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Shell’s Arctic costs spiral as it admits damaged Kulluk rig may be written off

Screen Shot 2013-01-11 at 20.09.51Energy giant hopes to resume controversial Arctic drilling in 2014 if authorities allow, but rig damage forces change of plans. The Kulluk rig ran aground in stormy weather on New Year’s Eve, in a major reputational blow for Shell.

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By 10:16AM GMT 31 Oct 2013

Royal Dutch Shell has warned is likely to book a $200m impairment charge of in the fourth quarter of 2013 because its Kulluk rig, which ran aground off Alaska last year, may be too expensive to repair.

The company has spent more than $5bn on its controversial oil exploration campaign without yet being able to drill into potentially oil-bearing rocks. It has spent close to $1bn this year alone.

Shell said it was still hoping to resume work in the Arctic in 2014 but said any drilling next year would now focus on the Chukchi Sea rather than the Beaufort, which is shallower and required a rig of the Kulluk’s specification.

The proposed driling in the Chukchi Sea next year will still depend on securing a series of permits and authorisations, which Shell does not yet know if it will be granted in time.

However, the company said it had contracted a new rig in preparation for potential 2014 drilling.

Chief financial officer Simon Henry said the Arctic remained Shell’s “most attractive single opportunity for the future” and said that its Chukchi Sea drilling prospects were “by far the biggest prize” – believed to hold bigger oil reserves than the now-shelved Beaufort drilling prospects.

“We have not yet confirmed if we drill in 2014 but we do expect to file an exploration plan shortly,” he said. “Clearly we would like to drill as soon as possible.”

The Kulluk rig ran aground in stormy weather on New Year’s Eve, in a major reputational blow for Shell.

Speaking to reporters as Shell unveiled disappointing third quarter results, Mr Henry said the Kulluk – currently in a shipyard in the Far East – may not be brought back to service because the cost of repairing it “may exceed the benefit of doing so”.

He added: “Chances are there will be an impairment of a few hundred million dollars in the fourth quarter.”

A Shell spokesman said the impairment for the Kulluk was likely to total $200m pre-tax.



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