Royal Dutch Shell PLC said it would abandon another high-cost oil project, just weeks after it abruptly canceled a $7 billion drilling venture in the Arctic. The news arrives as slumping crude oil prices and challenging economics make it harder for oil and gas companies to justify unconventional and risky projects.
“We are making changes to Shell’s portfolio mix by reviewing our longer-term upstream options worldwide, and managing affordability and exposure in the current world of lower oil prices,” Shell CEO Ben Van Beurden said in a Tuesday statement. “This is forcing tough choices at Shell.”
Oil prices have slumped sharply in the last 16 months as crude production far outpaces tepid global demand. Brent crude, the international benchmark, has traded below $50 a barrel in recent months, down by more than half from its 2014 peak. Lorraine Mitchelmore, president of Shell Canada, said last year the company’s oil sands business needs prices at $70 a barrel to meet internal profit standards.
Shell has also cited $70 a barrel as the point at which oil drilled in the Alaskan Arctic could compete in global markets. If prices stayed below $50 a barrel into 2030, however, the offshore venture would be for naught, Ann Pickard, Shell’s top executive for the Arctic, told Bloomberg Businessweek in August.
Shell shocked the energy industry last month when it announced it would stop exploring for oil in Alaska’s Chukchi Sea. The energy giant spent $7 billion over several years on a single offshore well, and early analyses of core samples suggested drillers would find a bounty of oil. But in late September, the company said it did not find sufficient indications of oil and gas to warrant further exploration and that it would seal and abandon the well.
