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Shell pulls plug on Arctic drilling campaign

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Screen Shot 2015-09-01 at 23.33.36By ETAIN LAVELLE FOR THE DAILY MAILPUBLISHED: 22:22, 28 September 2015

To the delight of eco-warriors worldwide, Shell pulled the plug on its Arctic drilling campaign, taking a £2.7billion hit on the controversial venture that was persistently undermined by the prolonged oil price weakness and fierce opposition from ecological activists.

Although an exploratory well showed indications of oil and gas in Alaska’s Chukchi Sea, Shell blamed high costs associated with the project as well as the ‘challenging and unpredictable’ regulatory environment as it shelved its drilling plans for the foreseeable future.

RBC analysts said that given sub-$50 oil, Shell’s budget would be better spent elsewhere, especially as it is about to close the £70billion acquisition of BG announced earlier in the year.

The price of crude has been on a downward trajectory from its over $100-a-barrel highs in the summer of 2014 and has now more than halved to $47.70 a barrel, a price at which even the super-majors find investment in exploration uneconomic.

‘This announcement appears to be the latest evidence that the company is finding it difficult to sustain long-term investment expenditure without any clear evidence of a payback in the near term,’ said CMC Markets’ Michael Hewson.

After a 25 per cent drop in its share price in the past six months, concerns are now focused on Shell’s dividend, which is currently at a healthy 8 per cent.

But ‘cutting the dividend now could well inspire further sharp falls in the share price, the last thing that management wants,’ warned Hewson.

Shares in the oil giant ended the session 2.7 per cent lower, or down 42.5p at 1514.5p.

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