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Vol. 18, No. 12 Week of March 24, 2013
Providing coverage of Alaska and northern Canada's oil and gas industry

Report reviews Shell contractor supervision

The report issued March 14 from the Department of the Interior’s 60-day review of Shell’s 2012 Alaska drilling program particularly focuses on what the review concluded were deficiencies in Shell’s oversight of its contractors.

For example, a major contractor issue arose from the company’s commitment in late September 2010 to build and deploy a new oil Arctic containment system, for deployment for the capture of spilled oil in the event of a well blowout accompanied by a blowout preventer failure. The deployment of the containment system became a key basis for Interior’s approval of Shell’s exploration and oil spill response plans, the report says.

Contracted refit

Shell contracted with Superior Energy Services for the design and fabrication of the containment system, with the choice of contractor being based on the experience of Superior subsidiaries in the deployment of a similar containment dome system in the Gulf of Mexico, the report says. In April 2011 Superior, with Shell’s agreement, selected the Arctic Challenger, an ice-class barge built in 1976, as a vehicle for carrying and operating the containment dome, the report says.

But the retrofitting of the Arctic Challenger, a vessel that had lain inactive for 10 years, did not start until late 2011. And, following inspections, structural modifications and repairs, the vessel was not moved to Bellingham, Wash., for the construction of required on-board facilities until March 2012, just four months prior to the planned start of the Arctic drilling season, the report says.

Lack of oversight

During the refit of the Arctic Challenger, Shell did not actively oversee what Superior was doing or become involved in finding solutions to a series of problems emerging from the refit process, the report says.

“Indeed, Shell personnel described Superior’s work on the Arctic containment system during late 2011 and the first half of 2012 as a ‘black box,’” the report says.

On May 10 the American Bureau of Shipping, the entity responsible for assessing the Arctic Challenger for seaworthiness, informed Superior of “significant technical issues” that would likely prevent the vessel being able to operate within the required time frame. And later in May the bureau notified Superior of “serious concerns” regarding the vessel’s ability to operate in the Arctic.

In June, with the summer drilling season rapidly approaching, Shell started pouring “tremendous manpower resources” into the Arctic Challenger project, the report says. But, following frequent meetings between Shell, Superior, the American Bureau of Shipping and government agencies to resolve “a litany of technical issues,” mainly safety related, certification of the vessel was not finally achieved until October 2012, by which time the drilling season was effectively over, the report says.

Containment dome

The development of the containment system’s containment dome, intended for operation from the Arctic Challenger, also suffered delays, with repeated postponements of the required testing of the dome for the Bureau of Safety and Environmental Enforcement, or BSEE, the report says. Eventually, on Sept. 11, testing of the dome began in Puget Sound, near Seattle. BSEE staff noted an absence of clear lines of authority during the testing, with a series of problems occurring, including the tangling of lines and a serious miscalculation of the weight required to submerge the dome, the report says.

According to the report, Superior told the review team that during the testing there had not been a full understanding of how the dome would be deployed in the Arctic.

During a test on Sept. 15 the dome rose to the water surface before sinking rapidly after a buoyancy tank vented. The rapid descent of the dome caused the water pressure to crush the dome’s upper chambers. Shell and Superior investigated the cause of the failure and subsequently made significant changes to the dome’s design. But, following the failure of the dome test, Shell could not drill into hydrocarbon bearing zones during the 2012 drilling season, the report says.

Two drilling vessels

Shell used two drilling vessels in 2012: the drillship Noble Discoverer and the floating drilling platform the Kulluk. Shell owns the Kulluk. Noble Corp. owns and operates the Noble Discoverer, and operates the Kulluk for Shell. The Noble Discoverer, originally built in the 1960s, was converted into a drillship in the 1970s, the report says.

Shell arranged to have both drilling vessels refurbished in Seattle. And in June 2012 the U.S. Coast Guard certified the vessels, after the correction of a number of deficiencies in each vessel. On June 27 the vessels departed Seattle, bound for Dutch Harbor, in preparation for the drilling season.

On July 14 the Noble Discoverer dragged its anchor at Dutch Harbor, coming within 100 yards of grounding on the shore. Shell later stated that its own investigation of the incident had indicated that the vessel had been using a minimum amount of anchor chain and that the vessel did not have contingency plans to adequately deal with the weather conditions, the report says. Shell subsequently took several actions, including a review of the Noble Discoverer’s management system, the report says.

Huge operation

Shell’s operations in the Arctic in 2012 involved the company’s vessels traveling about 240,000 nautical miles and the transfer of 3.25 million gallons of fuel, the report says. The operations included 562 helicopter flights and 535 fixed-wing flights, and the coordination of nearly 12,000 passenger trips, flying personnel to and from the North Slope.

Although the lack of capability of the helicopters to fly in cloud placed some constraints on personnel movement, with potential safety ramifications, the drilling program proved largely successful and was virtually free of accident, the report says.

Because of the terms of Shell’s air permits for its offshore operations, the company had to limit the number of support vessels within 25 miles of the drilling vessels, a restriction that required individual vessels to conduct multiple missions and that required the use of a vessel tracking and planning system to manage vessel movements, the report says.

Air emissions

And before the start of deployment of Shell’s vessels to the Arctic it emerged that the drilling vessel emission levels that one of Shell’s contractors had provided for incorporation into Shell’s air permits were unrealistic, with the biggest problem being emissions from the six main generators on the Noble Discoverer, the report said. Apparently, among other problems, the contractor’s emission control equipment had not performed correctly during testing, the report says.

Shell switched contractors for the emissions testing and submitted a revised permit application for the Noble Discoverer. The company also requested a minor change to the air permit for the Kulluk.

The Noble Discoverer was ultimately able to conduct drilling operations under the terms of a compliance order from the Environmental Protection Agency. Unfortunately, however, neither of Shell’s drilling vessels was able to operate below the emissions limits in their revised permits, a situation that resulted in the EPA issuing notices of violation, the report says.

“In addition to reflecting the need for improved communication with and oversight of contractors and manufacturers, Shell’s air permit challenges underscore the need to better understand the performance of different technologies in the Arctic,” the report says. “Much of Shell’s emissions control equipment was untested in the Arctic.”

Ice management

Shortly after the start of drilling in the Chukchi Sea on Sept. 9, Shell successfully implemented its ice management plan, moving the Noble Discoverer temporarily off site to avoid a large piece of multiyear ice observed drifting towards the drilling location.

In the Beaufort Sea the drilling from the Kulluk of the mud-line cellar, the cavity in the seafloor that will eventually hold the well blowout preventer, took longer than planned. As a consequence the drillers only had time to set one of the two casing strings required in the well, before sealing the well for the end of the season, the report says.

In general, Shell’s submissions to the Department of the Interior “consistently underestimated the length of time required to complete each step of its drilling operations,” although the company’s internal expectations might have been more modest, the report says. It would have been preferable to clearly communicate to the regulator about objectives and schedules, taking into account timing uncertainties resulting from the variability of Arctic conditions, the report says.

However, during the drilling season Shell successfully implemented its communications plan with North Slope communities and the company operated within the terms of a conflict avoidance agreement with the Alaska Eskimo Whaling Commission. Shell has also been able to continue a successful environmental monitoring program in both the Chukchi and Beaufort seas.

Demobilization

On Oct. 26 the Noble Discoverer completed its permitted top-hole drilling operation in the Chukchi and plugged its well. By Oct. 28 the vessel was on its way south to Dutch Harbor, en route to Seattle for out-of-season repairs. But on Nov. 6 the vessel had to be towed into Dutch Harbor as a result of severe shaft vibrations in its main engine. On Nov. 16 an attempt to restart the engine in Dutch Harbor resulted in a backfire and a small fire, which the crew immediately extinguished. The vessel left Dutch Harbor on Nov. 21 with a tow assist and was towed into the port of Seward, Alaska, five days later, the report says.

A U.S. Coast Guard inspection of the Noble Discoverer in Seward identified several deficiencies in the vessel, including “substantial problems” with the main engine, unauthorized modifications and some safety issues. The Coast Guard has referred some possible violations of the International Convention for the Prevention of Pollution from Ships to the U.S. Department of Justice for investigation.

The Noble Discoverer has since been loaded onto a heavy-lift vessel, and is being transported to Asia for repairs.

The Kulluk

The Kulluk, Shell’s other drilling vessel, completed its drilling operations in the Beaufort Sea on Oct. 30 but, because of poor weather, was unable to depart the drilling location until Nov. 8. Shell planned to tow the vessel to Seattle for repairs and resupply. On Nov. 22 the Kulluk arrived in Dutch Harbor and on Dec. 21 the vessel departed for Seattle, under tow by the Aiviq, Shell’s new ice-class anchor handling vessel.

On Dec. 31 the Kulluk ran aground on the shore of Sitkalidak Island, on the south side of Kodiak Island, during a severe storm in the Gulf of Alaska. The grounding followed a series of incidents including an engine failure on the Aiviq, the multiple parting of towlines to the Kulluk, and support efforts by other vessels and the U.S. Coast Guard. The Kulluk was subsequently refloated, inspected and towed back to Dutch Harbor. Like the Noble Discoverer, the vessel is to be carried to Asia on a heavy-lift vessel for repair.

The entire Kulluk grounding incident is the subject of a formal investigation by the U.S. Coast Guard. But, according to “members of the maritime industry experienced with Arctic towing conditions” tows across the Gulf of Alaska occur year round, and there “is nothing inherently unsound” about conducting a winter tow in the region, the report says.

“However, given the frequency of strong storms and dramatic sea states in this region, operators should incorporate proper planning, risk assessment and risk mitigation,” the report says. “Additional precautions, such as the use of multiple towlines, should be taken during winter tow operations.”

Safety management

Interior’s review of Shell’s management procedures showed that Shell had in place an appropriate safety management system that met the regulatory requirements of the Bureau of Safety and Environmental Enforcement and that promoted a safety culture, the report says.

“However, the existence of programmatic design elements does not guarantee a functional and effective risk management program, and the review team identified a number of weaknesses indicating that Shell’s management systems were insufficiently robust, particularly in the area of contractor oversight, to successfully manage and minimize overall operational risks,” the report says. “Shell’s focus appeared to be on compliance with prescriptive safety and environmental regulations required for approvals and authorizations, rather than on a holistic approach to managing and monitoring risks identified during operational planning.”

Inadequate oversight

In particular, the drilling vessel air permit violations link back to inadequate oversight of the contractor that provided data for air permit applications; the delays in the completion of the Arctic Challenger refit and the failure of the containment dome tests arose from a “lack of rigorous and direct contactor oversight” in a first-of-its-kind project, and from the use of a contractor lacking the appropriate certification for ship design and build; and the anchor dragging and other problems with the Noble Discoverer resulted, in part, from Shell’s inadequate monitoring of Noble’s management systems on the vessel, the report says.

The report also questions the effectiveness of Shell’s internal audit process, which the report says appears to substantially depend on self-assessments through a system of checklists.

And the report comments that Shell’s Alaska exploration operations had not leveraged the company’s marine expertise, an expertise more associated with downstream oil transportation and refining.

—Alan Bailey



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