Note: This story has been updated. Click here for the latest version.
Update 4 a.m. Monday:
In afternoon trading in London, Shell's share price was down 2 percent in a weak overall market after opening on news that the company will cease exploration in the Alaska Arctic.
But an industry analyst told The Wall Street Journal he believes Shell's investors will generally be happy with the development.
"Investors don't want Shell to deliver more [capital expenditures] into Alaska," Bernstein research analyst Oswald Clint told WSJ. "I imagine investors will be OK with a $1 billion hit versus tens of billions in the future."
Sunday night story:
Royal Dutch Shell will cease exploration in Arctic waters off Alaska's coast following disappointing results from an exploratory well backed by billions in investment and years of work.
The announcement was a huge blow to Shell, which was counting on offshore drilling in Alaska to help it drive future revenue. Environmentalists, however, had tried repeatedly to block the project and welcomed the news.
Shell has spent upward of $7 billion on Arctic offshore exploration, including $2.1 billion in 2008 for leases in the Chukchi Sea off Alaska's northwest coast, where an exploratory well about 80 miles off shore drilled to 6,800 feet but yielded disappointing results. Backed by a 28-vessel flotilla, drillers found indications of oil and gas but not in sufficient quantities to warrant more exploration at the site.
"Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.," Marvin Odum, president of Shell USA, said in The Hague, Netherlands. "However, this is a clearly disappointing exploration outcome for this part of the basin."
Shell will end exploration off Alaska "for the foreseeable future," the company said, because of the well results and because of the "challenging and unpredictable federal regulatory environment in offshore Alaska.
The Burger J well drilled this summer will be plugged and abandoned, Shell spokeswoman Megan Baldino said. The two rigs mobilized by Shell for its Chukchi work, the Polar Pioneer and the Noble Discoverer, will be heading south, along with the support vessels, she said. "We'll begin demobilizing now," she said late Sunday. That process will take "as long as it takes to do it safely," she said.
Baldino said no decisions have been made yet about Shell's workforce, and she did not have figures on Sunday night for total employees and contractors. But the pullout will mean "lower staff" numbers, she said.
Shell's decision to cease offshore Arctic exploration affects both the Chukchi and the Beaufort. Its leases in the Chukchi are scheduled to expire in 2020 and most of its Beaufort leases are scheduled to expire in 2017, according to a status report from the Bureau of Ocean Energy Management.
Margaret Williams of the World Wildlife Fund in Anchorage, called the news of Shell's withdrawal stunning.
"That's incredible. That's huge," she said. "All along the conservation community has been pointing to the challenging and unpredictable environmental conditions. We always thought the risk was tremendously great."
Environmental groups said oil exploration in the ecologically fragile Arctic could lead to increased greenhouse gases, crude oil spills and a disaster for polar bears, walrus and ice seals. Production rigs extracting oil would be subject to punishing storms, shifting ice and months of operating in the cold and dark. Over the summer, protesters in kayaks unsuccessfully tried to block Arctic-bound Shell vessels in Seattle and Portland, Oregon.
"Polar bears, Alaska's Arctic and our climate just caught a huge break," said Miyoko Sakashita, oceans program director for the Center for Biological Diversity, in a statement. "Here's hoping Shell leaves the Arctic forever."
Monday was Shell's final day to drill this year in petroleum-bearing rock under its federal permit. Regulators required Shell to stop a month before sea ice is expected to re-form in the lease area.
The U.S. Geological Survey estimates U.S. Arctic waters in the Chukchi and Beaufort seas contain 23 billion barrels or more of recoverable oil in total. Shell officials had called the Chukchi basin "a potential game-changer," a vast untapped reservoir that could add to America's energy supply for 50 years.
Shell had planned at least one more year of exploration with up to six wells drilled.
A transition to production could have taken a decade or longer.
Shell had the strong backing of Alaska officials and business leaders who want a new source of crude oil filling the trans-Alaska pipeline, now running at less than one-quarter capacity.
Charles Ebinger, senior fellow for the Brookings Institution Energy Security and Climate Initiative, said in an interview that a successful well by Shell would have been "a terribly big deal," opening an area that U.S. officials say contains 15 billion barrels of oil.
While oil prices have dropped significantly in recent years and nations have pushed for cleaner energy sources, analysts predict that the world between 2030 and 2040 will need another 10 million barrels a day to meet growing demand, especially in developing countries, Ebinger said.
"Areas like the Arctic are one of the areas that, if we're going to be able to do this, we need to examine," he said.
Shell in 2012 sent drill rigs to the Chukchi and Beaufort seas but was not allowed to drill into oil-bearing rock because the containment dome had been damaged in testing.
The company's vessels suffered serious setbacks getting to and from the Arctic.
One drill vessel broke loose from its towline in the Gulf of Alaska and ran aground near Kodiak Island. Owners of the leased Noble Discoverer, which drilled in the Chukchi and is back this year, pleaded guilty to eight felony maritime safety counts and paid a $12.2 million fine.
That was proof of Shell's Arctic incompetence, critics said.
Odum called drilling off Alaska's coast the most scrutinized and analyzed oil and gas project in the world and said he was confident Shell could drill safely.
Alaska Dispatch News reporter Yereth Rosen contributed to this report.