DOI: Shell must meet more standards before Arctic drilling resumes

Shell Offshore Co. will have to develop a comprehensive operations management program—including closer oversight of its contractors—before it can resume Alaskan Arctic offshore exploration activities, US Sec. of the Interior Ken Salazar said.

Salazar’s announcement came after reviewing a 32-page report that he commissioned on Jan. 7 of Shell’s 2012 initial exploration on leases on the Chukchi and Beaufort seas as well as federal regulatory oversight of those activities.

“The findings require a comprehensive integrated management plan, a third-party audit of that plan, and a sharing of resources in future efforts where more than one company may be involved beyond 2016,” Salazar told reporters Mar. 14. “Shell will have to show to DOI that it has met the required standards before it resumes Arctic offshore operations.”

Shell officials notified Interior that the company would not resume activity on the leases in 2013 while it reviews what it learned in 2012 (OGJ Online, Feb. 27, 2013).

The assessment found that Shell entered the 2012 drilling season without having finalized key components of its program, including its Arctic Challenger containment system, which put pressure on Shell’s operations and schedule and prevented it from drilling into oil-bearing zones last summer, according to Tommy P. Beaudreau, principal deputy Interior secretary for lands and management who led the review team.

Weaknesses in Shell’s management of contractors on whom it relied for many critical aspects of its program—including development of its containment system, emission controls to comply with air permits, and maritime operations—led to many of the problems the company experienced, said Beaudreau, who also director’s DOI’s Bureau of Ocean Energy Management.

“We found that all phases of operating an Arctic offshore exploration program must be integrated and subject to strong operator management and government oversight,” Beaudreau told reporters, adding, “The report recommends that Shell submit a description of every phase of the operation. Any future exploration program should be well planned in advance of the drilling season.”

The review also confirmed that Arctic-specific standards are essential for operations there because of the region’s unique characteristics, noted Deputy Interior Sec. David J. Hayes, who also participated in the teleconference.

“It also showed the importance of strong coordination among federal agencies both within as well as outside DOI in issuing permits,” he said.

Shell ‘cooperative’

Shell was very cooperative during Interior’s inquiry and acknowledged contractor problems, particularly in preparing and deploying the Arctic Challenger containment system, Hayes said. “It was certified—just not in time,” he said, adding, “Since then, Shell plans to do more testing to make sure it has a system in place so it will not be pressed the next time around.”

Shell safely completed the top hole drilling on two of its leases in the Beaufort and Chukchi seas, but violent weather drove its Kulluk conical drilling unit aground while under tow to Seattle on the southeastern shore of Alaska’s uninhabited Sitkalidak Island on Dec. 31. It was towed to a safe harbor about 30 miles away after 7 days (OGJ Online, Jan. 7, 2013).

“Certainly, sea-keeping capabilities of the Arctic Challenger were a major issue,” said James A. Watson, director of DOI’s Bureau of Safety and Environmental Enforcement and the teleconference’s fourth participant. “We’re focused on Arctic weather conditions during the drilling season, and sea-safe plans for any vessel operating up there, including the Arctic Challenger. It’s a good reason why we need to have an integrated comprehensive plan for operating up there."

A bigger question

Responding to the report, National Ocean Industries Association Pres. Randall B. Luthi said it raises a bigger question of whether Interior will pursue a rulemaking to codify the recommendations and additional requirements contained in the report, or simply mandate their adoption through a Notice to Lessees.

“This may seem like a technical distinction, but our members will want to fully understand how much force of law is being put behind these recommendations,” Luthi said on Mar. 14.

Environmental organizations immediately criticized the report. “We understand that it is imperative that [Interior] conduct this evaluation of Shell’s 2012 operations,” said Cindy Shogan, Alaska Wilderness League executive director. “However we feel that it should also take this pause to evaluate if its regulations are strict enough.”

Lois Epstein, an engineer and Arctic program director for the Wilderness Society, said, “We would have liked to see [Interior] commit to continued evaluation of Shell’s 2012 operational problems to ascertain if—as we believe and the evidence supports—it is unwise to proceed with Arctic Ocean drilling at this time.”

Salazar said the report’s recommendations will be issued as directives to Shell, which will have to comply with them before it returns to work on its Arctic offshore leases. “It screwed up in 2012. It will not be allowed to screw up again if it wants to go back there,” he said.

Contact Nick Snow at nicks@pennwell.com.

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