The recent remand of air permits issued by the Environmental Protection Agency was the final driver behind the decision, Slaiby said at a news conference.
Alaska receives upward of 90 percent of its general fund revenue from the petroleum industry, and top state officials reacted strongly to the decision. U.S. Sen. Mark Begich, D-Alaska, blamed the Obama administration and the EPA.
"Their foot dragging means the loss of another exploration season in Alaska, the loss of nearly 800 direct jobs and many more indirect jobs," Begich said. "That doesn't count the millions of dollars in contracting that won't happen either at a time when our economy needs the investment."
The EPA issued Shell an air permit, but the agency's review board granted an appeal because of limited agency analysis regarding the effect of emissions from drilling ships and support vessels.
Slaiby said the issue is not with the environment but with the process not being satisfied. He said Shell has no air issues with Alaska villages.
"That's coupled with $15 million in improvements we made on these assets to put together what's really a world-class program," he said.
The subsidiary of Royal Dutch Shell PLC has invested more than $3 billion in exploration off Alaska's coast since 2005, Slaiby said. The company paid $2.2 billion for leases in the Chukchi Sea off Alaska's northwest coast that have been challenged.
The company had hoped last year to drill exploration wells during the 2010 open water season in both the Chukchi and the Beaufort but its plans were put on hold by Interior Secretary Ken Salazar after the Deepwater Horizon disaster in the Gulf of Mexico.
Salazar suspended applications for permits and has announced no timetable for lifting the suspension, saying the department will take a cautious guided by science and the voices of North Slope communities.
Slaiby in October said Shell would focus on one or two exploratory wells in the Beaufort off Alaska's north coast during the roughly 105-day open water season.
Drilling in Arctic waters is opposed by environmental groups and some Alaska Native groups, who say petroleum companies have not demonstrated an ability to clean up a spill in ice-choked waters. They also say the remote location of drilling sites, the area's notorious inclement weather and the lack of infrastructure, including a deep-water port, would make a cleanup of a major spill nearly impossible.
They also claim drilling will stress marine mammals already being harmed by climate warming and diminishing sea ice, including polar bears, ice-dependent seals and walrus.
Shell has stressed that Arctic drilling would be in water far more shallow than the Macondo well, the site of the Gulf of Mexico disaster, and that the risk of a spill is minimal. The company also said it would position a second drilling ship in Alaska as a safety measure, so if the first drilling ship were crippled by a blowout, the second ship could drill a relief well.
Shell's primary drilling ship has been moved to prospects off New Zealand and the company will look for other ways to use support vessels. The backup drilling ship will remain in Dutch Harbor, a port in the Aleutian Islands, Slaiby said.
Alaska officials have been unwavering in their support for drilling. The trans-Alaska pipeline operates at about one-third capacity, and state officials have looked to offshore sources to keep it viable. Alaska Gov. Sean Parnell said it was unfathomable that a company could buy federal leases but not get onto them within five years.
"It's also unfathomable that they cannot get an air permit after five years when they can get one in the Gulf of Mexico within months," he said.
Republican U.S. Sen. Lisa Murkowski said actions taken by the Obama administration will result in higher gasoline prices and a loss of jobs and revenue.
"We talk a lot about the economy, but rarely do our actions match our rhetoric," she said. "That's unfortunate."