Oil drilling and exploration efforts in U.S. Arctic waters have ground to a halt, as some of the biggest oil companies in the world relinquished their leases in the area earlier this month. Drilling rights worth more than $2.5 billion were dropped by companies like Royal Dutch Shell and ConocoPhillips just ahead of the May 1 renewal date.
Faced with falling crude oil prices, big oil is reportedly pulling out of U.S. Arctic waters in attempt to cut their losses. According to Bloomberg, crude oil prices have crashed to less than half of their 2014 values, leaving companies like Shell and ConocoPhillips with expensive operations in the Arctic that no longer make financial sense.
Shell, ConocoPhillips, and others paid the U.S. government more than $2.6 billion to buy the drilling rights to 2.8 million acres of the Chukchi Sea in 2008. By the end of last April, they had relinquished nearly 80 percent of the leases, forfeiting the more than $2.5 billion paid at the time of the 2008 auction, along with the millions paid each year to extend the leases.
According to Bloomberg, Shell's decision came after a costly $8 billion search for oil in the Chukchi Sea that ultimately failed to pay off. The company could no longer justify that expense when weighed against falling crude oil prices, ended their exploration efforts last year, and ultimately released all but one of its leases in the Chukchi Sea.
"Arctic exploration has been put back several years, given the low oil price environment, the significant cost involved in exploration and the environmental risks that it entails," Peter Kiernan, lead energy analyst at the Economist Intelligence Unit, told Bloomberg.
Shell may continue to hold its final lease in U.S. Arctic waters for some time, if the company is able to extend the lease, but that doesn't mean any drilling will take place there. The remaining lease is the site of Shell's exploratory drilling that took place in 2015, and relinquishing the lease would also require Shell to hand the U.S. government all of the the data that was acquired during the expensive project.
The U.S. Department of the Interior is now free to resell the leases that Shell and other companies forfeited, but it could be years before another auction happens. Auctions set to take place last year were cancelled due to low interest from the oil industry, and interest is unlikely to change unless the price of crude oil reaches a point where Arctic oil production would actually be a profitable undertaking.
"There are only so many companies that are going to be interested in the Arctic," Ranger told Bloomberg. "To the extent they are, they can look at other jurisdictions. With regulatory uncertainty and price uncertainty, you start looking at other opportunities, and you re-rank what your longer term, more frontier prospects look like. That's what's happening."
Opponents of Arctic drilling, including MSNBC's Rachel Maddow, have cited the mass abandonment of drilling rights as proof that environmentalists were right, and that ConocoPhillips, Shell, and others never should have tried to drill in the Arctic at all.
Do you think crude oil prices will eventually go back up, and big oil will return to U.S. Arctic waters, or will Shell and others listen to the kayactivists and stay out of the Arctic for good?
[Photo by Brian Battaile/U.S. Geological Survey via AP]