Salazar on Arctic drilling: ‘Shell screwed up in 2012’

SEATTLE — Federal regulators said Thursday they would not allow Royal Dutch Shell to resume exploratory drilling off the coast of Alaska until the company comes up with a detailed operations program and management plan for operating in the Arctic to head off the mishaps that plagued the company’s debut drilling season in 2012.

“Shell screwed up in 2012, and we’re not going to let them screw up whenever they [resume] … unless they have these systems in place,” Interior Secretary Ken Salazar said after a new report found that Shell’s contractors were repeatedly ill-prepared to meet the demands of operating in the harsh Arctic environment.

“Before Shell is allowed to move forward, they’re going to have to show to the Department of Interior that they have met the standards that have been required,” Salazar said.

Although Shell has spent nearly $5 billion preparing to drill in the oil and gas-rich Chukchi and Beaufort seas — the most promising oil reserves in the U.S., outside the Gulf of Mexico — the company was unable to fully drill a single well during its initial season.

Shell already had announced that it would not resume offshore Alaska drilling until at least 2014.

Salazar said the company would be required to submit a comprehensive plan describing each phase of its operations, from preparations through demobilization. The department will also require a full, third-party management system audit to ensure the company’s systems are “appropriately tailored for Arctic conditions.”

Most of the problems identified in the report were because of Shell’s reliance on contractors, many of them without Arctic expertise, and Shell’s failure to step in before serious problems had already begun to multiply, according to the report that was prepared on Salazar’s orders and overseen by Tommy Beaudreau, director of the Bureau of Ocean Energy Management.

“Working in the Arctic requires thorough advance planning and preparation, rigorous management focus, a close watch over contractors, and reliance on experienced, specialized operators who are familiar with the uniquely challenging conditions of the Alaskan offshore,” Beaudreau said. “In some areas Shell performed well, but in other areas they did not, and Alaska’s harsh environment was unforgiving.”

The grounding of Shell’s Kulluk drilling rig during high winds and heavy seas in the Gulf of Alaska was the most heavily publicized incident in a season plagued with misadventures. Shell’s second drilling rig, the Noble Discoverer, drifted and came within 100 yards of grounding in Dutch Harbor, Alaska, the report said, because of contractor Noble Corp.’s use of “only the minimum amount of anchor chain” and failure to have a contingency plan for bad weather.

The same rig was cited for 16 deficiences by U.S. Coast Guard officials on its way back from the Arctic, including “substantial” problems with its main engine, unauthorized piping and equipment modifications, and a failure to adhere to the vessel’s safety management system.

They were so serious that the Coast Guard ordered the vessel to remain in port until they were fixed, “which only occurs as a result of approximately 1% of USCG foreign vessel safety examinations,” the report said.

Interior Department regulators did credit Shell for its sophisticated ice management program, which allowed operators to forecast the impending arrival of a formidable ice floe in the Chukchi Sea and break off drilling operations in time to avoid it.

The report also said Shell successfully coordinated with Alaska Native groups to prevent harmful effects on subsistence hunting. The company significantly delayed its operations in the Beaufort Sea to remain clear of the annual bowhead whale migration.

“We appreciate the Department of Interior’s review of Shell’s 2012 Alaska operations and take seriously the findings and recommendations that are highlighted within. We also appreciate the recognition of Shell’s successes in Alaska and the commitment we have made to setting a high bar for Arctic exploration,” Shell spokesman Curtis Smith said.

Conservation groups said this year’s problems highlighted the federal government’s own failure to put adequate regulation and oversight in place.

Niel Lawrence of the Natural Resources Defense Council said the Interior Department promised “very high standards” for the Arctic last year. “But those standards did not head off an astonishing series of misadventures,” he said. “This looks to us like putting a Band-Aid on a life-threatening problem. Instead of focusing simply on how to have oil giants drill better in the Arctic Ocean, Interior needs to look at whether they should be there at all.”

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