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March 15, 2013 --- Vol. 19, No. 19March 2013

Interior report criticizes Shell’s contractor oversight

The U.S. Department of the Interior yesterday released the report from its 60-day review of Shell’s 2012 Arctic operations. The assessment, triggered by a series of mishaps culminating in the grounding in the Gulf of Alaska of Shell’s Arctic floating drilling platform, laid much of the blame for Shell’s problems on failings in the company’s management oversight of its key contractors.

“This was an area where Shell, frankly, fell short, contributing in large part to many of the problems Shell experienced last year, including its inability to deploy a functioning containment system, violation of the emission requirements set forth in its air permits and problems with both of its drilling rigs, including the Kulluk, which grounded off Kodiak Island during a tow operation in the Gulf of Alaska,” said Tommy Beaudreau, principal deputy assistant secretary for land and minerals management, the leader of Interior’s review team.

The review found that all phases of an Arctic exploration program must be integrated and subject to strong management and government oversight, Beaudreau said.

Interior Secretary Ken Salazar said that Interior accepts the findings and will adopt the recommendations of the review.

The recommendations include a need for Shell to submit to Interior a “comprehensive integrated plan” before resuming its Arctic exploration program. That plan must describe every phase of Shell’s operations through to end-of-season demobilization, including who the company is working with, how the company is preparing for its operations and the company’s goals while conducting drilling operations, Beaudreau said. Any future Shell exploration program must be thoroughly planned in advance of the drilling season, he said.

The review also recommends that Shell complete a third-party management system audit to confirm, among other things, that the company’s management systems, including its oversight of its key contractors, are appropriate for Arctic operations, Beaudreau said.

The review report also stresses the critical need for coordination between all entities involved in some way in Arctic exploration, including the federal government, state government, local communities and companies operating in the region. In this regard, the report notes Shell’s success in working with Alaska Native communities that rely on the ocean for subsistence use.

—Alan Bailey

See story in March 24 issue, available online at 11 a.m. Friday, March 22, at www.PetroleumNews.com

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