After a spate of mishaps and mechanical issues that beleaguered Royal Dutch Shell's bid at offshore drilling in Arctic Alaska, the company announced Wednesday it would suspend its 2013 drilling season.
Shell is pausing in order "to prepare equipment and plans for a resumption of activity at a later stage," the company said in a statement.
Shell's first year in the Alaska Arctic -- after a long permitting process and billions of dollars invested -- proved troublesome. Stubborn sea ice hampered the company's drilling efforts and there were numerous incidents involving the drillship Noble Discoverer and drill rig Kulluk -- key pieces of Shell's Arctic plans. Both vessels will be taken to Asia for repairs.
Reactions to Shell’s decision to hold off on drilling this year brought responses from politicians, environmental groups and others. It also raised questions about Shell’s plans for 2014 and beyond as well as the plans of other leaseholders on the Outer Continental Shelf, where Arctic oil drilling will take place.
Timeline of a tough season
The conical drill rig Kulluk left under tow from Kiliuda Bay on Tuesday, after spending more than a month in the sheltered waters of Kodiak Island in the wake of its grounding on New Year's Eve. The ship, being towed through the turbulent waters of the Gulf of Alaska, was separated in late December from its tow vessels before washing ashore on Sitkalidak Island, south of Kodiak.
It bumped against Sitkalidak’s rocky shores for days before it was determined it could be moved to the relative safety of Kiliuda Bay. A lengthy analysis determined that the Kulluk was safe to haul to Dutch Harbor in Alaska’s Aleutian Islands. From there, it will then be hauled to Asia.
Meanwhile, the Noble Discoverer has been docked in Seward since November after it had to be towed to port due to a problem with its propulsion system. While there, a Coast Guard inspection turned up numerous safety issues with the vessel, as well as possible pollution-control concerns. That investigation has been handed over the U.S. Attorney's office in Anchorage for further review, and may see legal action brought against the contractor in charge of the Discoverer's operation, Noble Corp.
There was no timeline for when any such action might take place, Assistant U.S. Attorney Kevin Feldis said Wednesday, adding that the investigation was ongoing.
The Noble Discoverer remained in Seward as of Wednesday morning, awaiting a tow of its own to a shipyard in Korea.
Shell Alaska spokesman Curtis Smith said that the decision to put a hold on this season came after Shell assessed the viability of drilling in the wake of the Kulluk incident.
"This is based on the time needed to assess the readiness of our rigs and to ensure the integrity of the safety-management systems that govern our day-to-day operations," Smith said via email. "The scope of work for both rigs will only be determined after they arrive at their respective shipyard destinations."
Earlier in the season, both vessels were held up for longer than expected in Dutch Harbor thanks to stubborn sea ice in the Bering Sea.
Shell's statement on the suspension of the 2013 drilling season emphasized a commitment to responsible development in the Arctic.
"We’ve made progress in Alaska, but this is a long-term program that we are pursuing in a safe and measured way,” Shell President Marvin Odum said. “Our decision to pause in 2013 will give us time to ensure the readiness of all our equipment and people following the drilling season in 2012."
The future of Arctic drilling
By outward appearances, Shell appears to remain interested in continuing its Arctic program that has already cost upwards of $5 billion.
“Alaska remains an area with high potential for Shell over the long term, and the company is committed to drill there again in the future,” the company said.
But for two other leaseholders off of Alaska’s Arctic coast, ConocoPhillips and Norwegian state-owned company Statoil, the Shell setback might have a ripple effect on their own plans in the region.
Statoil had previously delayed exploratory drilling from 2014 until 2015, adopting a “wait-and-see” approach based on the results of Shell’s bold endeavor. On Wednesday, Statoil spokesman Jim Schwartz said, “No firm decisions have been made with regards to drilling in 2015,” but the company was still hopeful that exploratory drilling would begin that year.
ConocoPhillips, the other leaseholder in the region, had planned for a 2014 drilling season, and a brief statement from the company on Wednesday reaffirmed that agenda.
“ConocoPhillips will continue with its plans to drill one or two exploration wells in the Devil’s Paw prospect in the Chukchi Sea during open water conditions in the summer/fall of 2014,” the statement read in part. “ConocoPhillips is committed to responsible oil-and-gas development and exploration in the Arctic.”
Statoil and ConocoPhillips’ 10-year leases were purchased during a lease sale in February of 2008. They’re set to expire in 2019, thanks to the lengthy offshore moratorium in the wake of the 2010 BP Macondo oil spill in the Gulf of Mexico.
Alaska Department of Natural Resources Commissioner Dan Sullivan said that everyone with a stake in Arctic oil development can learn from Shell’s first year in the region.
“From our perspective ... when there is a lesson learned, everyone can learn from that,” Sullivan said. “The state, the companies certainly, and the federal government.”
Sullivan had some criticisms of the federal government’s involvement in Shell’s quest to drill in the Arctic, in particular what he called an inefficient permitting process and the 2010 offshore drilling moratorium in the wake of the BP spill.
He added that discussions with the Department of Interior indicated that a review ordered by Interior Secretary Ken Salazar of the 2012 drilling season would not be performed with the goal of making some ultimate decision on Arctic development and whether or not to continue drilling.
Reactions from around Alaska
As Shell prepared to haul its Arctic drilling armament to Asia, reactions to the drilling suspension poured in. The Center for Biological Diversity, the World Wildlife Fund, Greenpeace, Earth Justice, Oceana and the Wilderness Society all weighed in -- some almost gloatingly -- on Shell’s decision to suspend drilling. Many suggested that the temporary halt should become permanent.
Resisting Environmental Destruction of Indigenous Lands (REDOIL), an organization of Alaska Natives emphasizing preservation of the environment as it relates subsistence living, echoed that sentiment.
“We understand our Arctic environment better than anyone, and we are telling Shell Oil there is no way to drill for oil safely in the Arctic,” said REDOIL Chairman Robert Thompson, of Kaktovik. “Their best-laid plans weren’t adequate. Why risk our traditional way of life on promises that ultimately will be broken?”
Others didn’t call for an outright ban on drilling, but acknowledged Shell’s troubled first year.
“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,” said Lois Epstein with the Wilderness Society.
Marilyn Heiman, director of the U.S. Arctic Program of Pew Trusts, had a similar take.
“(Shell) had some safety and management challenges that I don’t think they had fully thought through,” Heiman said. She said other companies interested in drilling in the Arctic can learn much from Shell’s problems.
“It’s far more challenging than people think, and I think everyone is calculating that in now,” Heiman said. “There are challenges of not just drilling, but of response in these kinds of conditions.”
Politicians weighed in as well. Members of Alaska’s congressional delegation, including Sen. Mark Begich and Rep. Don Young, expressed disappointment at the delayed drilling season. A similar sentiment came from Alaska Gov. Sean Parnell. Republicans in the Alaska House of Representatives expressed hope that Shell would continue its offshore work next year.
Commissioner Sullivan reiterated the governor’s message that Alaska remains committed to the long-term development of the Arctic done in a way that protects the environment.
“Our longer-term view on this…is that the Arctic is going to be developed, and the question is where and by what standards,” Sullivan said. “We believe Alaska has the highest standards in the world with regards to resource development.”
He pointed in particular to Russia, a country aggressively developing its Arctic assets, but which has “lower standards and not much will to enforce them,” Sullivan said.
The question, he said, then becomes: “Is the development going to take place in Alaska, the place with the highest standards, or in other places?”
Contact Ben Anderson at ben(at)alaskadispatch.com