Shell frozen out of the Arctic

published 1 October 2015

762-polar-bear-634 — Shell was right to beat a retreat

Royal Dutch Shell has announced that it will stop exploring for oil and gas in the Arctic after its first well in the region's Chukchi Sea turned out to be a dud. Shell had spent around $7bn on Alaska since 2007 around a fifth of the group's exploration budget. The whole episode will cost Shell $9bn, according to Deutsche Bank.

What the commentators said

Still, you can see why it happened. In 2008 it was attempting to top up the group's dwindling reserves after an accounting scandal. The Arctic, which, according to the US Geological Survey holds 90 billion barrels of oil, seemed an obvious bet, especially with the price of black gold at over $140 a barrel.

But the reserves might not have been recoverable until 2030, added Fiona Maharg-Bravo on BreakingViews.com, and when the oil price slumped last year, the whole thing became "an unaffordable luxury". The numbers haven't added up since oil fell below $100, said Nils Pratley in The Guardian, which happened a year ago. So why did it take so long to beat a retreat? Perhaps, having spent so much, Shell felt it had to hang on and find out what lay beneath its exploratory well.

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But "one suspects an equal role was played by old-fashioned corporate pride". Both environmentalists and shareholders will be relieved, said Maharg-Bravo. Shell will now be able to spend around $800m a year on more promising projects, or shoring up the group's dividend. It will also be able to concentrate on its $70bn takeover of BG. Ditching the Arctic is a step forward.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.