Federal report says Shell unprepared for troubled Arctic drilling operations

ANCHORAGE, Alaska – Shell was not fully prepared when it launched its trouble-plagued Arctic offshore drilling program last year, and the oil company also fell short in overseeing key contractors in the effort, according to a federal report released Thursday.

The report follows a 60-day review by the Interior Department that focused on problems Royal Dutch Shell PLC experienced with its drilling vessels and a spill containment vessel. Interior Secretary Ken Salazar said the company will have to submit more comprehensive plans before it would be allowed to operate in the Arctic again.

“Shell screwed up in 2012,” Salazar said in a teleconference with reporters.

The report recommends that a more detailed plan include schedules of contractor work on critical components. It also recommends that Shell commission a third-party audit of the company’s management systems.

Shell drilled last year in the Chukchi Sea off Alaska’s northwest coast and in the Beaufort Sea off the state’s north coast. But problems before and after drilling culminated with the grounding of one of two drill ships.

Shell said in February it will “pause” Arctic drilling this year.

Shell spokesman Curtis Smith said Thursday that the company takes the report seriously and will use the break in Arctic operations to learn from the review, an ongoing Coast Guard review and the company’s own assessment.

“Alaska remains a high potential area over the long-term, and we remain committed to drilling there safely, again,” Smith said in a statement.

Environmental groups were quick to criticize the 30-page report, calling it insufficient despite recognizing Shell’s failings as unacceptable. The groups also knocked the Interior Department for failing to take responsibility for letting a company that was not ready for the challenges it met proceed in the first place.

“By and large, the review told us two things we already knew: Companies are woefully unprepared for the remote and unforgiving Alaskan waters, and our government improperly awarded Shell approvals to operate there,” Susan Murray, Oceana’s Pacific deputy vice-president, said in a statement. “The Arctic Ocean is unique and important. Americans deserve better care and stewardship than oil companies or the government have provided.”

Environmental groups bitterly oppose Arctic drilling in an environment that supports endangered whales, polar bears, ice seals and walrus. They contend not enough is known about drilling’s effects on an ecosystem already being hammered by climate change, with summer sea ice continuing to be lost at a record pace. The groups also say oil companies have not demonstrated the ability to clean up a petroleum spill in ice-choked waters.

U.S. Sen. Lisa Murkowski of Alaska, the ranking Republican on the Senate Energy and Natural Resources Committee, said she will review the Interior Department’s report to “ensure that stricter oversight is not code for prohibiting access to our resources.”

The U.S. Geological Survey estimates 26.6 billion barrels of recoverable oil and 130 trillion cubic feet of natural gas exist below Arctic waters. The reservoirs could be linked to shore by underwater pipelines and then overland to the trans-Alaska pipeline.

Shell spent $2.1 billion on petroleum leases in the Chukchi Sea in 2008 and estimates that it has spent $5 billion on Arctic drilling. The company contends that it can drill safely. Its two drill ships completed top-hole drilling on two wells last year, but the company was bedeviled by problems.

The company’s spill response plan required that a response barge arrive on site before drill bits dug into petroleum-bearing zones. That never happened. A containment dome, a key piece of equipment, was damaged in testing off the Washington coast.

Seasonal ice in the Chukchi Sea delayed Shell vessels from moving north. When Chukchi drilling began in September, a major ice floe forced Shell’s drill ship off a prospect less than 24 hours later.

When the drilling season ended, the Coast Guard announced that it had found 16 safety violations on the Noble Discoverer, which drilled in the Chukchi, when it docked in Seward, Alaska. The Coast Guard has turned over its investigation of the vessel to the U.S. Department of Justice.

The problems crested in late December when the drill vessel Kulluk, a circular barge with a diameter as long as nearly three basketball courts, broke away from its towing vessel on its way to a shipyard in Washington state.

It ran aground off a remote Alaska Island near Kodiak Island and requires repairs.

After the Kulluk was refloated, Salazar announced that his department would perform an “expedited, high-level assessment” of the summer drilling season. At the time, Salazar said the review would pay special attention to challenges that Shell encountered with the Kulluk, the Noble Discoverer and the company’s oil spill response barge. The Interior Department oversees offshore drilling permits, and Salazar said drilling in frontier areas such as the Arctic demand a higher level of scrutiny.

The Coast Guard also is reviewing the Kulluk grounding.