Shell hoped to save millions in taxes by moving now-grounded drill rig out of Alaska

Jim Paulin | Dutch Harbor Fisherman,Carey RestinoThe Arctic Sounder
The anchor-handling vessel, the Alert, tows the drilling unit Kulluk to a safe harbor location in Kiliuda Bay, Alaska on Jan. 7, 2013. Photo by U.S. Coast Guard Petty Officer 3rd Class Jonathan Klingenberg.
US Coast Guard photo
The drilling unit Kulluk, towed by the anchor-handling vessel Aiviq, heads to its safe harbor location in Kiliuda Bay.
Courtesy Shell
The drilling unit Kulluk, towed by the anchor-handling vessel Aiviq, heads to its safe harbor location in Kiliuda Bay.
Courtesy Shell
The Kulluk drill rig near Sitkalidak Island off Kodiak
USCG photo
The Kulluk drill rig off Kodiak Island on Jan. 2, 2013
USCG photo
Shell Oil's drill rig Kulluk, grounded off Kodiak Island by an Arctic storm it was supposed to be built to withstand
Royal Dutch Shell's drilling ship, the Kulluk, grounded at remote Sitkalidak Island in Alaska on Jan. 1, 2013.
Coast Guard Petty Officer 1st Class Sara Francis footage
Waves crash over the mobile offshore drilling unit Kulluk where it sits aground on the southeast side of Sitkalidak Island, Alaska, Jan. 1, 2013.
U.S. Coast Guard photo
Rear Adm. Thomas Ostebo, 17th Coast Guard District commander, Capt. Paul Mehler, federal on-scene coordinator for the Kulluk mishap, and Sean Churchfield, Shell’s incident commander, discuss the situation with Sen. Lisa Murkowski on Jan. 1, 2013.
USGS Petty Officer 1st Class Matthew Schofield photo
Approximate location where Royal Dutch Shell's drilling ship Kulluk grounded on Sitkalidak Island, Alaska.
Coast Guard photo via Ground Trekking Truth
Ocean Bay on Sitkalidak Island in Alaska, located close to Kodiak Island's southeast shore.
Stacy Studebaker, Kodiak Audubon Society photo
The west end of Sitkalidak Island's shore Ocean Beach, where shoals are visible beneath the waves. Sitkalidak Island is located near Kodiak Island, Alaska.
Creative Commons photo via Ground Truth Trekking
A Coast Guard MH-60 Jayhawk helicopter crew evacuates 18 crewmen from Shell Oil's drilling ship Kulluk in 15 to 20-foot seas, 80 miles southwest of Kodiak, Alaska, on Dec. 29, 2012.
Coast Guard photo
A Coast Guard HC-130 Hercules aircraft from Air Station Kodiak overflies the tugs Aiviq and Nanuq tandem towing the mobile drilling unit Kulluk 116 miles southwest of Kodiak City, Alaska, Sunday, Dec. 30, 2012. The tug Alert from Prince William Sound and the Coast Guard Cutter Alex Haley from Kodiak are en route to assist.
US Coast Guard photo
Royal Dutch Shell's Kulluk drillship in the Beaufort Sea in fall 2012.
Royal Dutch Shell photo
Curtis Smith, spokesperson for Shell Oil. June 1, 2012
Loren Holmes photo
Shell Oil's Kulluk platform, in Seattle, May 25, 2012.
Courtesy Senator Begich's office
Shell's Aiviq support vessel in Dutch Harbor, Alaska.
Shell photo
Shell Oil Alaska vice president Pete Slaiby listens to David Hayes, deputy secretary of the U.S. Department of the Interior, speaking at the Arctic Imperative Summit. August 26, 2012
Loren Holmes photo
Royal Dutch Shell has already begun studying land and sea features to determine the best route and depth to place at least 400 miles of pipelines that can carry crude oil to the trans-Alaska pipeline. The company is considering several options across a wide swath of ocean and tundra. This map was created to provide a general idea of the direction those pipelines will take.
Aaron Jansen illustration
The Shell drilling vessel Noble Discoverer came close to shore in Unalaska on Saturday, July 14.
Kristjan B. Laxfoss photo
Shell Oil's 514-foot drill ship Noble Discoverer sits 68 miles west of Nome on Aug. 29, 2012.
U.S. Coast Guard photo
Shell Oil's exploratory drilling platform departs Seattle for Alaska on June 27, 2012.
Courtesy Vigor Industrial
The Arctic Challenger was occupied by Caspian terns while docked in Southern California in 2007.
John Potter / California DFG
The Arctic Challenger, a barge Royal Dutch Shell is renovating to use in Arctic drilling operations.
Courtesy Shell Oil
The Arctic Challenger with the newly redesigned and repaired Containment Dome move away from the Port of Bellingham, Wash. on Dec. 12. The challenger had been moored since returning in September 2012 after a catastrophic failure of the first iteration of their containment process.
TJ Guiton photo
A night shot of the workers and equipment showing a markedly armored containment dome to replace the one which suffered a catastrophic failure in September 2012 during the initial testing process in calm, predictable conditions in the Salish Sea off of Anacortes, WA. Note the lateral ribs surrounding the upper portion of the dome as well as the outer steel plates to protect the dome from damage and enhance the strength of the structure to the pressures of ocean depths.
TJ Guiton
Shell Oil tests their "capping stack" in Everett, Washington on June 25, 2012.
Courtesy Shell Oil
Shell Oil's spill response gear staged in Wainwright. Summer 2011.
Ben Anderson photo
Greenpeace boat crew protest at Shell drill ship Noble Discoverer anchored near Dutch Harbor, Unalaska, Alaska. August 5, 2012
Jiri Rezac / Greenpeace
Fennica, a Finnish icebreaker contracted to Shell's Arctic project, in Dutch Harbor, Alaska.
Shell photo

A move by Shell to avoid millions in Alaska state taxes may have backfired when the oil rig Kulluk ran aground Monday on Kodiak Island. The rig initially went adrift while it was being towed to a shipyard and tax shelter in Seattle. Instead, the vessel found itself literally stuck inside Alaska at the start of the new year. 

The Kulluk grounded off Kodiak Island Monday night, prompting a 500-plus person response. According to Shell Operations Manager Sean Churchfield, the grounding occurred during a fierce storm that produced near-hurricane-force seas with waves exceeding 40 feet at times and wind gusts of 50 knots and higher. 

“The conditions last night were very poor,” Churchfield said. “It was a really unpleasant night to be out on the sea.” 

A Shell spokesman last week confirmed an Unalaska elected official’s claim that the Dec. 21 departure of the Kulluk from Unalaska/Dutch Harbor involved taxation.

City councilor David Gregory said Shell would pay between $6 million and $7 million in state taxes if the Kulluk was still in Alaska on Jan. 1. 

Shell’s Curtis Smith said in an email last week that the decision involved financial considerations. The rig had been moored in the Aleutian Islands port following several months on an oil exploration project in the Arctic Ocean. 

“We are now planning to sail both vessels to the west coast for seasonal maintenance and inspections. Having said that, it’s fair to say that the current tax structure related to vessels of the type influenced the timing of our departure,” Smith said. “It would have cost Shell multiple millions to keep the rigs here,” he added, though he didn’t have an exact amount. 

Gregory said the departure of the Kulluk took money away from local small businesses servicing the rig. He predicted the maritime mishap will prove very costly to the oil company. 

“It will cost them more than that $6 million in taxes. Maybe they should have just stayed here,” Gregory said. 

Kulluk upright and “stable” 

At a press conference Tuesday evening, officials said reports from a fly-over of the drill rig were positive. The rig was upright, stable, and not leaking any of the 150,000 gallons of fuel and oil it holds on board. 

Officials say they are waiting for the weather to let up enough to allow for the safe transport of people to the area to get a better look. Two early attempts to transport people to the vessel by helicopter were aborted due to dangerous flying conditions, the Coast Guard reported. 

“Our objective is to get salvors on board Kulluk and see if we can assess the situation,” Mehler said. “This allows us a better opportunity to do this safely.” 

The weather over the weekend was later described as “close to a hurricane” with 50–60 knot winds, by Coast Guard Capt. Paul Mehler III at a press conference teleconference Sunday. The weather forecast for Wednesday was more favorable, with seas dropping below 15 feet. Winds were expected to be around 30 knots. 

Churchfield said two Aiviq crewmembers sustained minor injuries, but had since returned to work. He also said the Kulluk was traveling with a crew of 18 on board to maintain generators and winches and other equipment. The Kulluk crewmembers were evacuated from the rig by Coast Guard helicopters late last week.

Trouble began Thursday

Watchstanders at Coast Guard Sector Anchorage were initially contacted by the crew of the Aiviq, a 360-foot vessel, on Thursday when the towing hawser linking them to Kulluk parted in heavy seas, casting the Kulluk adrift. Aiviq was able to reestablish the connection between the two with another emergency towing hawser but subsequently experienced total engine failure, casting both Aiviq and Kulluk adrift in the heavy seas and strong winds. 

Royal Dutch Shell directed the launch of the Guardsman and the Nanuq and Coast Guard 17th District directed the crew of the Coast Guard Cutter Alex Haley to divert from their patrol to provide assistance. The Alex Haley is a 282-foot medium endurance cutter homeported in Kodiak, according to the Coast Guard.

The Alex Haley arrived at the Aiviq’s location early Friday and successfully delivered a towline to the Aiviq, which was still connected to Kulluk in strengthening 40 mph winds and building 35-foot seas. The Alex Haley was able to establish a tandem tow of Aiviq and Kulluk preventing further drift of the disabled vessels toward shallow water where it could run aground. The heavy seas, strong winds, and sheer mass of both Aiviq and Kulluk created enormous challenges for the Alex Haley to establish and maintain the tow. At approximately 6:30 a.m. the crew of the Alex Haley reported that the towline had parted and become entangled in the ship’s port propeller. The command directed the ship to return to Kodiak in order to make repairs. The tow line between Alex Haley and Aiviq parted due to the heavy strain created by the wind, seas, and displacement of Aiviq and Kulluk, but the effort by the Alex Haley slowed the drift toward shallow water and bought extremely valuable time to enable further rescue options. 

“I applaud the can-do spirit of the crew of the Alex Haley. They accomplished the nearly impossible given the weather conditions and bought valuable time. Without their efforts the overall situation would be much worse than it is now,” said Rear Adm. Thomas Ostebo.

A Coast Guard HC-130 crew from Kodiak was launched from Air Station Kodiak to monitor the situation and the Coast Guard Cutter Hickory in Homer was launched to provide on scene support. Subsequently, Coast Guard Cutter Spar from Kodiak was launched.

The crew of the Guardsman arrived at the Aiviq’s location at approximately 1:30 p.m. Friday and successfully took the Aiviq and Kulluk in tow. The tow by Guardian was not able to overcome the drift created by the strong winds and seas. However, at approximately 5:30 a.m. Saturday, the crew of the Guardsman reported that their towline to the Aiviq had parted and they were unable to re-establish the tow because of weather conditions. 

“The multiple towline failures only highlight the extremely challenging situation created by the winds, seas, and sheer bulk of the Kulluk. I applaud the efforts of all the vessels on scene and their courage in the face of almost impossible odds,” said Ostebo.

At approximately 9 p.m. Friday, Royal Dutch Shell contacted the Coast Guard and requested the removal of the crew from the Kulluk due to safety concerns for the personnel onboard in the rolling and pitching vessel in heavy seas. 

Additionally, Royal Dutch Shell requested delivery of parts to the Aiviq so they could make repairs to their engines. Aiviq’s engine failures were attributed to some poor quality fuel that had been isolated. 

Repairing Aiviq’s engines became the priority because Aiviq was the only vessel available on scene capable of towing Kulluk. Coast Guard MH-60 Jayhawk helicopter crews from Air Station Kodiak delivered engine parts and technicians to the crew of the support vessel Aiviq, in 30 mph winds and 20-foot seas, so they could make repairs to the ships three damaged engines. These repairs enabled Aiviq to hold position with Kulluk to keep both vessels from drifting closer to shallow waters near Kodiak. 

Additionally, the Nanuq established a towline to Kulluk and both Nanuq and Aiviq worked in tandem to keep the Kulluk under control, the Coast Guard reported. But eventually, those tow lines were lost. 

The 125-foot tug Alert from Prince William Sound headed to Kodiak on Saturday, arriving Sunday afternoon. It was able to establish a towline with the Kulluk, and for a while, the Aiviq and the Alert were tandem towing the Kulluk toward a port of refuge on Kodiak Island. The Aiviq then lost its tow line again, and the Alert, battling strong a second surge of near-hurricane-force winds, was able only to direct the Kulluk toward the least damaging grounding spot. At 8:15 p.m. Monday, the Alert was ordered to disengage its tow line in order to protect the nine crewmen aboard the vessel. The Kulluk ran aground Monday night.

Both the Coast Guard and Shell said Tuesday they intend to conduct full investigations into the circumstances leading up to the grounding.

Shell would not say if its investigation would be public. The Coast Guard said its investigation would be. The Coast guard now estimates some 600 people are working on the response. 

For updates on the Kulluk response, click here.

This article was originally published in The Dutch Harbor Fisherman and is reprinted here with permission.