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With 2 Ships Out of Commission, Shell Suspends Arctic Drilling

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By February 27, 2013

WASHINGTON — After a series of costly and embarrassing accidents in its efforts to drill exploratory wells off the north coast of Alaska last year, Royal Dutch Shell announced on Wednesday that it would not return to the Arctic in 2013.

The company’s two drill ships suffered serious accidents as they were leaving drilling sites in the Beaufort and Chukchi Seas last fall and winter and are being sent to Asia for repairs. Shell acknowledged in a statement that the ships would not be fixed in time to drill during the short summer window this year.

“Our decision to pause in 2013 will give us time to ensure the readiness of all our equipment and people,” said Marvin E. Odum, president of Shell Oil Company.

He said Arctic offshore drilling was a long-term project that the company would continue to pursue.

The Interior Department, the Coast Guard and the Justice Department are reviewing Shell’s operations, which have included groundings, environmental and safety violations, weather delays, the collapse of its spill-containment equipment and other failures.

Shell has invested more than $4.5 billion in leases and equipment and spent several years on an intensive lobbying campaign to persuade federal officials that it could drill safely in the unforgiving waters of the Arctic Ocean. It now acknowledges that the venture has been much more difficult than it anticipated.

Shell had planned to drill as many as 10 wells in 2012 but was able to start only two. Federal regulators barred the company from drilling into oil-bearing formations because it did not have adequate spill prevention and cleanup equipment available.

“This is not a surprise, as Shell has had numerous serious problems in getting to and from the Arctic, as well as problems operating in the Arctic,” said Lois N. Epstein, Arctic program director for the Wilderness Society and a member of the Interior Department panel reviewing Shell’s operations. “Shell’s managers have not been straight with the American public, and possibly even with its own investors, on how difficult its Arctic Ocean operations have been this past year.”

Both ships involved in the drilling, the Noble Discoverer and the Kulluk, suffered serious accidents while moving to or from the oil fields. In addition, Coast Guard inspectors found numerous violations on the Discoverer and have referred the matter to federal prosecutors for investigation.

Shell executives said the Kulluk sustained damage to its hull when it was grounded on tiny Sitkalidak Island during a fierce storm in late December. Seawater also caused electrical damage.

They said the propulsion systems on the Noble Discoverer required maintenance and might need to be replaced for the ship to be seaworthy and pass Coast Guard inspections.

The Noble Discoverer dragged its anchor last July and nearly ran aground on the Alaska coast, and four months later it was damaged by an explosion and fire while in port in the Aleutian Islands.

Senator Lisa Murkowski, Republican of Alaska, a strong proponent of Arctic oil exploration, said the delay would ensure that drilling could proceed safely in the future.

“This pause — and it is only a pause in a multiyear drilling program that will ultimately provide great benefits both to the state of Alaska and the nation as a whole — is necessary for Shell to repair its ships and make the necessary updates to its exploration plans that will ensure a safe return to exploration soon,” Ms. Murkowski said in a statement.

Michael LeVine, senior Pacific counsel for the environmental advocacy group Oceana, said that Shell and the federal authorities who allowed it to begin drilling needed to think carefully about whether it would ever be safe to resume.

“The decisions to allow Shell to operate in the Arctic Ocean clearly were premature,” Mr. LeVine said in an e-mail. “The company is not prepared and has absolutely no one but itself to blame for its failures.”


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