"It's kind of a last resort thing," Oilers general manager Steve Tambellini said. "You always want any player that you have to have as much success as possible.
"For whatever reason, it didn't work out."
Souray has one season left on the $27 million, five-year deal he signed with Edmonton in 2007.
The 34-year-old scored 23 goals in 2008-09, but ended up asking for a trade after an injury-filled season the following year.
Unable to make a deal happen, Edmonton placed Souray on waivers and sent him to the American Hockey League's Hershey Bears.
"You would rather try to make some sort of move that you can move the player along, but that didn't work," Tambellini said. "We tried for some time. Sheldon played, and played I'm sure as well as he could this year, and it's time to make a decision.
"It's just time to move on."
He had four goals and 19 points in 40 games with Hershey last season.