Shell’s polar adventure is finally over. The company has failed to find sufficient quantities of commercial oil in the Arctic this summer and will consequently knock the whole venture on the head.
Never in the field of oil exploration has so much been spent by so few on so little – even Cairn Energy’s $1bn loss from Greenland in 2011 is dwarfed.
Before this year’s drilling began, Shell had spent around $6bn on its Alaskan programme, including the acquisition of leases, but it had yet to complete a well. Another year’s activity, and the possibility of a hefty impairment later, and Shell has not a drop of oil to show for what could in total exceed $10bn in outlay.
This will please a lot of people. Greenpeace called the move an unmitigated defeat. Seattle’s kayaktivists won’t have to bob and weave in front of some of the world’s largest floating structures again. Not a single photogenic polar bear coat will be besmirched by a stray drop of crude. Walruses can breed free. And the people planning Barack Obama’s legacy will chalk one up for the environmental slate.
The loudest sigh of relief may come from Shell’s own boardroom. Ahead of the mammoth task of integrating its £47bn ($73bn) acquisition of BG, and as low oil prices cut into results, Shell needed some news to reassure shareholders who have seen a 25pc fall in the value of their investment since April. Shell’s dividend — of great importance to UK savers and of which the company is rightly proud — needs to be defended. This kind of big-risk, high-cost project, with so little to show in return, is exactly the sort of thing that should bite the dust.
The company’s overworked public relations team will no longer have to walk into the office past giant animatronic polar bears. That team’s task just got a whole lot easier. The calamitous 2012 drilling season, when drill rigs drifted and ran aground and threatened to stain Shell’s reputation in the way Deepwater Horizon did for BP, can be let go.
If this summer’s drilling campaign in the Burger J well had come up with a billion-barrel oil field, Shell could have felt justified, but also deflated. Shell is buying BG so it won’t have to go through the rigmarole of seeking out large reserves. The £47bn price buys proven reserves on a scale that could mean Shell has higher production than ExxonMobil in a few years’ time. Compare that with the amount spent in vain in the Arctic — the equivalent of around one-third of Shell’s annual capital expenditure — and it’s understandable why coming up dry in the frozen north might have led to a few smiles of grim satisfaction in Shell’s boardroom.