megan Baldino, the company cites a recent ruling by the 9th U.S. Circuit Court of Appeals, that federal authorities conducted inadequate environmental assessments before selling $2.7 billion in leases, as its primary cause.

“The lack of a clear path forward and an associated timeline makes it impossible to justify the commitment of resources needed to explore safely in 2014,” company officials wrote.

Shell also says that it wasn’t originally a participant in the lawsuit, which it joined with other energy companies to retain leases from the challenged 2008 sale. The company specifically notes the niche role played by non-governmental organizations in bringing the case.

“The original lawsuit was filed by one village on the North Slope and a coalition of environmental NGO’s,” officials wrote. “As we look to relevant agencies and the Court to resolve the open legal issues, we will continue to work closely with the Department of Interior to pursue a successful program in the future.”

One such group, the Ocean Conservancy, hailed Shell's choice as "a smart and responsible decision" Thursday.

"The postponement will help the Bureau of Ocean Energy Management focus on preparing a new environmental impact statement that will more fully assess the impacts of drilling in Arctic waters that are ecologically sensitive, unpredictable and unforgiving," said Andrew Hartsig, the group's Arctic program director. "A time-out on offshore drilling in the Arctic will give regulators and oil companies alike additional time to consider whether, and if so how, to move ahead in a safe and responsible manner."

Alaska’s U.S. senators were quick to respond to the news Wednesday morning, with Sen. Lisa Murkowski blasting the federal court decision.

“I am disappointed that Shell will not be able to move forward with exploration this summer, but am not surprised given the 9th Circuit’s decision and the administration’s failure to provide regulatory and permitting certainty for oil development in the Arctic,” Murkowski said in a statement. “We can’t expect Shell to continue spend billions of dollars on this project when the rules keep changing.”

In a separate statement, Sen. Mark Begich says he is reintroducing legislation meant to offer oil companies a “judicial endgame” when they face litigation over drilling in the state.

“It is simply unacceptable that judicial overreach is getting in the way of letting Alaskans develop our own natural resources,” Begich said. “Development in the Arctic has already been subjected to unprecedented safety standards -- far more than domestic production anywhere else. I've worked for years to get all the federal agencies working together to permit Arctic projects, now we need to tackle the all too common legal stonewalling by outside groups.”

Gov. Sean Parnell sympathized with Shell Thursday, emphasizing its fiscal effects on the state.

“Today’s news is extremely disappointing for Alaska, but certainly understandable given the recent Ninth Circuit Court ruling,” Parnell said in a statement. “Multiple years of federal regulatory delay, litigation delay, and one year of operational issues have created barriers to Alaskans’ near-term economic prospects.”

Parnell also reiterated his support for offshore drilling despite its federal entanglements, expressing hope for a resumption of Shell's plans.

"As we move forward, I am confident Shell can be part of Alaska’s bright future," Parnell said.

KTUU's Adam Pinsker and Garrett Turner contributed to this story.