Posts Tagged ‘Litigation’

Daniel Fisher, Forbes Staff

12/20/2011

For nearly 200 years, the Alien Tort Claims Act lay dormant, a one-sentence law passed by the first Congress that gave federal courts jurisdiction to hear any lawsuit brought by “an alien” for torts committed “in violation of the law of nations.” Then around 1980 inventive lawyers rediscovered it as a tool for international human-rights enforcement. One judge dubbed the long-neglected law a “legal Lohengrin,” after the knight in the Richard Wagner opera who magically appears in a boat drawn by a swan.

Early next year the Supreme Court will decide whether this law can be the legal vehicle for pressing multibillion-d0llar claims against corporations that lawyers believe are responsible for human-rights violations. One case, Kiobel v. Royal Dutch Petroleum, asks whether Nigerian villagers can sue the oil giant in U.S. court over the actions of government troops they say were acting on Shell’s orders to protect its valuable installations in Nigeria. It is paired with another case involving the 1993 Torture Victims Protection Act. In both, the court is being asked to sort out a dispute among the federal districts about whether these laws apply to individuals only, or can be extended to organizations like Shell and the Palestinian Liberation Organization.

The stakes are huge for corporations, which theoretically could be held liable for any actions of the government in nations where they do business, pay taxes, and rely on local forces to protect their assets.

“There have been plenty of cases where the theory is, basically, the corporation has aided and abetted the human rights violations just by doing business with the violators,” said Meir Feder, an appellate lawyer in Jones Day’s New York office who is active in international corporate law. “It’s been a real growth industry.”

Lawyers really embraced the 1789 law after the U.S. Supreme Court decided  in 2004 that a Mexican national could not use the ATS to sue the Mexican agent who abducted him on instructions of U.S. officials. It was a defeat for the plaintiff in that case, but the high court flashed “an ambiguous green light” to other lawsuits by suggesting the ATC could be used to allege torts that didn’t exist when it was written in 1789.

The main question before the court when it hears the Shell and Torture Protection cases, probably in February, will be whether the laws can be applied to organizations instead of individuals. The Second Circuit Court of Appeals in New York rejected the Shell case in December 2010, saying “corporate liability is not a discernable—much less universally recognized—norm of customary international law.”

The decision offers a lengthy diversion into 18th century law and politics, when pirates were a major foreign-policy concern and large parts of the world had no formal government at all. The majority concluded that while enforcing human rights was the “singular achievement” of international law after World War II, it has never been stretched to include lawsuits against corporations. The ATC applies to the actions of states and individuals,the court ruled, since ultimately only people in a position of governmental authority can bear moral responsibility for acts so heinous they rise to the level of “international crime.”

Even the ever-sympathetic Ninth Circuit signed off on this view,deciding in 2010 that Chevron couldn’t be sued under the ATS for the actions of Nigerian security forces when they retook an offshore oil platform that had been occupied by protesters.

But the 11th Circuit ruled the other way in 2008 in a lawsuit by Colombian villagers allegedly abused by paramiliaries in the employ of a U.S. corporation. And in July of this year the influential D.C. Circuit ruled that ExxonMobil could be sued for allegedly allowing government security forces detailed to its facility in Aceh, Indonesia to commit murder, sexual assault and other crimes against villagers.

The court rejected ExxonMobil’s argument that the Supreme Court had eliminated aiding and abetting liability in its pivotal Central Bank case in 1994. It still applied in the world of international crimes, the court held. None less than George Washington had issued a proclamation in 1793 warning U.S. citizens they’d be found liable for “aiding, or abetting hostilities” against any power involved in fighting in Europe.

Judge Brett Kavanaugh, a conservative favorite, issued a strongly worded dissent.  The ATC was intended to “avoid conflicts with foreign governments” by providing redress to aliens who suffered injuries within the U.S. Extending it to actions on foreign soil creates rather than avoids conflicts, and itself conflicts with the Torture Prevention Act which only protects U.S. citizens. If the ATS works the way the majority would have it, he wrote, then an alien could bring a lawsuit against a corporation in U.S. court that was barred by a U.S. citizen.

The Torture Victims Statute case seems a simpler proposition, since the law gives the right to sue to “any individual” who under “actual or apparent authority” of government authority tortures another individual. Congress considered, and rejected, using the word “person” which is understood to include corporations and other organizations, said Feder, who not surprisingly represents corporate clients who say they are not “individuals.”

“I don’t have a problem predicting it is quite likely the Supreme Court is going to say corporations are not subject to suit,” he said.

The Roberts Court is also likely to trim the sails of plaintiff lawyers who want to use the 1789 Alien Tort Claims Act to pursue 21st-century class actions, Feder said.

“At the end of the day, the current Supreme Court is likely to take a much more restrictive view of what kind of cases will be allowed to go forward than a lot of lower courts have allowed,” he said. The ATC was designed for situations where aliens had no way to get redress and failing to deal with their complaints would lead to “serious military and diplomatic problems,” Feder said.

“The current Supreme Court is going to look at that and say `We’re not going to extend that as a sort of general right of action for human rights violations all over the world.’”

ExxonMobil, Chevron, Shell and other corporations doing business in dangerous parts of the world will certainly be pulling for the legal Lohengrin to disappear into the mists again.

SOURCE ARTICLE

By John Donovan

Printed below is a Texas Supreme Court judgement dated 16 December 2011 overturning, on a technicality, a jury finding that Shell Oil Company knowingly committed royalty payment fraud. Texas Supreme Court Judges have taken the view that the plaintiff family should have discovered the fraud. They concluded that the “alleged” fraud “could” have been discovered by the family through the exercise of reasonable diligence. The reversal appears to disregard the decision of the jury that Shell deliberately committed fraud.

SHELL OIL COMPANY v. ROSS

SHELL OIL COMPANY; SWEPI LP D/B/A SHELL WESTERN E&P, SUCCESSOR IN INTEREST TO SHELL WESTERN E&P, INC., Petitioners,

v.

RALPH ROSS, Respondent.

No. 10-0429.

Supreme Court of Texas.

Argued October 4, 2011.

Opinion delivered: December 16, 2011.

JUSTICE LEHRMANN delivered the opinion of the Court.

This case involves a dispute concerning alleged underpayments of gas royalty. We must decide whether limitations barred a royalty owner’s claims against the operator of the field. We hold that the fraudulent concealment doctrine does not apply to extend limitations as a matter of law when the royalty underpayments could have been discovered from readily accessible and publicly available information before the limitations period expired. When, as in this case, the information was publicly available and readily accessible to the royalty owner during the applicable time period, a royalty owner who fails to take action does not use reasonable diligence as a matter of law. It has long been the law that the discovery rule does not apply to defer the accrual of royalty owners’ claims for underpayments when the injury could have been discovered through the exercise of due diligence. Accordingly, because the parties do not dispute that the pertinent information was readily accessible and publicly available, the royalty owner’s claims are time-barred as a matter of law.

Ralph Lee Ross sued Shell Oil Company and Shell Western E&P (collectively “Shell”) for breach of contract, unjust enrichment, and fraud, based on claims that Shell underpaid royalty due under a mineral lease to Ross’s grandmother, Gertrude T. Reuss (the family is collectively referred to as “the Rosses”). We are asked to determine whether limitations barred the Rosses’ claims.

Based on jury findings that Shell fraudulently concealed its underpayments, the trial court rendered judgment for the Rosses. A divided court of appeals affirmed the trial court’s judgment. ___ S.W. 3d ___. We reverse the court of appeals’ judgment and render judgment for Shell.

I. Factual and Procedural History

In 1961, Shell entered into a mineral lease with Gertrude T. Reuss and her husband, G.T. Reuss (“Reuss Lease”). Several years later, Shell contributed parts of the land covered by the Reuss Lease to two pooled units—the Houston Unit and the Lasater Unit. In addition to the two wells Shell drilled on land covered by the Reuss Lease (“Lease Wells”), both the Houston Unit and the Lasater Unit contained a producing well located on land not covered by the Reuss Lease (“Unit Wells”). Shell paid royalty to the Rosses on both the Lease Wells and the Unit Wells. The Reuss’s son, Ralph Louis Ross, administered the Reuss Lease and became trustee of the trust that held the lease when Gertrude Reuss died in 1998. Ralph Louis Ross was a lawyer who had done oil and gas work, and thus understood the oil and gas industry. In 2002, Ralph Louis Ross assigned all rights in the Reuss Lease to his son, Ralph Lee Ross.

Under the Reuss Lease, Shell was required to pay the Rosses “one-eighth of the amount realized” by Shell for any gas or casinghead gas produced from the land. The pooling and unitization agreement split the one-eighth royalty with the State, with both the State and the Rosses receiving a one-sixteenth royalty. However, Shell did not pay the Rosses based on third-party sale prices as required by the Reuss Lease. From 1994 to 1997, Shell paid royalty based on a so-called “arbitrary price” for the Lease Wells. At trial, Shell could not explain how or why it used this price instead of the third-party sales price, and admits that it “made a mistake.”1 From 1988 to 1994, Shell used a weighted-average method calculation for the Unit Wells, averaging the third-party sales prices of Shell and other operators for sales from the Lasater and Houston Units.2

In 2002, the Rosses sued Shell for breach of contract, unjust enrichment, and fraud. They alleged that the fraudulent concealment doctrine tolled the statute of limitations because Shell “set up an elaborate scheme to allow it to [underpay] royalties, and then made multiple misrepresentations to cover up this scheme, [including] making false representations in the monthly [royalty] statements,” which the Rosses reasonably relied on. Before the case was submitted to the jury, Shell stipulated that unless it prevailed on its statute of limitations defense, the Rosses were entitled to recover damages on their claim that Shell underpaid royalty on the Lease Wells by using the so-called arbitrary price to calculate royalty. Additionally, the trial court ruled, as a matter of law, that Shell had breached the lease by using the weighted-average method to calculate royalty for the Unit Wells. The only issues sent to the jury were (1) whether Shell fraudulently concealed its failure to pay royalty in accordance with the terms of Reuss Lease and (2) the dates on which the Rosses, exercising reasonable diligence, could have discovered that Shell failed to pay royalties in accordance with the Reuss Lease. The jury found for the Rosses on the fraudulent concealment issue for both the Lease Wells and the Unit Wells.3 The Rosses were awarded actual damages of $72,532.09 plus prejudgment interest, attorney’s fees, and court costs.

The court of appeals affirmed, holding that Shell knowingly underpaid royalty and that the fraudulent concealment doctrine tolled the statute of limitations. ___ S.W.3d at ___. The majority reasoned that “the evidence presented . . . support[ed] the jury’s findings as to Shell’s fraudulent concealment of its wrongful conduct and as to when the Rosses, with the exercise of reasonable diligence, could have discovered the wrongful conduct and their claims.” Id. at ___.

II. Limitations

Shell challenges the court of appeals’ ruling that the Rosses’ claims were not barred by limitations. Shell asserts that the court of appeals erred in holding that the fraudulent concealment doctrine tolled the limitations period. We agree that the fraudulent concealment doctrine did not toll the limitations period, but this does not end our analysis. We must also consider whether the discovery rule exception to limitations applied to defer accrual of the cause of action. We consider each doctrine in turn.

A. Fraudulent Concealment

We have recognized two doctrines that may apply to extend the statute of limitations. Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455-56 (Tex. 1994). The first, fraudulent concealment, is an equitable doctrine that is fact-specific. BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 67 (Tex. 2011). Fraudulent concealment tolls limitations “because a person cannot be permitted to avoid liability for his actions by deceitfully concealing wrongdoing until limitations has run.” S.V. v. R.V., 933 S.W.2d 1, 6 (Tex. 1996).

In this case, the jury found that Shell fraudulently concealed its failure to pay royalty in accordance with the Reuss Lease for the Lease Wells and the Unit Wells. The jury also found that the Rosses, exercising reasonable diligence, could not have discovered that Shell failed to pay royalty in accordance with the Reuss Lease until 2002 for the Lease Wells and until 2006 for the Unit Wells. A defendant’s concealment of wrongdoing may toll the running of limitations. Shah v. Moss, 67 S.W.3d 836, 841 (Tex. 2001). The fraudulent concealment doctrine requires that the Rosses prove Shell “actually knew a wrong occurred, had a fixed purpose to conceal the wrong, and did conceal the wrong.” Id. However, fraudulent concealment only tolls the statute of limitations until “the fraud is discovered or could have been discovered with reasonable diligence.” BP Am., 342 S.W.3d at 67.

The Rosses argue that reasonable reliance on fraudulent representations negates any duty to investigate unless and until further information comes to light which re-triggers that duty, and that they reasonably relied on the prices listed on check stubs that Shell enclosed with its monthly royalty statements since misrepresenting the price would be a violation of the Natural Resources Code. See TEX. NAT. RES. CODE § 91.502(4) (requiring each check stub to include “the price per barrel or per MCF of oil or gas sold”). We disagree. Reasonable diligence requires that owners of property interests make themselves aware of relevant information available in the public record. For example, in BP America, we held that the limitations period was not tolled as a matter of law because BP’s fraudulent misrepresentations about its good faith efforts to develop a well could have been discovered from publicly available information within the limitations period. 342 S.W.3d at 68-69. In Kerlin v. Sauceda, we held that a deed holder’s descendants who had been given notice that deeds executed by their predecessors contained royalty reservations, but had not received any royalty payments for minerals on their property, could have discovered the existence of their claims for unpaid royalties by investigating public records of case settlements and conveyances. 263 S.W.3d 920, 926 (Tex. 2008).

The Rosses did not exercise reasonable diligence and their claims are barred by limitations if readily accessible and publicly available information could have revealed Shell’s wrongdoing before the limitations period expired. They argue that additional investigation would not have led to discovery of Shell’s breach since the only way the Rosses could have discovered what Shell actually was paid for the gas was by obtaining Shell’s internal records or a confidential contract with a third-party, El Paso Natural Gas. The Rosses claim Shell would not have been forthcoming with the information and that there were no publicly-available records that would have put them on notice of their claims. Shell responds that the Rosses could have discovered Shell’s breach if they had conducted additional investigation, including asking Shell about the prices, asking the companies Shell sold the gas to the price they paid, consulting publicly available records at the Texas General Land Office (GLO), and researching the prices listed in the publicly-available El Paso Permian Basin Index.

The record in this case indicates that Shell underpaid royalty to the Rosses for years. Although the Reuss Lease required Shell to pay the Rosses “one-eighth of the amount realized” by Shell for any gas or casinghead gas produced from the land, Shell did not pay the Rosses based on the third-party sales price and instead used an arbitrary price it cannot explain for the Lease Wells and a weighted-average calculation for the Unit Wells. The prices listed on the check stubs enclosed with the monthly royalty payments were not the same as the prices Shell was being paid for the gas, which the Rosses argue is fraudulent. The Rosses claim they reasonably relied on the information provided by Shell.

However, “reliance is not reasonable when information revealing the truth could have been discovered within the limitations period.” BP Am., 342 S.W.3d at 68. Diligence is required when claimants have been “put on notice of the alleged harm of injury-causing actions.” Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 207 (Tex. 2011); see also HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998) (holding that “[r]oyalty owners cannot be oblivious” to potentially injurious activity taking place in the field). Here, the Rosses were put on notice that Shell was underpaying royalty. The large difference in the prices paid to the Rosses on the Unit Wells and on the Lease Wells triggered the Rosses’ duty to investigate the royalty payments. The Rosses received these royalty payments on the Unit Wells and the Lease Wells every month. During most months, the price paid on the Lease Wells was fifty to sixty percent higher than the price paid on the Unit Wells.4 Since the payments were based upon wells located in a common reservoir, the significant discrepancy in prices should have alerted the Rosses to potential royalty underpayments. The Rosses argue, and the court of appeals reasoned, that since different heating values could explain the differences between the royalty paid for the Unit Wells and the Lease Wells, the Rosses were under no duty to investigate the discrepancy. ___ S.W.3d at ___. But, a royalty owner cannot avoid making a diligent investigation just because there might be a legitimate explanation for a suspicious royalty payment. See Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 737 (Tex. 2001) (stating “those who receive statements listing fees charged should be alerted to the need to perform additional investigation to protect their interests” even though such fees might have a legitimate explanation).

Readily accessible and publicly available information could have led the Rosses to discover that Shell was underpaying royalty before the limitations period expired. The prices listed in the El Paso Permian Basin Index (“Index Price”), which is readily accessible to the public, would have informed the Rosses that Shell was underpaying royalty. The Index Price varies greatly from the prices Shell used to calculate and pay royalty on the wells from 1991 to 1995.5 The Index Price represents an average price, and the prices on which Shell based the Rosses’ royalty payments were routinely below that. Furthermore, researching the GLO records would have revealed the prices Shell paid to the State. Under the pooling and unitization agreement, Shell was required to pay both the State and the Rosses a one-sixteenth royalty. However, the royalty payments to the State were routinely higher than the prices paid to the Rosses. Even though the GLO records did not list the price Shell actually received for the gas, the information about the price it paid the State would have revealed that Shell was underpaying royalty to the Rosses since the Rosses were consistently paid a lower royalty than the State was. These readily accessible, publicly available documents, the GLO records and the prices listed in the El Paso Permian Basin Index, together could have led the Rosses to discover that Shell was underpaying royalty. It is undisputed that the information in the El Paso Permian Basin Index and the prices received by the State were readily accessible to the public. As a matter of law, the Rosses did not use reasonable diligence since readily accessible and publicly available information could have led to the discovery of Shell’s underpayments. Because the Rosses could have discovered Shell’s alleged fraud through the use of reasonable diligence, we hold that, as a matter of law, the doctrine of fraudulent concealment cannot apply to toll the statute of limitations.

B. Discovery Rule

The second doctrine that may apply to extend the statute of limitations in this case is the discovery rule, a “very limited exception to statutes of limitations,” which defers the accrual of the cause of action until the injury was or could have reasonably been discovered. Computer Assocs. Int’l, 918 S.W.2d at 455. The discovery rule applies “only when the nature of the plaintiff’s injury is both inherently undiscoverable and objectively verifiable.” Wagner & Brown, Ltd., 58 S.W.3d at 734. An injury is inherently undiscoverable if by its nature, it is “unlikely to be discovered within the prescribed limitations period despite due diligence.” S.V. v. R.V., 933 S.W.2d at 7. The legal question of whether an injury is inherently undiscoverable is determined on a categorical basis. Via Net v. TIG Ins. Co., 211 S.W.3d 310, 314 (Tex. 2006); Wagner & Brown, Ltd., 58 S.W.3d at 735.

In Wagner & Brown, we held that the discovery rule did not apply to defer the accrual of royalty owners’ claims for underpayments since the injury was not inherently undiscoverable because the royalty owners could have timely discovered the underpayments through the exercise of due diligence. Id. at 737. Similarly, in this case, the Rosses could have timely discovered the underpayments through the exercise of due diligence. We therefore hold that the Rosses’ claims are barred by the statute of limitations, and reverse and render judgment for Shell.

III. Conclusion

We hold that evidence conclusively established that Shell’s alleged fraud could have been discovered by the Rosses through the exercise of reasonable diligence. Accordingly, we reverse the court of appeals’ judgment and render judgment for Shell.

Footnotes

1. Shell suggests that the “arbitrary price” may have been a computer glitch or an accounting error.

2. Shell contests that its use of the weighted-average method for the Unit Wells was a breach of the Reuss Lease, but does not contest that its use of the “arbitrary price” for the Lease Wells was a breach.

3. Specifically, the jury found that the Rosses could have, with the exercise of reasonable diligence, discovered the underpayments on the Lease Wells in 2006 and the Unit Wells in 2002.

4. In one month, the price paid on the Lease Wells was ninety-three percent greater than the price paid on the Houston Unit Well.

5. Although the prices listed in the El Paso Permian Basin Index are stated on a heat-adjusted, MMBTU Basis, and the royalty statement prices are stated on a volumetric, MCF basis, the difference between the prices is too large to be explained by heat prices alone, as the index prices were often between seventy-five and one hundred percent higher than the prices Shell paid the Rosses.

December 16, 2011, 5:06 PM EST

By Jim Snyder

Dec. 16 (Bloomberg) — Royal Dutch Shell Plc won conditional U.S. approval for a plan to drill as many as six exploration wells in Alaska’s Chukchi Sea next year, the Bureau of Ocean Energy Management said.

Final approval requires Shell to meet safety and environmental-protection measures, according to an e-mailed statement today from the Interior Department bureau. Shell will have to stop drilling 38 days before ice appears in the Arctic, to avoid an end-of-the season spill when cleanup is difficult, the agency said. The U.S. projects ice will form by Nov. 1.

“We will continue to work closely with agencies across the federal government to ensure that Shell complies with the conditions we have imposed on its exploration plan,” Tommy Beaudreau, bureau director, said in the statement.

Shell, which has invested about $4 billion in the Arctic leases since 2005, hasn’t drilled any wells in the region while opponents won delays with appeals and lawsuits. Environmental organizations and Alaskan native groups have said it would take too long for equipment to reach the remote and icy region during an oil spill.

Shell acquired its leases to the Chukchi Sea in 2008.

The Interior Department’s Bureau of Safety and Environmental Enforcement must approve Shell’s oil-spill response plan before drilling can start, according to the statement.

The company needs permits from the Environmental Protection Agency, the U.S. Fish and Wildlife Service and the National Marine Fisheries Service, according to the statement.

–With assistance from Katarzyna Klimasinska in Washington. Editors: Steve Geimann, Larry Liebert

To contact the reporter on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net

SOURCE ARTICLE

Mike Sacks mike.sacks@huffingtonpost.com

First Posted: 12/15/11 12:53 PM ET Updated: 12/15/11 01:25 PM ET

WASHINGTON — A multinational oil company will be coming to the Supreme Court this winter to argue that corporations are not “natural persons” and therefore cannot be held liable for committing international human rights violations such as torture, extrajudicial killings and crimes against humanity.

The case, Kiobel v. Royal Dutch Petroleum, began far from Washington in the Ogoni region of the Niger Delta. About a dozen Nigerians contend that Shell Oil’s parent company aided and abetted the Nigerian government in its violent suppression of environmental and human rights protesters resisting Shell’s operations there in the 1990s. In September 2010, the U.S. Court of Appeals for the 2nd Circuit accepted the oil company’s argument that as a corporation it’s immune from being sued in the United States for the overseas conduct. Since then, three other appeals courts, looking at the same law, have held otherwise — in cases brought against Exxon, Firestone and Rio Tinto for similar alleged atrocities.

At first blush, the idea that corporations are not people under the law sounds perplexing. Didn’t the Supreme Court decide almost two years ago in Citizens United v. Federal Election Commission that corporations have the same First Amendment right to fund political speech as natural persons? If consistency counts for anything, shouldn’t corporations take the same responsibility for their wrongdoings?

FULL ARTICLE

Tom Bawden Tuesday 13 December 2011

By Dan Joling, The Associated Press: 7 December 2011

By LISA DEMER

Published: December 3rd, 2011 10:24 PM

NEW ORLEANS — Standing in front of a brightly colored, 3-D image of the geology far below the floor of the Chukchi Sea, Steve Phelps pointed to the “giant opportunity” that has prompted Shell Oil to pour billions of dollars into the Alaska Arctic.

“Burger — that’s the name you are going to get to know,” Phelps recently told reporters gathered here to learn about the huge oil company’s plans and promises for Alaska.

Phelps is Shell’s Alaska exploration manager, a geologist whose job it is to find big oil. The Burger field, part of a Shell naming theme that revolved around junk food, has been eyed by various oil companies for years. But it’s more than 70 miles offshore in the Chukchi Sea — between Siberia and the northwest coast of Alaska — and until recently was thought to be too expensive to develop. Now Shell — for the second time — holds the leases.

Armed with promising new seismic science, a sort of undersea sonogram of the earth’s belly, the Dutch company says Burger is a signature find. It’s the spark for ramping up controversial efforts to drill off the northernmost coast of the U.S. in some of the most extreme conditions on Earth.

“This is the stuff that most of the world was finding in the 1930s, the 1950s, the 1960s, in places like Saudi Arabia and the Middle East, Nigeria,” Phelps said. “This one potential resource far outweighs any single field we’ve got in the Americas’ portfolio.”

More than in the Gulf of Mexico, where drilling rigs checker the ocean and Shell led the way into deep-water zones that produce more oil than anyone predicted.

More than in Brazil, where Shell is the second biggest oil producer after the state energy company.

More than in Canada, where Shell is investing billions to extract thick, sticky crude from tar sands.

As a result, Shell is at the center of a classic Alaska development battle, gearing up to explore for oil as it confronts ever-higher regulatory hurdles and court challenges by environmentalists who say a big Arctic oil spill would be a disaster.

So far, Shell has spent nearly $4 billion on leases, groundwork and specialized equipment, including a new icebreaker being built in Louisiana.

At stake are billions in oil income and the reputation of a corporation that promotes a culture of safety but has been tarnished by troubles overseas.

A MIXED RECORD

In a sense, Shell is an old Alaska hand. Back in the 1960s, the company was the first to produce oil in Cook Inlet waters, where it had to engineer platforms able to withstand harsh winters and severe tides. Some of those platforms still produce today. But Shell sold those interests in the late 1990s, after their heyday.

Shell was an early explorer off Alaska’s northern coast in the Arctic, but walked away from those leases in the 1990s. The company missed out on Prudhoe Bay, the most productive oil field in the U.S.

So to many Alaskans today, Shell is an unknown quantity.

What can Alaskans expect from Royal Dutch Shell? After more than 100 years of oil exploration around the world, what is its reputation and record?

Shell executives and scientists talk about its technological know-how and commitment to prudent operations above all. The company’s installations withstand 100-foot waves in the North Sea. Shell facilities produce in freezing temperatures offshore from Russia’s Sakhalin Island. One of its Gulf of Mexico platforms sits in water eight times deeper than the Eiffel Tower is tall — a deep-water record.

Shell says it has never had a significant spill or incident in 30 years of leading-edge work in deep water, which is inherently more risky because of the high pressures.

“Planning the right well and then drilling the well right,” is how Shell managers put it time and again.

Shell’s Alaska leases are all in relatively shallow water, no deeper than 150 feet. If its prospects hold the vast amounts of oil that Shell hopes, it plans to build miles of subsea pipelines to transport the crude to shore, then more pipeline on land to get it into the trans-Alaska pipeline.

“Our goal is zero harm to the environment. Zero harm to people. Safety is ingrained in every ounce of the business that we do,” said David Lawrence, Shell’s executive vice president of exploration and commercial development.

Shell expects employees to intervene if they even suspect something is going wrong, executives said. No gain is worth rushing a project at the expense of safety, they say.

“I’m not paid enough to take those risks. I won’t take those risks. I won’t let people who work for me take those risks,” said Pete Slaiby, Shell’s vice president for Alaska. Like many of the company’s executives, Slaiby has spent his whole career with Shell in spots all around the world.

The company has a long history of competent work in the Gulf of Mexico, and will tap into the same expertise for Alaska, executives said.

But Shell’s record is not unblemished. There have been spills and environmental violations, according to critics, government records and news accounts.

In the Third World oil regime of Nigeria, the company has been accused of serious spills, human rights abuses and missteps that contributed to violence and the deaths of agitators there.

Shell is no different from other major oil producers in its relentless pursuit of profits and commitment to stockholders, critics say.

To industry watchers, Shell’s performance in challenging offshore operations is good, but not perfect.

“They are one of the industry’s most credible offshore operators, bar none, with a very long track record,” said Mark Gilman, a New York oil analyst with The Benchmark Co.

“It’s not an unblemished track record. But then again, in the industry, virtually no one’s track record is unblemished, either financially or environmentally.”

One former top engineer for Shell who went on to become a famous academic and expert on risk says it’s up to government regulators to keep a close eye on oil company operations.

Even after BP’s Deepwater Horizon blowout last year in the Gulf of Mexico, U.S. regulation still trails countries like Norway and the United Kingdom, said Robert Bea, the former Shell engineer and retired University of California Berkeley engineering professor.

Everyone with oil and gas interests in the high Arctic will be watching.

“If we do this one right . . . resource development can continue,” and Shell will be justly proud, Bea said. “But if we do it wrong, we’re going to be — I’ll call it sorry — for a long time.”

BIG PLAYER DOWN SOUTH

In Louisiana, Shell has made a name for itself as both an industry pioneer and savvy corporate citizen.

After Hurricane Katrina devastated New Orleans in 2005, organizers of the treasured Jazz Fest didn’t think they could pull it off that next year. In stepped Shell.

The event is now known as the New Orleans Jazz & Heritage Fest Presented by Shell, sponsorship that has met with mixed reaction.

“Some people are just absolutely offended by it. I know people haven’t been to Jazz Fest since that happened. Some people are very thankful. They go, ‘Oh, they saved Jazz Fest,’ ” said Aaron Viles, deputy director of the Gulf Restoration Network, a 17-year-old environmental advocacy organization.

Shell is No. 1 in employee contributions to the United Way in Southeast Louisiana; company executive John Hollowell is chairing this year’s fundraising campaign there.

One Shell Square, its 51-story skyscraper in the heart of downtown New Orleans, is Louisiana’s tallest building, a cousin to its U.S. headquarters in Houston.

If Shell gets to move ahead with its plans for the Arctic, the company expects to build an Alaska headquarters in Anchorage.

“In one very significant way, that is what success looks like,” said Curtis Smith, a spokesman for Shell in Alaska.

The 65 or so Shell employees already here work out of two floors in the Frontier Building in Midtown. Just recently, one of its New Orleans-based contractors, Superior Energy Services, signed a five-year lease on part of the Daily News building in East Anchorage.

When other oil companies moved their Gulf operational headquarters out of downtown New Orleans, Shell stayed.

“Here in New Orleans, they’re a much admired company,” said Eric Smith, a Tulane University professor and associate director of the business school’s Energy Institute. “They’ve been here as long as there’s been oil around here.”

And they’re the oil company others learn from. Literally.

“They have pioneered all the development of deep-water (wells) in the area,” Eric Smith said.

When Shell and BP joined up years ago on a deep-water Gulf of Mexico platform, Shell was the operator.

“BP went to school on Shell,” Smith said.

Shell’s training center near here — with classes in drilling, production, safety, electronics and more — is open to its competitors. The facility served as an initial base of operations during the Deepwater Horizon crisis.

The blowout on BP’s Macondo prospect, involving the Deepwater Horizon rig, killed 11 workers and spewed millions of gallons of oil into the Gulf of Mexico.

Shell’s chief well scientist, Charlie Williams, was a top adviser to the Deepwater Horizon incident commander. Williams is now board chairman of the new Center for Offshore Safety, an industry-led group that will help oil companies comply with tougher requirements, some of them mirroring what Shell already does.

Shell had a disastrous Gulf of Mexico well blowout and fire, too, back in 1970 in the Bay Marchand field, which was offshore though not in deep water.

Four men were killed; 2.2 million gallons of oil leaked into the Gulf over a number of months; 10 relief wells were drilled.

The spill was Shell’s worst ever. As with the Deepwater Horizon, things went wrong in ways no one expected and people made mistakes.

Bea, who worked as a Shell engineer in the 1960s and ’70s, helped design the multiwell platform in the Bay Marchand field.

“Something overcame Shell. I’ll call it the drive to make money,” Bea said.

Still, Shell learned and became more cautious after system failures, including that one, he said.

“Overall in terms of industry and being able to handle these kinds of complex systems — and I include the arctic environment in those systems — Shell is among the best in the world,” Bea said.

TALE OF TWO ENCOUNTERS

In the mid-2000s, Shell planned to build a liquefied natural gas terminal offshore in the Gulf of Mexico. The terminal was designed to suck up hundreds of millions of gallons of sea water a day in the process of warming and vaporizing the super-chilled liquid gas. Eggs and larva in the water would have been killed.

Environmentalists mobilized against the “open loop” design. A group went to The Hague in the Netherlands to protest at a Shell shareholder meeting. Others railed about different issues, including Shell’s troubles in Nigeria. People waved signs. Protesters took to the mic. As Viles, the activist with the Gulf Restoration Network, remembers it, Shell let them all vent.

About the same time, Greenpeace activists were going after Exxon at its annual meeting in Dallas.

“My friends from Greenpeace were getting arrested and Shell was greeting us with coffee and chocolate and inviting us to stay after the meeting to drink Heineken at the bar with their executives,” Viles said.

It wasn’t just to smooth things over — Shell wanted to hear what they had to say, he said.

Ultimately, Shell dropped the project. An executive flew to New Orleans to tell the environmental opposition before announcing the decision publicly.

But in a different case, according to Viles, Shell flubbed it.

A large coalition of environmentalists, fishermen, corporate watchdogs and others — including some Alaskans — confronted Shell in 2008 about a growing and expensive problem: the rapid loss of wetlands in coastal Louisiana. Scientists have found that dredging for oil and gas pipelines was one of the chief contributors to the loss, the group, led by the Gulf Restoration Network, said in a November 2008 letter.

“Shell, we are asking you to act to restore the wetlands that have been damaged due to your oil and gas exploration and development in Louisiana,” the group said. It wanted Shell to pay up to $362 million for restoration efforts.

Shell replied with a form letter.

“Thank you for your recent inquiry requesting our financial support,” the “Dear Applicant” denial said. “Your inquiry, unfortunately, falls outside the scope of our current guidelines for grant-making.”

Viles said he followed up with Shell, but didn’t get much more of a response.

Meanwhile, Shell has its name as world sponsor on an effort called America’s Wetland Foundation. The initiative, which includes a variety of businesses and environmental groups, puts attention on problems arising from the loss of Mississippi River Delta wetlands and advocates for solutions.

The group supports federal funding for restoration of the wetlands.

ENVIRONMENTAL RECORD

Shell executives stress that the company has a history of operating safely in Alaska.

The company drilled four exploration wells in the Chukchi Sea and 15 in the Beaufort; it was the biggest player in the frigid north in the 1980s and early ’90s.

While there were some small spills of fuels and crude, almost all of it was cleaned up, according to a federal environmental assessment of Shell’s current plans. There was no big spill, no blown out well, no environmental disaster.

In the late 1990s, with the price of oil less than $10 a barrel and the cost of building platforms and pipelines in the remote Arctic high, Shell walked away from its leases.

In federal waters offshore in the Gulf of Mexico, Shell has had 22 spills of at least 2,100 gallons of oil, drilling mud, fuels or chemicals between 2000 and 2010, according to an analysis of statistics kept by the Bureau of Ocean Energy Management, Regulation and Enforcement.

That’s two fewer than BP and three more than Chevron, the other big operator there.

Shell’s work in Cook Inlet in the 1990s generated sharp complaints from environmentalists over its handling of wastewater generated on its platforms.

The company was able to settle the complaints in part by paying into a fund for the creation of Cook Inletkeeper, an environmental watchdog group. Shell’s share of the blame, as measured by the settlement, was a relatively small $48,000.

Marathon and Unocal, two other big operators of oil and gas platforms in Cook Inlet at the time, split the bulk of the $895,000 for Cook Inletkeeper’s creation, according to an agreement filed in court. The three companies also paid a combined $194,000 in federal civil penalties under the deal.

Shell had a reputation as a good performer overall, said Mark MacIntyre, a spokesman for the U.S. Environmental Protection Agency, which brought its own claims against the operators and helped negotiate the settlement.

Shell maintains that the allegations were exaggerated. The producers changed some practices and moved on, said Curtis Smith, the Shell spokesman for Alaska. The continued strong salmon runs in Cook Inlet illustrate its health, he said.

But environmentalists said the case reflects on Shell.

“There were definitely discharges of toxic substances,” said Pam Miller, a former Greenpeace research biologist who now heads Alaska Community Action on Toxics.

In the U.K., Shell is drawing fresh scrutiny after an August pipeline leak that ranks as the biggest North Sea spill in a decade. A pipeline from a Shell platform 110 miles off the coast of Aberdeen, Scotland, leaked about 55,000 gallons of oil.

The case grabbed headlines around the world. The spill “tarnished Britain’s reputation for avoiding such problems,” The New York Times reported.

“They cannot come into Alaska and pretend they have an impeccable record,” said Rick Steiner, a marine conservation biologist and former University of Alaska professor who has watched Shell for years, especially in Nigeria.

Although it did inform regulators, Shell did not tell the public about the North Sea spill for two days. Environmentalists accused Shell of trying to keep it hush-hush.

Shell says it wanted to understand the problem first, but some executives agree that holding back was a mistake.

“If it were my operation, we would have done it immediately,” said Slaiby, Shell’s vice president for Alaska.

Efforts to stop the North Sea spill were complicated by subsea conditions on an old pipe surrounded by marine growth. After the sheen was spotted from the air, the well was shut in and the line depressurized, Shell said. But a relief valve opened to release the pressure failed to re-close completely and a small amount of oil continued to seep. The oil stopped leaking after divers closed the valve, nine days after the spill began.

At any rate, Shell says the well was never out of control and that oil ultimately was trapped between two points in the pipeline as intended.

“Shell transports over two billion barrels of oil and gas through sub-sea pipelines annually and we expect every ounce of that oil to reach its intended destination,” Shell said in a written response to questions from the Daily News. When it doesn’t, the company is fully responsible for cleaning it up, Shell said.

The company insists the North Sea incident doesn’t foretell what might happen in the Alaska Arctic.

‘A SAFETY CULTURE’

Shell set its sights anew on Alaska in 2005, buying up leases in the Beaufort Sea and expanding its holdings there two years later.

Then, in 2008, Shell left no doubt it wanted to be a major player, paying $2.1 billion to the federal government for Chukchi leases the second time around. Now it owns the rights to more than 2 million acres in the seas off Alaska’s northern coast, far more than any other explorer.

But it has not yet been able to drill. It still needs additional permits. Environmental organizations, with support from some Alaska Native communities, have sued at every turn.

Shell now aims to begin its exploration in mid-summer 2012, during the open water season.

Technology has advanced over the decades to lessen the risk of drilling, and oil production, in the Arctic, Shell scientists say. And, they say, blowouts are unlikely here.

“The Arctic wells are really straightforward wells with few challenges on executing them,” said Williams, the chief well scientist for Shell. “They are in shallow water. They are at low pressure, and they have what we call a margin. It gives you a lot of room to operate.”

Before Shell drills a well, a team of engineers and operators plans it out step by step and evaluates what could go wrong and how to prevent it.

“The last one we do, we call ‘drill the well on paper,’ ” Williams said.

If part of the spill prevention system breaks down, work must stop until a backup is in place, he said.

“It all fits into what we call safety culture,” Williams said. “It’s where people . . . make the right decision at the right time.”

Shell says it was the first major oil company to staff an operations center that monitors drilling as it happens — 24 hours a day, seven days a week — in high risk and high stakes situations. If the company is able to develop fields off Alaska, Shell said, it plans to build a satellite center in the state.

The company is pushing its safety message hard. It paid to air a 30-minute, documentary-style program entitled “Arctic Ready” in prime time, on Nov. 20 on KTUU-Channel 2.

For years, Shell has worked to build relationships with Alaska villages along the Chukchi and Beaufort seas to give residents confidence in its ability to handle trouble, Slaiby said. The company has held hundreds of meetings in Barrow and the seven surrounding villages, according to Shell’s count. Shell Oil President Marvin Odum, the company’s top executive in the Americas, came to a number of them.

Shell put a half-million dollars into a fund for villages and didn’t dictate how the money had to be used, said Dennis McMillian, who coordinates the effort as chief executive of the Foraker Group, which helps nonprofit organizations. Much of the money was spent on equipment like computers and fax machines.

Bessie Kowunna is a Point Hope villager who works for Shell as a community liaison officer.

“It’s the first time we’re dealing with an oil company here. And a lot of our hunters and our whalers — they bring up this oil spill, what if it happens and ruins our hunting. Because we depend on the hunting and the harvest of the bowhead whale every spring, just this circle of life, how we catch our food from the ocean,” Kowunna said.

She said some residents are upset she works for the oil company.

“My response is — I’m not drilling out there. I’m an in-between person to let you know what is going on,” she said.

Environmentalists say more research needs to precede any drilling. Too little is known about the science of the ocean there, they say. What about an oil spill under ice? What about studies that show problems with cleanup during periods of broken ice?

Shell’s oil spill contingency plan is one of the best, but if a disastrous spill happened in the remote Arctic, maybe 3 percent of the crude could be cleaned up, estimated Steiner, the former university professor who now works as an environmental consultant.

Shell maintains otherwise.

“Our whole philosophy has been, in the Arctic, we are remote — we’ve got to contain any oil close to the source literally as quick as we can,” Slaiby said.

Tapping the Arctic’s resources takes big money, operational expertise and advanced technical know-how, he said. “I think there’s probably only a handful of companies that can do what we’re doing right now.”

Reach Lisa Demer at ldemer@adn.com or 257-4390.

SOURCE ARTICLE

So Mr. Ely said he was surprised several years later when the drilling company, Cabot Oil and Gas, informed them that rather than draining and hauling away the toxic drilling sludge stored in large waste ponds on the property, it would leave the waste, cover it with dirt and seed the area with grass. He knew that waste pond liners can leak, seeping contaminated waste.

Wed Nov 30, 2011 1:43pm EST

* Community seeks C$1.5 million, citing blocked requests

* Shell says has spent more than C$200 mln

Nov 30 (Reuters) – A Canadian native group is suing Royal Dutch Shell Plc for what it said was a failure by the oil major to live up to environmental funding agreements tied to Shell’s massive northern Alberta oil sands developments.

The Athabasca Chipewyan First Nation seeks C$1.5 million ($1.47 million) from Shell for allegedly blocking requests for money to be used for sustainable development and education initiatives in the community under agreements made in 2003 and 2006.

Shell’s Athabasca Oil Sands project, Canada’s third largest tar sands mining development, is in the aboriginal group’s traditional territory. The Athabasca Chipewyan said the company is trying to change the terms of the funding, meant to ease the impact of tar sands development on the community. The charges have not been proven in court.

“We came in good faith, always willing to talk with them,” Athabasca Chipewyan Chief Allan Adam told Reuters on Wednesday. “Shell played the role of tough guy and refused to deal with us on the terms we negotiated.”

The suit comes amid growing international controversy over the impact of oil sands development on air, land, water and local communities. The Alberta oil sands deposits are the third-largest source of crude in the world, and Canada has made exports of the resource a top national priority.

The community of Fort Chipewyan, located downstream from the oil sands developments, has experienced unusual health problems, including elevated rates of rare cancers. Studies have been unable to definitively rule out a link with the oil projects and controversy remains.

Adam said the lawsuit is unrelated to the health concerns in the community of 963 people.

For its part, Shell said the dispute amounts to a fraction of the more than C$200 million the company has spent on numerous initiatives in the community over the past five years under its “good neighbor” program.

An example of a request that was denied was a bursary in which there wasn’t a student to use it and the first nation wanted cash in lieu, said John Broadhurst, Shell’s vice-president, development, heavy oil.

He said he was disappointed by the lawsuit and hoped the two sides can reach a settlement.

“It’s not that we’re not committed to doing right by the community and following through on our commitments,” Broadhurst said.

SOURCE ARTICLE