(Adds background on U.S. species protections slowing downShell's drilling, Greenpeace quote, Senator Murkowski quote)
By Karolin Schaps
LONDON, Sept 28 (Reuters) - Royal Dutch Shell hasabandoned its Arctic search for oil after failing to find enoughcrude, a move that will appease environmental campaigners andshareholders who said its project was too expensive and risky.
The withdrawal came six weeks after the final U.S. clearanceand three months after Shell was still defending the project, arapid change of heart for such a large company that showed it ispreparing for a prolonged period of low oil prices while tryingto close its $70 billion takeover of rival BG.
Shell has spent about $7 billion on exploration in thewaters off Alaska so far and said it could take a hit of up to$4.1 billion for pulling out of the treacherous Chukchi Sea,where icebergs can be as large as New York's Manhattan island.
The unsuccessful campaign is Shell's second major setback inthe Arctic after it interrupted exploration for three years in2012 when an enormous drilling rig broke free and ran aground.
Environmental campaigners and shareholders have alsopressured Shell to drop Arctic drilling. Some are worried an oilspill would harm protected species while others are concernedabout the cost after oil prices more than halved in a year.
Shell said the decision to withdraw from the area reflectedpoor results from its Burger J exploratory well, the project'shigh costs and the unpredictable federal regulatory environmentin the area off the U.S. state of Alaska.
A Shell source said the company had found U.S. regulationvery prescriptive and in some cases contradictory, making itdifficult to navigate the regulatory process.
President Barack Obama's administration dealt a blow toShell in June, ruling that laws protecting walrus and polarbears prevented Shell from drilling two rigs simultaneously atclose range.
"The entire episode has been a very costly error for thecompany both financially and reputationally," said analysts atDeutsche Bank, who estimate the Shell's Arctic explorationproject could cost the company about $9 billion.
ARCTIC CASUALTIES
Environmentalists, who have criticised Shell's drillingplans in an area that is home to populations of whales, walrusand polar bears, claimed victory. In July, activists tried tostop an icebreaker key to Shell's drilling plans from leaving port by dangling from a bridge.
Annie Leonard, head of Greenpeace USA, said Shell's decisionwas "proof positive that drilling in the Arctic is too costly tobe effective and a bad bet for other energy companies."
The decision is also the latest in a series of setbacks forprojects in the Arctic to find oil and gas deposits estimated at20 percent of the world's undiscovered resources.
Earlier this year, Norway's Statoil postponed itsArctic Johan Castberg project again and in 2012 Russia'sGazprom, together with Total and Statoil, scrapped theShtokman gas project in the Arctic Barents Sea.
"Arctic exploration has been a clear casualty of the oilprice slump," said Peter Kiernan, oil and gas analyst at theEconomist Intelligence Unit.
Oil firms have dropped costly offshore projects worldwide asweak oil prices have eaten into budgets. These include BP's decision to review investment plans for the deepwater MadDog 2 project in the Gulf of Mexico and Husky Energy's delay toan extension of its West White Rose field off Canada.
"Alaska been a bone of contention for many investors thustoday's update is a positive," said Bernstein analysts, who rateShell's stock as outperform.
Senator Lisa Murkowski, an Alaskan Republican, said she wasdisappointed by the decision. The U.S. Interior Department"placed significant limits on this season's activities, whichresulted in a drilling rig sitting idle," she said.
Shell's London-listed shares moved up in early trading butlater fell more than 2.8 percent.
Shell said its Alaskan project was valued at about $3billion on its balance sheet and that it had a $1.1 billion infuture contractual commitments. It said it would give an updateon the cost of writedowns with third-quarter results. (Additional reporting by Abhiram Nandakumar in Bengaluru andTimothy Gardner in Washington; editing by David Clarke andCynthia Osterman)