UPDATE 1-Shell scraps drilling plan in contested Canadian area

Tue Dec 18, 2012 3:47pm EST
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* Shell to focus on larger shale plays

* To build water recycling plant using royalty credits

* 4-year moratorium was due to end

By Jeffrey Jones

CALGARY, Alberta, Dec 18 (Reuters) - Royal Dutch Shell Plc has scrapped plans for a coalbed methane gas project near Canada's Pacific Coast in the face of local opposition and weak natural gas prices, ending an eight-year battle over development, the company and the British Columbia government said on Tuesday.

In addition, the provincial oil and gas authority said it will not issue any more drilling rights in the Klappan area, which the local aboriginal community had identified as having special cultural and spiritual significance.

Shell agreed to relinquish its land tenures in the region, which became known as the Sacred Headwaters, and with C$20 million ($20.3 million) of royalty credits, will build a water recycling plant at a gas field in Northeast British Columbia known as Gundy.

The company had spent C$30 million on drilling, an access road and other items at Klappan, spokesman David Williams said. It has also begun reclamation.

An official with the Tahltan First Nation acknowledged Shell for giving up its drilling plans.   Continued...