Shell faces $4.1 billion charge as it abandons Alaska drilling

Shell will take a charge of up to $4.1 billion (£2.7 billion) after calling time on its campaign to produce oil in Alaska as a key exploration well comes up dry – bringing the total cost of its unsuccessful drive into the region to about $8 billion.

The company said it had found “indications” of oil and gas in its Burger J well in Alaska’s Chukchi Sea about 150 miles from the coastal city of Barrow, but that they were not sufficient to warrant further exploration. The well will now be sealed and abandoned.

“This is a clearly disappointing exploration outcome,” said Shell Upstream Americas director Martin Odum.

A Shell spokesman added: “Shell will now cease further exploration activity in offshore Alaska for the foreseeable future.

“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.”

Shares in Shell fell by 8.5p, or 0.55%, to 1,540p.

Shell warned that it have to take a financial charge as a result of the ending its Alaskan campaign.

It could not give an exact figure but said its “Alaska position” is worth about $3 billion and that it has about $1.1 billion of “future contractual commitments”.

The latest charge brings the total cost of the Alaskan project to about $8 billion.

Oil companies believe the Arctic could be one of the world’s great untapped sources of oil and Shell chief executive Ben van Beurden said in July that the area his company has just abandoned “has the potential to be multiple times larger than the largest prospects in the US Gulf of Mexico”.

However, because of the Arctic conditions any reserves that were located would be difficult and expensive to extract – at a time when oil companies are looking to curb spending after a 50% slump in the oil price in the past year – to $48.26 a barrel – that shows little sign of rebounding over the next few years.

Shell’s decision to end its Alaskan ambitions brings to an end a difficult chapter, which has included a number of incidents.

These include a fire on the Nobel Discoverer rig and the failure to have a spill-response barge on site before drilling rigs reached oil-bearing zones.