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Shell says Kulluk left Dutch Harbor to avoid taxes

Screen Shot 2012-12-07 at 01.26.25A Royal Dutch Shell official testified Saturday that tax avoidance was the main reason for having the Kulluk oil drilling rig leave Dutch Harbor in December — 10 days before its grounding off a remote Alaska island.

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Saturday May 25, 2013

ANCHORAGE, Alaska (AP) — A Royal Dutch Shell official testified Saturday that tax avoidance was the main reason for having the Kulluk oil drilling rig leave Dutch Harbor in December — 10 days before its grounding off a remote Alaska island.

“Our preference for the timing was to be gone before the end of the year, driven by the economic factors,” Sean Churchfield, operations manager for Royal Dutch Shell in Alaska, told a Coast Guard panel that’s investigating the incident.

Lt. Cmdr. Brian McNamara, the legal adviser to the lead Coast Guard investigator, asked why — “specifically” — the end of the year was important.

“The end of the year to my understanding was when the tax liability potentially would have become effective,” Churchfield answered.

Another consideration, he added, was the cost of maintaining the rig in Dutch Harbor. But taxes were the bigger expense, he said, according to the Anchorage Daily News (http://is.gd/ZpRGrN).

The Kulluk was being moved to Washington state for maintenance. On Dec. 27, the Kulluk lost its tow line to the single vessel towing it, the Aiviq, and four days later it ran aground off tiny Sitkalidak Island, just off Kodiak Island. All 18 people on board were rescued without injury. The drill vessel was refloated Jan. 6, but the damage was a factor in Shell losing the 2013 Arctic Ocean drilling season.

Questions over the timing of the Kulluk’s departure from Dutch Harbor to Washington state have been swirling for months. At a press conference the day after the grounding, Churchfield was asked if Shell left when it did because of the potential tax hit.

“No, the reason we boated down there was actually to get the offseason repairs done,” Churchfield said. “Once we had the rig ready for tow, prepared and inspected, was when we moved down to give us the maximum time to ready for the 2013 season.”

In later interviews, Shell spokesman Curtis Smith said the tax issue was a consideration but not the primary factor.

Churchfield said he didn’t know how much the Alaska tax would have been other than “millions.”

Alaska law provides for an annual 2 percent tax on the value of property used in oil and gas exploration, production and pipeline transportation. The date for assessing the value of covered properties is Jan. 1.

An earlier witness testified that Shell had a four-day window of good weather when it left Dutch Harbor.

A weather study for Shell showed similar weather for December and January, Churchfield said. The drilling rig and its tow vessel were both ready to go, and Shell wouldn’t have approved the departure unless everything was in order, he said.

Information from: Anchorage (Alaska) Daily News, http://www.adn.com

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