Problems prompt federal review of Arctic drilling operations

After a series of problems plagued the debut of offshore oil drilling in the U.S. Arctic, Interior Secretary Ken Salazar Tuesday ordered a high-level, expedited review of oil operations in Alaskan waters aimed at achieving “safe and responsible exploration for energy resources in the Arctic.”

The review, scheduled to be completed over the next 60 days before a new round of drilling in the summer, could prompt additional regulatory examination of Shell Alaska’s operations in the Beaufort and Chukchi seas, the most promising and controversial of America’s new oil frontiers.

“Exploration allows us to better comprehend the true scope of our resources in the Arctic and to more fully understand the nature of the risks and benefits of development in this region, but we also recognize that the unique challenges posed by the Arctic environment demand an even higher level of scrutiny,” Salazar said in a statement announcing the review, which will be undertaken by federal Bureau of Ocean Energy Management director Tommy Beaudreau.

Federal officials said the review would examine Shell Alaska’s safety management systems, its oversight of contractors and overall ability to meet standards for operating in the remote, treacherous waters of the Far North, which until now have seen only limited oil operations.

Shell spent nearly $5 billion preparing to drill its leases in the Beaufort and Chukchi seas, but because of late-season ice and serious problems obtaining seaworthiness certification for its oil spill containment vessel, it could drill only “top holes” for two initial wells. The top holes allowed engineers to reach the upper foundations of the wells but did not extend deeper into petroleum reservoirs.

Not only did the containment vessel, the Arctic Challenger, have trouble winning Coast Guard approval, but the high-tech oil spill containment dome it was ferrying to the Arctic — one of the centerpieces of Shell’s oil spill response strategy — was damaged during testing, dashing any hope of drilling into oil reservoirs for the 2012 season.

One of Shell’s two mobile drilling rigs, the Kulluk, came loose and nearly grounded near Dutch Harbor, Alaska, on its way to the Far North last year. The same rig hit stormy weather on the way back from drilling operations late last month, pulling loose from two tow vessels and running aground south of Kodiak Island.

A massive recovery operation, undertaken jointly by Shell and the U.S. Coast Guard, only this week succeeded in towing the vessel to safety in a nearby harbor.

Shell’s second drilling rig, the Noble Discoverer, also ran into problems. At the close of the drilling season, Coast Guard inspectors and Shell’s own employees flagged a number of safety and pollution control issues. The rig was temporarily held in port in Seward, Alaska, but was scheduled to set sail for Seattle for maintenance and repairs.

The Interior Department’s announcement said it would “review practices and identify challenges as well as lessons learned” stemming from all of those incidents, detailed in a timeline prepared by the Wilderness Society.

Separately, the U.S. Coast Guard announced Tuesday that it would undertake a “comprehensive marine casualty investigation” stemming from the grounding of the Kulluk near Kodiak. That incident required a full-scale Coast Guard response, including a helicopter evacuation of the Kulluk’s crew in treacherous seas, fixed aircraft overflights and, although there were no apparent fuel leaks, oversight of the deployment of precautionary oil spill gear.

Coast Guard officials said the inquiry is expected to take months and will examine the causes of the incident, whether there is evidence that any failure of material was involved or whether there is evidence of “misconduct, inattention, negligence or willful violation of the law.”

“We expect the highest level of performance from operators in the Arctic,” James A. Watson, head of the Interior Department’s Bureau of Safety and Environmental Enforcement, said in the statement announcing the Interior review. “As we oversee historic domestic drilling, BSEE will continue its unprecedented oversight of drilling activities in the Arctic and we will continue to hold anyone operating in public waters to the highest safety and environmental standards.”

Shell officials have emphasized that the vessel problems they encountered occurred not during drilling, which appears to have unfolded without much incident, but during testing and transit.

“While we completed our drilling operations off the North Slope safely and in accordance with robust permitting and regulatory standards, we nevertheless experienced challenges in supporting the program -- especially in moving our rigs to and from the theater of operations,” Shell spokesman Curtis Smith said in an email to the Los Angeles Times.

“We have already been in dialogue with the DOI on lessons learned from this season, and a high level review will help strengthen our Alaska exploration program going forward,” he said.

Critics who have said the Arctic is too remote and hostile a territory for oil operations are hoping the review will go much further, and demonstrate that oil producers cannot safely operate there.

“We hope that this is more than a paper exercise. It is well past time for a full, fair and public review of whether companies can operate safely in the Arctic, and if so, what changes are needed to make sure that happens,” said Michael LeVine of the conservation group Oceana, which along with other groups has fought offshore drilling in court for years.

He said “the most reasonable outcome of any review” would be a suspension of offshore Arctic operations. “These activities should be stopped while necessary changes are made and a reevaluation of past decisions is undertaken.”

Marilyn Heiman, director of the Pew Environment Group’s U.S. Arctic program, said she hopes the Obama administration will “impose Arctic-specific safety, training and spill response standards and ensure the proper precautions are in place before approving any additional drilling.”

“Clearly we aren’t there yet,” she said.

Coast Guard officials have said they have found no evidence of leakage from the Kulluk during initial examinations in Kiliuda Bay, where the vessel was towed to safety this week, but preparations were underway to examine the hull with a remotely operated submarine.

Shell officials are hoping to tow the vessel to Seattle for repairs, though it is not known whether they could be finished in time for the summer drilling season, which commences in July.

A continuing question of why the Kulluk was being towed toward Seattle in such bad weather will probably form part of the Coast Guard inquiry.

Shell officials have said the weather forecast was “appropriate” when the vessel left Dutch Harbor. But Alaskan newspapers have questioned whether a potential tax liability could have influenced the decision to depart: The company theoretically could have been liable for millions of dollars in oil equipment property tax, local news reports suggested, had the Kulluk still been moored in Dutch Harbor on Jan. 1.

Smith denied that the potential tax liability played any role in the timing of the oil barge’s sailing.

“The taxes were a consideration, because we were aware of them, but they were in no way a driver for our departure,” he said. “A safe operating [weather] window and the need to perform maintenance on the Kulluk informed our decision to move it to Seattle.”

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