Feds order Arctic drilling probe after rig accident

The Obama administration ordered a broad review of Shell’s Arctic drilling program on Tuesday, following a series of mishaps that culminated with the grounding of the company’s Kulluk rig on New Year’s Eve.

The move calls into question whether Shell Oil Co. will be allowed to continue its hunt for crude under the Chukchi and Beaufort seas north of Alaska, after spending $5 billion and more than six years on the quest.

In announcing the probe, Interior Secretary Ken Salazar stressed that the Obama administration “is fully committed to exploring for potential in energy resources in frontier areas, such as the Arctic.”

But some analysts suggested the inquiry nevertheless could mark a shift in the administration’s support for a new generation of Arctic oil exploration, possibly affecting plans by ConocoPhillips, Statoil and other companies to drill in the region.

Shell’s Kulluk conical drilling unit collided with the rocky shore of Alaska’ Sitkalidak Island on Dec. 31, following a five-day battle to tow the unpropelled rig to safe harbor amid 70-mph winds and waves that climbed four-stories high. Shell had been towing the 266-foot floating rig to a Seattle shipyard two months after it finished boring the first half of an exploratory oil well in the Beaufort Sea. On Monday, salvage teams successfully pulled it to sheltered Kiliuda Bay for further assessments, and on Tuesday, they were planning to send remote-operated vehicles underwater to examine its hull.

The Interior Department said the “expedited, high-level assessment” of Shell’s 2012 Arctic drilling program is expected to be completed within 60 days. Officials said the probe would focus on the Kulluk accident as well as other “challenges” during Shell’s 2012 Arctic program, including the drillship Noble Discoverer’s out-of-control drift near Dutch Harbor, Alaska, last July, and the failure of Shell’s one-of-a-kind oil spill containment system during a deployment drill last September.

Salazar noted that Arctic oil exploration helps pinpoint “the true scope” of U.S. energy resources in the region. “But,” he added, “we also recognize that the unique challenges posed by the Arctic environment demand an even higher level of scrutiny.”

Although the probe falls short of environmentalists’ demands for a halt to all Arctic exploration that they deem too risky to allow, it could open the door to more limitations on the efforts and new safety regulations to guide the work. The Interior Department said the review, conducted by Acting Assistant Secretary for Land and Minerals Management Tommy Beaudreau with help from the Coast Guard, would “help inform future permitting processes in the region.”

Shell has stressed that mishaps with the Discoverer and Kulluk were maritime incidents — not drilling accidents. But the government’s review is treating maritime movement of Arctic drilling vessels and equipment as inextricably tied to the exploration itself.

Energy experts and environmentalists said that approach makes sense.

“One of the things this investigation might look at is what is the safe schedule for the transportation or equipment and drilling ships that are laden with oil and chemicals,” said Amy Myers Jaffe, the executive director of energy and sustainability at University of California, Davis. “Are there times of the year where they shouldn’t be transporting that around because there are rough seas and storms come up suddenly?”

Lois Epstein, Arctic director for The Wilderness Society, and a member of an Interior Department offshore safety advisory committee, stressed that marine transportation and Arctic drilling are interrelated.

“You can’t separate them,” Epstein said. “It’s all got to be done well.

Epstein called the administration’s move a “significant” look at lessons from a new generation of Arctic oil drilling.

With Shell, “you have a very technically capable company and you have a well-funded operation. Noble, their contractor, is not a low-cost contractor,” she noted. “And yet together, they had a number of very serious problems.”

Shell said in a statement that it welcomed the Interior Department’s review.

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

Offshore drilling foes urged the White House to do a searching examination — including a reassessment of its own plans to lease new Arctic waters for oil development.

“Now is the time to stand up to ‘Big Oil’ and with the American people, our oceans, and our public resources,” said Mike LeVine, the Pacific senior counsel for the conservation group Oceana. “The government must reassess its commitment to exploration in difficult places like the Arctic and how it makes decisions about our ocean resources. Shell has proven that it is not prepared to operate in Alaskan waters.”

Greenpeace Deputy Campaigns Director Dan Howells predicted the review “will surely find that Arctic drilling is far beyond the technical abilities of Shell or any other oil company.”

“We’ve repeatedly been told Shell is the best in the business, and so we can only conclude after this series of mishaps that the best in the business is simply not good enough for the Arctic,” he added.

Separately, the Coast Guard on Tuesday announced it was launching a formal marine casualty investigation into the Kulluk’s grounding, with special attention to the review of Shell’s tow plan and how equipment failures may have contributed to the accident. Shell has drawn scrutiny for sending the Kulluk on a two-week trek across the predictably stormy Gulf of Alaska on Dec. 21, when it saw clear weather, even though National Weather Service meteorologists say predictions are unreliable more than 60 hours out.

Shell finished boring the first half of two wells in the Beaufort and Chukchi seas last October. If regulators approve, the company plans to return to the area to finish those wells and drill additional ones.