While Shell has found indications of oil and gas in the Burger J well in Alaska's Chukchi Sea, the company has determined that these are not sufficient to warrant further exploration in the Burger prospect. Shell will cease further exploration activity in offshore Alaska for the foreseeable future, and the well will now be sealed and abandoned in accordance with US regulations.
Shell says that this decision reflects both the Burger J well result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska. The company expects to take financial charges as a result of this announcement. The balance sheet carrying value of Shell's Alaska position is $3 billion, with a further $1.1 billion of future contractual commitments. An update will be provided with the third-quarter 2015 results.
Shell holds a 100% working interest in 275 Outer Continental Shelf blocks in the Chukchi Sea. The Burger J well is 150 miles from Barrow, Alaska, in about 150 feet of water. Shell safely drilled the well to a total depth of 6,800 feet this summer in a basin that demonstrates many of the key attributes of a major petroleum basin. For an area equivalent to half the size of the Gulf of Mexico, this basin remains substantially under-explored. Operations will continue to safely demobilize people and equipment from the Chukchi Sea.
Arctic Slope Regional Corp. (ASRC) President and CEO Rex A. Rock Sr. stated, "At a time when Alaska is confronting a fiscal crisis, the news from Shell is deeply disappointing. This is a major blow for Alaska, and leaves into question the viability of our state's economy. Closer to home on the North Slope, we are looking for solutions on how we continue to sustain our local economies to support our communities. Absent any responsible resource development onshore and offshore, we are facing a fiscal crisis beyond measure. The federal regulatory environment has proven to be a burden for any development, whether onshore or offshore. With this type of uncertainty, we will continue to see good opportunities slip away because no one wants to do business in Alaska."
ASRC, along with six other village corporations from the North Slope, formed an entity called Arctic Iñupiat Offshore LLC (AIO) in 2014. AIO was a strategic partner with Shell in the Chukchi Sea.