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Shell Oil faces stricter federal regulation in future Arctic exploration

  • Author: Ben Anderson
  • Updated: September 27, 2016
  • Published March 14, 2013

A review by the U.S. Department of the Interior into Shell's problematic 2012 Arctic drilling season has laid out some new rules before any further exploration in the waters of Alaska's far north. The 2012 season saw numerous public incidents with Shell's Arctic program, including environmental permit violations, an unprepared oil containment system and the grounding of its drill rig, the Kulluk, on New Year's Eve in the Gulf of Alaska.

As a result of the many problems with the Shell drill fleet, the company announced in late February that it would not return to drill in 2013, instead taking time to recoup and make repairs and adjustments to its drilling infrastructure.

"Shell screwed up in 2012," Interior Secretary Ken Salazar said on a conference call with reporters on Thursday.

Salazar had ordered an expedited review of Shell's drilling program in the wake of the Kulluk grounding and continued problems with Shell's other primary drilling vessel, the Noble Discoverer. The results of that report were also released Wednesday.

Tommy Beaudreau, Director of the Bureau of Ocean Energy Management (BOEM), helped compile the new report. Among its recommendations, the review concludes that industries must develop an "Arctic-specific" model for resource exploration and development in Alaska waters.

"As Shell's 2012 experience has made absolutely clear, the Arctic (Outer Continental Shelf) presents unique challenges associated with environmental and weather conditions, geographical remoteness, social and cultural considerations, and the absence of fixed infrastructure to support oil and gas activity, including resources necessary to respond in the event of an emergency," the report said.

Another of Shell's crucial components and one required under the permit permit for drilling in the Arctic, an Arctic oil-containment system aboard the barge Arctic Challenger, failed in tests last summer, which meant Shell wasn't even able to drill to the hydrocarbon level in the Beaufort or Chukchi seas in 2012.

David Hayes, deputy Interior secretary, said that the Arctic Challenger is now certified to operate in the Arctic. That system doesn't look like it will be used until at least 2014, though, as the company regroups.

The report concludes that Shell must submit a "comprehensive and integrated operational plan," outlining all of its proposed future activities in the Arctic, for approval by DOI. Hayes said that this plan is more in-depth than the plan the company would have submitted with the intent of obtaining drilling permits.

"What we're asking Shell to come back to us with goes beyond that, and would include a detailed description and detailed timelines of the operation activity," he said.

The new comprehensive plan will be a requirement specific to Shell, not other potential developers in Alaska's Arctic offshore, like ConocoPhillips, which plans to push into the Arctic in 2014.

Contractor oversight

Since a number of Shell's woes in the Arctic were the result of problems with companies contracted to provide services, the DOI also recommended that operators exercise better oversight of their contractors.

"A recurring theme from Shell's 2012 experience is that there were significant problems with contractors on which Shell relied for critical aspects of its program -- including development of the (Arctic containment system), the air emission mitigation technology applied to the rigs' engines, the condition of the Noble Discoverer, and the Kulluk towing operation," the report said.

The Noble Discoverer was recently dry-hauled to Asia aboard a heavy lift ship after being rerouted to the coastal community of Seward in November due to a problem with its propulsion system. While in port, Coast Guard inspectors turned up numerous safety and pollution issues aboard the vessel.

The Noble Discoverer and Kulluk have also drawn violation notices of the Clean Air Act permits that Shell had been issued for the 2012 drill season.

The report did praise certain aspects of Shell's first season of Arctic drilling, including accomplishing a level of preliminary drilling above the hydrocarbon layer.

"Shell also coordinated well with Alaska Native communities and subsistence hunters, even under circumstances that delayed its drilling program in the Beaufort Sea," the report said. Shell suspended operations so that northern communities could land the bowhead whales that they rely on for food in the winter months.

Despite the setbacks, Shell has been looking at what it can do in 2013, exploring other avenues of activity in order to better prepare for resumption of drilling in the Arctic. Salazar said Thursday that when he had been notified of Shell's intent to suspend drilling in 2013, company representatives phrased it as "hitting the pause button."

"Consistent with our recent decision to pause our 2013 drilling program, we will use this time to apply lessons learned from this review, the ongoing Coast Guard investigation and our own assessment of opportunities to further improve Shell's exploration program offshore Alaska," Shell Alaska spokesman Curtis Smith said in an email. "Alaska remains a high potential area over the long-term, and we remain committed to drilling there safely, again."

Contact Ben Anderson at ben(at)alaskadispatch.com

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