Shell Still Aims For Arctic Oil Drilling Despite Mishaps

Exactly a year ago, an oil rig being towed to Seattle ran aground on a remote island in the Gulf of Alaska. The New Year's Eve accident capped a year of trouble for Shell Oil in Alaska and in Puget Sound.

Shell is still seeking federal approval to drill in the Arctic, and a critical ship in Shell’s Arctic fleet is still sitting idle on the Bellingham, Wash., waterfront.

It took 700 people six tense days to get the drill rig called the Kulluk afloat again. Shell then towed the Kulluk to Dutch Harbor, Alaska, and eventually hauled it to Singapore for repairs.

The accident cost Shell hundreds of millions of dollars and its chance to drill for oil in the Arctic in 2013.

It came less than four months after an accident in Anacortes, Wash., kept Shell from drilling for Arctic oil in 2012. In an underwater test off Samish Island, the company's oil-spill containment system was "crushed like a beer can," in the words of a federal inspector who witnessed the test.

The setbacks and delays have not dampened Shell's enthusiasm for drilling in the Arctic, however.

"Clearly, we would like to drill as soon as possible," Simon Henry, Shell's chief financial officer, told reporters in October. He said Alaska was Shell's "largest single exploration prospect."

"We're putting the building blocks in place," Henry said. "We expect to know that our kit will be ready and available in early 2014."

Shell has found another drill rig to replace the Kulluk. Henry said the company hopes to drill for oil in Alaska's Chukchi Sea in the new year. The company does not plan to drill in the neighboring Beaufort Sea in 2014.

"Our focus will be very much on the Chukchi, which is by far the biggest prize," Henry said. "That's the multibillion-barrel prize."

New Regulations

Shell faces more federal hurdles than before its year of mishaps. Those accidents led the US Interior Department to investigate Shell and impose new requirements for comprehensive planning and a third-party audit of its Arctic endeavors.

“Shell screwed up in 2012, and we’re not going to let them screw up, whenever, unless they have these systems in place,” then-Secretary of the Interior Ken Salazar said in April.

In November, Shell submitted its revised operations plan for the Interior Department to review. Three days later, Interior officials sent Shell seven pages of requests for additional information.

Shell has yet to submit an independent audit.

The US Coast Guard and the Department of Justice continue to investigate Shell's Arctic operations.

Environmental groups continue to urge the Obama Administration to delay or stop Arctic drilling by Shell or others. They say Shell's new plans show the industry still hasn't learned how to drill safely in the Arctic Ocean.

"These plans are insufficient and seem to ignore all the errors and lessons from 2012," Gwen Dobbs of the Alaska Wilderness League said in an email.

Labor Dispute

Some of the employees working on the Arctic Challenger, Shell's oil-spill containment barge, are also unhappy. In October, a group of workers sued Superior Energy Services, the Houston firm that has been working on the Arctic Challenger at the Port of Bellingham. The employees allege — and Superior denies — that it failed to pay them overtime. They put in 80-hour work weeks as Shell and its contractors rushed to ready the Arctic Challenger for oil-spill duty before the brief Arctic summer, and Shell's opportunity to drill in the far north, drew to a close.

Late last week, Superior laid off all but a handful of its Bellingham employees. By email, it told them they were welcome to apply for jobs with Foss Maritime, the Seattle contractor that will take over running the Arctic Challenger for Shell.