A Review of the Nigerian Energy Industry

Shell ‘failings’ in Alaska grounding

Shell 306 April 2014, News Wires – Shell has been slated by the US Coast Guard (USCG) for failing to carry out proper risk assessment and ignoring warnings about the dangers of towing a drilling rig in rough Arctic waters before it ran aground off Alaska, apparently to avoid taxes.

The Anglo-Dutch supermajor has come in for scathing criticism in the USCG’s investigation report on the incident released on Thursday in which it blames the company for failings that led to the grounding of the cylindrical unit Kulluk in late 2012.

It cited “inadequate assessment and management of risks associated with a complex vessel movement” in harsh winter weather conditions off Alaska as “the most significant” factor behind the incident in storm-tossed seas.

The 152-page report, which came nearly a year after a Coast Guard hearing into the incident off Kodiak Island, concluded that Shell’s towing plans “were not adequate for the winter towing operation crossing the Gulf of Alaska”.

It also said tax laws “influenced the decision” because Shell believed the rig would be subject to state property taxation if it were to stay in Alaska waters to 1 January 2013.

The drilling rig was towed by the Aiviq, a custom-built vessel operated by Edison Chouest Offshore.

“To be blunt, I believe that this length of tow, at this time of year, in this location, with our current routing guarantees an ass kicking,” Aiviq’s tow master warned Shell early in the tow, according to the report.

Coast Guard Rear Admiral Joseph Sevidido warned oil companies not to “complacently assume past practice will address new risks”.

The Kulluk, having completed preliminary drilling on an exploration well in the Beaufort Sea, broke away from its tow lines and support vessels attempting to regain control of the drillship developed their own engine and mechanical problems, a Shell official said last year.

Shell said it is now reviewing the USCG’s findings, having ditched its exploration plans off Alaska as part of a cost-cutting exercise.

“We appreciate the thorough investigation and will take any findings seriously,” the company said in a statement cited by Reuters.

“Already, we have implemented lessons learned from our internal review of our 2012 operations. Those improvements will be measured against the findings in the USCG report as well as recommendations from the US Department of Interior.”

Responding to the report, watchdog investor group ShareAction said it “should alert Shell shareholders to the very serious failings in the company’s Arctic risk management strategies”, as well as prompt questions at the supermajor’s investor day in London on 10 April.

“This report identifies some of the same failings as the March 2013 Department of the Interior report, most notably regarding contractor selection,” said group spokesperson Louise Rouse.

“Investors have a responsibility to savers to demand from Shell specific details regarding changes to company practices which, to date, have not been forthcoming.”

A federal appeals court has ruled that the US Department of Interior awarded Arctic drilling leases in 2008 without considering the range of potential environmental risks stemming from oil drilling.



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