Shell had planned to begin initial drilling at its Sivulliq prospect in the Beaufort Sea off northern Alaska later this year after spending US$44 million on leases in the area in 2005.

The 9th Circuit Court of Appeals in San Francisco is considering a lawsuit filed by environmentalists, whalers and the North Slope Borough to stop the drilling project due to concerns about its impact on whales and other marine mammals.

Drilling on four wells had been delayed last year after the court ordered a temporary halt to Shell's drilling program.

Juneau-based attorney Eric Jorgensen of the environmental legal group Earthjustice said the decision to delay this year's planned drilling was logical.

"It makes no sense to march ahead with drilling that threatens bowhead whales and polar bears and the way of life of the people living in the region until the government meets its obligations to consider the full impacts," Jorgensen said.

Although it is now foregoing that drilling, Shell plans to carry on with its program of collecting seismic data and do other pre-drilling studies in the Beaufort and in the Chukchi Sea this year during the brief open-water season of late summer and early fall.

"Exploration plans for the Beaufort and Chukchi seas are still under development, and seismic acquisition in both the Chukchi and Beaufort seas will continue as scheduled for the third consecutive year," Smith said in his statement. (Reporting by Yereth Rosen; Editing by Christian Wiessner)