WASHINGTON, DC, March 14, 2013 (ENS) – “Shell screwed up in 2012 and we’re not going to let them screw up when they try to drill in the Arctic again,” Secretary of the Interior Ken Salazar told reporters today, releasing the findings of a departmental review of Shell Oil’s 2012 Arctic operations.

In 2012, Shell started drilling the first wells in the Alaskan Arctic in nearly two decades in the Beaufort and Chukchi Seas. Shell’s goal for the summer drilling season was to confirm a major discovery of oil in commercially-viable quantities in the Alaskan Arctic Ocean.

drill ship

The drill ship Noble Discoverer in Dutch Harbor, Alaska (Photo courtesy Royal Dutch Shell)

Shell was not able to achieve its goal and did not complete any exploration wells. The company experienced major problems that raised what the review calls “serious questions regarding its ability to operate safely and responsibly in the challenging and unpredictable conditions offshore Alaska.”

In January, Salazar directed the review of Shell’s 2012 offshore drilling program in the Beaufort and Chukchi Seas, including the company’s preparations for the drilling season and its maritime and emergency response operations, to identify challenges and lessons learned.

The review team, led by Tommy Beaudreau, principal deputy assistant secretary for land and minerals management, makes recommendations that Salazar said will become “directives issued to Shell.”

The review team identified two specific undertakings that Shell should complete before the company proceeds with offshore exploratory drilling in the future.

First, Shell should develop, and submit to the Interior Department, a comprehensive and integrated operational plan describing in detail its future drilling program. Second, Shell should commission and complete a full third-party audit of its management systems.

“So before Shell is allowed to move forward they are going to have to show the department they have these things in place,” Salazar said.

For its assessment, the Interior Department retained the international consulting firm PricewaterhouseCoopers to provide expertise and support in reviewing issues related to safety and operational management systems.

The review team included senior staff from several bureaus at the Department of the Interior and other federal agencies. The team met with representatives from Shell and key contractors that Shell retained for work on its Alaska operations, the State of Alaska, the Mayor of the North Slope Borough, and the Arctic Slope Regional Corporation.

The review team also consulted representatives from the oil and gas and maritime industries and conservation organizations.

The review focused on Shell’s inability to obtain certification of its containment vessel, the Arctic Challenger, on a timely basis and the difficulty with deployment of the Arctic Challenger’s containment dome. It also covered marine transport issues associated with both of Shell’s two drilling rigs, the Noble Discoverer and the Noble Kulluk, including the grounding of the Kulluk off Kodiak Island during a towing operation.

“Exploration in the Arctic is a key component of the President’s all-of-the-above energy strategy, and is important to our understanding of the oil and gas potential in this frontier region,” Salazar said. “We have said all along that exploration in the challenging and sensitive environment of the Arctic must be done cautiously and subject to the highest safety and environmental standards.”

Shell’s 2012 drilling program was subject to Arctic-specific conditions and standards, such as requiring deployment of subsea containment systems as a prerequisite to drilling into hydrocarbon-bearing zones.

But the review found that Shell entered the drilling season without having finalized key components of its program, including its Arctic Challenger containment system, which put pressure on the company’s operations and schedule and prevented Shell from drilling into oil-bearing zones last summer.

Weaknesses in Shell’s management of contractors on whom they relied for critical functions, including development of the containment system, emission controls to comply with air permits, and maritime operations, led to many of the company’s problems, the review shows.

“Shell simply did not maintain strong, direct oversight of some of its key contractors,” said Beaudreau. “Working in the Arctic requires thorough advance planning and preparation, rigorous management focus, a close watch over contractors, and reliance on experienced, specialized operators who are familiar with the uniquely challenging conditions of the Alaskan offshore.”

Shell was also subjected to limitations on the Chukchi Sea drilling season to provide time for open-water emergency response, a blackout on drilling activity during the subsistence hunts in the Beaufort Sea and a requirement to surround vessels with pre-laid boom during fuel transfers.

“In some areas Shell performed well, but in other areas they did not, and Alaska’s harsh environment was unforgiving,” said Beaudreau.

On February 27, 2013, Shell announced it will not pursue exploration drilling activity in 2013 in the Beaufort and Chukchi Seas to focus on preparation of equipment and plans before resuming its multi-billion dollar Arctic exploration.

The review team did find some positive things to say about Shell’s Arctic drilling attempt.

First, the team praised Shell for its cooperation with the review. Shell personnel made presentations to, and were interviewed by, the review team in Washington, DC; Anchorage, Alaska; Seattle and Bellingham, Washington; and Houston, Texas. “During these discussions, Shell personnel were forthcoming about their perspectives on the 2012 operations and lessons they have drawn from the experience. Shell also made documents and materials available for the
review,” the report states.

Although Shell was not able to fully execute its drilling plans last summer, the company succeeded in drilling “top hole” sections of two wells in the Arctic Ocean, and it did so safely without any significant injuries to workers or spills.

Shell employed weather forecasting and ice management systems that enabled it to respond effectively to changing sea ice conditions, including the encroachment of a major ice floe on Shell’s Burger A well site in the Chukchi Sea.

Shell also coordinated well with Alaska Native communities and subsistence hunters, even under circumstances that delayed its drilling program in the Beaufort Sea, the team notes.

The report recommends that before it is allowed to approach Arctic drilling again, the company should submit to the Interior Department a comprehensive, integrated plan describing every phase of its operation from preparations through demobilization.

The report also recommends that Shell complete a full third-party management system audit that will confirm that the company’s management systems are tailored for Arctic conditions and that Shell has addressed the problems of the 2012 drilling season.

“We have held Shell to very high standards specific to the Arctic, including the requirement for in-theater subsea containment systems capable of responding in the event of an emergency, and coordinating across the federal government to review and oversee Arctic exploration,” said Deputy Secretary of the Interior David Hayes, who chairs the Interagency Working Group on Domestic Energy Development and Permitting in Alaska, established by President Barack Obama.

Hayes said, “The report confirms that we need to continue using a cautious, coordinated approach that adopts specialized practices for conducting drilling and related operations in the Arctic.”

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