Oil & Gas
a graphic of a hand holding two playing cards
Shell’s Game
Making the best of a bad hand
By Scott Rhode

n September 28, 2015, Shell Oil abruptly ended its efforts to drill off Alaska’s Arctic coast. At the time, the company had roughly 400 workers at an office in Anchorage, plus an additional 3,000 contractors anticipating another possible drilling season.

These days, Shell has little to no physical presence in Alaska. In 2021, the company had so much trouble finding an operator to explore its only remaining Beaufort Sea unit that the state Division of Oil & Gas had to approve an extension until the end of 2022.

That extended search is part of a process that began in late 2020, when official filings seemed to hint at a grand reprise of Shell’s Alaska adventure. That inference, though, was colored by the wish for another major player to inject its industrial vitality into the state’s economy.

Wishes aside, here’s reality: “Shell has no intention of operating this unit and plans to fully divest out of the venture,” Shell US media spokesperson Cindy Babski says in an email. Her earlier statements might have left some hope, as in 2020 when Babski told the website Arctic Today that the company’s latest moves in Alaska were taken “in order to preserve our leasehold options.” But those options are limited. There was never a chance that Shell’s red-and-gold scallop would scuttle around the North Slope again.

Once bitten, twice shy, as the saying goes, and Alaska bit Shell in the past. The company’s inclination to seek a graceful exit is perfectly understandable.

The Clock Is Ticking

On paper, Shell has a plan for activity in Alaska. Its subsidiary, Shell Offshore Inc., submitted a multi-year exploration plan for West Harrison Bay, northwest of the mouth of the Colville River, in August 2020. That was the first peep from the company since it was dealt some bad cards five years earlier.

The new timeline calls for a unit operator (yet to be named) to acquire seismic data by September 2022. Initial exploration drilling is scheduled for the winter of 2023/2024. A second well would be drilled the following season. Those first two winters would inform a new exploration or development plan to be submitted by October 1, 2025, ninety days before the plan of exploration expires.

Without the plan of exploration, Shell’s access to West Harrison Bay would evaporate by the end of this year, ten years after the company first bought the eighteen leases covering 86,400 acres. The filing in 2020 was a request to consolidate the leases into a single unit. The state Division of Oil & Gas granted the unitization license in December 2020, which extended the leasehold.

Approval was conditioned on Shell finding partners to spread cost and risk, with a deadline of December 31, 2021, to finalize commercial arrangements. With less than three months to go, on October 6, a company attorney asked for more time, blaming delays on a volatile oil market and the logistical challenges of meeting during the COVID-19 pandemic. On November 18, Division of Oil & Gas Director Tom Stokes approved the amendment to the exploration plan. Stokes said the division found that extending the deadline until the end of 2022 would be in the public interest.

Going through the motions should hardly be an indication that Shell is returning to Alaska.

“I think it’s more likely I’ll become a relief pitcher for the Chicago Cubs, and I’m seventy years old and I can’t throw a curveball,” says oil and gas writer and analyst Larry Persily. Shell’s only logical play, as he sees it, is to sell the West Harrison Bay leases before the state revokes them.

“They were hit hard through COVID, everybody was… They’re all looking at reprioritizing limited capital dollars, so Alaska has to compete against a lot of other potential projects for a shrinking amount of capital.”
Kara Moriarty, President & CEO
Alaska Oil and Gas Association

A ticking clock was enough to convince ExxonMobil to begin producing natural gas condensate from Point Thomson in 2016 after those leases nearly expired for lack of activity, so it’s not unreasonable to imagine Shell following a similar path. But ExxonMobil has the largest working interest at Prudhoe Bay, as well as part ownership of the Trans Alaska Pipeline System.

Shell is not ExxonMobil, though, and the companies have quite different histories and relationships in Alaska.

Season of Discontent

Before acquiring the West Harrison Bay unit, Shell bought its first Beaufort Sea leases in 2005. More followed in 2007, and then in 2008 the company spent $2.1 billion to acquire leases in the Chukchi Sea off Alaska’s northwest coast, in federal waters.

Go there now, all that remains is open ocean 65 nautical miles offshore and, down below, a couple of unproductive holes in the seabed. The 2012 exploration campaign was so disappointing that the Obama administration conducted a high-level review to determine what went wrong.

The Department of the Interior concluded that Shell “entered the 2012 drilling season without having finalized key components of its program, including its Arctic Challenger containment system, which put pressure on Shell’s operations and schedule….” The report also criticized Shell for inadequate oversight of contractors and “serious” marine transport issues with drill rigs Kulluk and Noble Discoverer.

Exploration began late in the 2012 ice-free season, largely because regulatory standards at the time required subsea containment systems to be deployed prior to drilling into oil-bearing zones. The operating window was further constrained by blackouts during subsistence hunts and the need to coordinate with emergency response from shore.

For its part, Shell blamed the Obama administration for moving regulatory goalposts. For example, plans for two simultaneous wells, 9 miles apart in the Chukchi, had to be changed to 15 miles apart because of a 2013 marine mammal protection rule.

“We have sold or relinquished all our frontier licenses in Alaska and have no plans for frontier exploration offshore Alaska.”
Cindy Babski
Media Spokesperson
Shell US

The federal review was not entirely negative, though. The report credits “Shell’s extensive efforts to communicate and minimize conflict with Alaska Native communities that rely on the ocean for subsistence use.” Also, the report recognizes that the company was operating in an “unforgiving” harsh environment. That harshness proved to be a problem even after the drilling season concluded.

From Bad to Worse

“I believe that this length of tow, at this time of year, in this location, with our current routing guarantees an ***kicking.” [Redaction in the original National Transportation Safety Board marine accident brief, quoting the master of the tow vessel Aiviq.]

The time of year was late December 2012, when Shell was trying to outrun the calendar before its assets might be subject to state property tax. The mobile drilling unit Kulluk, a pan-shaped rig owned by Shell and operated by Noble Drilling, was being towed south to its homeport in Seattle for maintenance and repairs. The location was about 50 miles off Sitkalidak Island, or about 100 miles southwest of the city of Kodiak.

The kicking began just before noon on December 27, when the tow connecting Kulluk to Aiviq came apart. The rig drifted for hours before Shell decided to evacuate the eighteen crew members aboard. Coast Guard helicopters attempted an airlift the next day, but the weather was so rough that they weren’t successful until December 29.

By late that night, Aiviq and another tow vessel tried to bring Kulluk to safe harbor near Sitkalidak Island. That effort lasted until 8:40 p.m. on December 31, when waves pushed Kulluk aground. There it sat for weeks until salvaged.

Four members of Aiviq’s crew suffered minor injuries. Kulluk was substantially damaged. Fortunately, none of the petroleum on board spilled, resulting in no significant environmental harm.

“No single error or mechanical failure led to this accident,” the National Transportation Safety Board brief concluded. “Rather, shortcomings in the design of a plan with an insufficient margin of safety allowed this accident to take place.”

After being bucked off the Alaska horse so badly, Shell’s reluctance to saddle up again is quite natural.


According to the 2020 filing that signaled Shell’s continued interest in Alaska, the company’s departure five years earlier was “due to discouraging well results, high logistic and technical costs, and a challenging and unpredictable federal regulatory environment.”

Petty Officer 2nd Class Zachary Painter. | U.S. Coast Guard Headquarterst
Alaska Department of Natural Resources

The grounding of Kulluk was not the proverbial final straw, nor was the disappointment of the 2012 season. Shell tried again in 2015 with a submersible rig 149 feet beneath the Chukchi Sea, drilling the Burger J well to a depth of 6,800 feet. Again, no payoff.

Within weeks, Shell turned its back on Burger J and relinquished all other leases in Alaska. The $7 billion exploration program between 2012 and 2015 was a total loss.

“They would love to recover some of their investment on those leases,” says Persily, “but I bet in the inner sanctums of Shell they’re pretty realistic that they may not recover any of that investment.”

And that’s a reality that’s influenced by more than Shell’s last few exploration years. “They were hit hard through COVID, everybody was,” says Kara Moriarty, president and CEO of the Alaska Oil & Gas Association. Amid the pandemic, every oil company massively cut back on their workforce. “They’re all looking at reprioritizing limited capital dollars,” she says, “so Alaska has to compete against a lot of other potential projects for a shrinking amount of capital.”

Financial options have been narrowing since 2020, when four of the nation’s six biggest banks—Chase, CitiBank, Goldman Sachs, and Wells Fargo—set policies to forbid financing for new Arctic drilling. Dozens of smaller banks have followed.

Shell itself is not entirely unsympathetic to those policies. Persily observes, “Shell is one of the leaders for turning away from fossil fuels toward a future of renewables and green energy,” explaining the company’s disinterest in betting on Arctic offshore oil.

Indeed, “We have sold or relinquished all our frontier licenses in Alaska and have no plans for frontier exploration offshore Alaska,” says Babski.

The only other active leases in the Beaufort Sea, according to the US Bureau of Ocean Energy Management, are at the Northstar field, operated by Hilcorp. Hilcorp is also awaiting regulatory approval for its Liberty project, located within the barrier islands about 4 miles offshore. There are zero active leases in the Chukchi Sea; after Shell’s difficulties, in 2016 the Obama administration withdrew the area from federal leasing.

“We know there are permitting challenges,” Moriarty says, “and we have a federal administration that has a different view of what the future for oil and gas looks like.”

In light of that “different view,” West Harrison Bay’s location near shore is an advantage, as Shell deals with a friendlier state regulatory regime.

Anybody Interested?

If Shell intended to stay in Alaska, then West Harrison Bay wouldn’t be a bad proposition. According to its unitization request, “The technical risk associated with the West Harrison Bay prospects was decreased by a string of discoveries in the same play.” The leases are on top of the Nanushuk sands formation, the same geology underlying the on-shore Willow and Pikka units being developed by ConocoPhillips and Oil Search, respectively.

No wells have ever been drilled in the West Harrison Bay leases, but companies exploring adjacent areas have seen some promising results.

Located just north of the Willow prospect, in state waters within 3 miles from shore, West Harrison Bay is much closer to pipelines and other infrastructure than the Chukchi leases ever were. The location is also subject to less severe sea ice conditions, in much shallower water.

Babski declined to discuss how much Shell has already invested in the asset. Its value may increase, depending on the results of the exploration plan.

Anyone with a couple billion dollars to spend, along with the nerve to play in one of the toughest oil provinces in the world, could find West Harrison Bay very interesting. Plus, they’d be doing Shell a favor.