Oil giant Royal Dutch Shell has announced it will suspend its controversial plans for Arctic drilling after witnessing a 39% annual net profits slump, in what environmentalists have described as evidence that exploiting the region “is simply not worth the risk.”
The company confirmed on Thursday that quarterly earnings had fallen to $2.9 billion (£1.8 billion) for the final quarter of 2013, $1 billion (£610m) less than previous consensus estimates and down from $5.6 billion (£3.4 billion) in the same period in 2012.
When the price movements of oil movements are accounted for, full-year profits dropped to $19.5 billion (£11.9 billion) from $25.3 billion (£15.4 billion) the year before.
In response, the company said capital spending that amounted to $46 billion (£27.9 billion) last year would be slashed by as much as $9 billion (£5.5 billion) to $37 billion (£22.5 billion) this year. One of the operations to be sacrificed for the cost cutting is Shell’s Arctic drilling plans.
“This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014”, chief executive Ben van Beurden told investors.
Since 2005, the company has spent around $4.5 billion (£2.7 billion) exploring for oil of the Alaskan coast, but is yet to drill a single well. Earlier this month, its efforts were also challenged by a US court appeals decision that questioned the granting of the company’s licenses following a legal challenge.
“Shell’s decision to gamble on the Arctic was a mistake of epic proportions”, said Greenpeace Arctic oil campaigner Charlie Kronick.
“The company has spent huge amounts of time and money on a project that has delivered nothing apart from bad publicity and a reputation for incompetence.”
“Shell’s Arctic failure is being watched closely by other oil companies, who must now conclude that this region is too remote, too hostile and too iconic to be worth exploring. In an era of declining profits, increasing costs and unprecedented levels of public scrutiny the Arctic is simply not worth the risk,” he added.
Critics have raised a number of concerns over the dangers of Arctic drilling, warning that companies would not have sufficient ability to mitigate an oil spill in the remote region and that an Arctic oil rush is incompatible with efforts to reduce carbon emissions.
The charity ShareAction, whose Green Light campaign calls for pension holders to use their power to fight fossil fuel companies, has said it will use this latest pause in Shell’s efforts to build investor support for a permanent end to Arctic drilling.