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Vol. 18, No. 9 Week of March 03, 2013
Providing coverage of Alaska and northern Canada's oil and gas industry

No drilling in 2013

Shell announces pause in Alaska drilling program, starts to move Kulluk

Alan Bailey

Petroleum News

Faced with several continuing problems with its Arctic drilling assets, Shell announced Feb. 27 that it is pausing its planned drilling in 2013 in Alaska’s Beaufort and Chukchi seas while the company prepares its equipment and plans for a resumption of its drilling program “at a later stage.”

“We’ve made progress in Alaska, but this is a long-term program that we are pursuing in a safe and measured way,” said Shell Oil Co. President Marvin Odum. “Our decision to pause in 2013 will give us time to ensure the readiness of all our equipment and people following the drilling season in 2012.”

The company said that Alaska remains an area with high, long-term potential for Shell and that it is committed to resume drilling in the state’s Arctic offshore in the future.

“Shell remains committed to building an Arctic exploration program that provides confidence to stakeholders and regulators, and meets the high standards the company applies to its operations around the world,” Odum said. “We continue to believe that a measured and responsible pace, especially in the exploration phase, fits best in this remote area.”

Major problems

Since completing the top-hole drilling of two wells, one in the Chukchi Sea and one in the Beaufort Sea, during the 2012 Arctic open water drilling season, Shell has run into major problems with both drilling vessels that it was using in the Arctic. On Dec. 31 the company’s floating drilling platform, the Kulluk, ran aground on an island the south side of Kodiak Island during a severe storm while being towed to the U.S. West Coast for winter maintenance. The vessel was later refloated and towed to a safe anchorage on the coast of Kodiak Island, where the vessel, although damaged, was subsequently deemed to be in safe condition for towing.

On Feb. 26 three tugs started towing the Kulluk to Dutch Harbor, with a fourth tug and Shell’s vessels, the Aiviq and the Nanuq, in attendance. Shell plans to transfer the Kulluk to a dry dock in Asia for repair, shipping the vessel from Dutch Harbor using a “dry tow,” a procedure in which the vessel being transported sits on the deck of a large heavy-lift vessel.

The drillship Noble Discoverer, under contract by Shell from Noble Corp. for drilling in the Chukchi Sea, has been docked in the port of Seward for several weeks with engine problems. Like the Kulluk, the Discoverer had been en-route south for maintenance and repairs. However, incapacitated by propulsion difficulties, the Noble Discoverer is now to be shipped by dry tow to a Korean port for repair.

And while the Noble Discoverer was in Seward a U.S. Coast Guard inspection spotted some safety and environmental deficiencies in the vessel.

On Feb. 26 Kevin Feldis, chief of the criminal division in the U.S. Attorney’s Office in Anchorage, confirmed to Petroleum News that the Coast Guard has referred alleged violations to the Department of Justice for investigation.

“The Coast Guard has referred issues related to the Nobel Discoverer to our office and the investigation of that is continuing,” Feldis said.

According to a report in the Anchorage Daily News, Democratic staff in the U.S. House Natural Resources Committee obtained details of the alleged violations. These include an inability to move fast enough to maneuver in all anticipated Arctic conditions; a systematic failure and lack of main engine preventive maintenance that caused propulsion loss and an exhaust system explosion; piston cooling water contamination; an abnormal propeller shaft vibration; and inoperable equipment for measuring oil in water that is disposed overboard, the report says.

In early January the Coast Guard told Petroleum News that the agency had spotted some serious issues with some crew safety systems and pollution prevention equipment.

“Noble has already addressed and resolved many of the issues raised by the U.S. Coast Guard’s end-of-season inspection of the Noble Discoverer,” Shell spokesman Curtis Smith told Petroleum News in a Feb. 27 email. “Of course, we take any deficiency very seriously, including those associated with the main propulsion system that surfaced after the Noble Discoverer had transited out of the Chukchi Sea. At no time was the Noble Discoverer found or believed to be a danger to people or the environment while drilling in the Chukchi Sea in 2012. Had that been the case, we would have ceased all operations immediately.”

Differing responses

Environmental groups have latched onto Shell’s woes as evidence that the company has underestimated the challenges of drilling safely in the Arctic.

“This comes as no surprise,” said Lois Epstein, Arctic program director for The Wilderness Society, in response to Shell’s Feb. 27 announcement. “Shell has had numerous, serious problems in getting to and from the Arctic as well as problems operating in the Arctic. Shell’s managers have not been straight with the American public, and possibly even with its own investors, on how difficult its Arctic Ocean operations have been this past year.”

Others are sympathetic to Shell’s position.

“I have been a strong supporter of Shell’s activities in the waters off Alaska’s northern coastline and in energy exploration in general, but I have always said that it must be done to the highest safety standards,” said U.S. Sen. Lisa Murkowski, R-Alaska. “Shell’s decision to postpone this summer’s exploratory drilling program shows that it shares that commitment to safety.”

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