A top Democratic lawmaker is questioning whether financial concerns drove Shell to send the Kulluk drilling rig on its ill-fated two-week trek across the predictably stormy Gulf of Alaska in late December.
Rep. Ed Markey, D-Mass., said it was “profoundly troubling” that “financial concerns, rather than safety, may have factored into Shell’s” decision to send the Kulluk and its towboat, Aiviq, on its voyage from Dutch Harbor, Alaska to Seattle on Dec. 21.
The rig, of course, never made it to the Emerald City. Instead, it ran into a series of storms near Kodiak Island, Alaska, where its tow line broke and the Aiviq’s four engines failed. After a five-day fight to tow the 266-foot rig to safe harbor, it plowed into the rocky seabed along an uninhabited Alaskan island on New Year’s Eve.
In a letter to Shell Oil Co. President Marvin Odum, Markey said he was concerned that Shell’s decision “may have been driven, in part by a desire to avoid . . . tax liability on the rig.”
Had Shell docked the Kulluk in Dutch Harbor, Alaska for the winter, the company may have faced a bill from Alaska, which imposes a 2 percent tax on all oil and gas infrastructure in state waters. State tax officials had not decided how to treat the Kulluk if it remained in Alaska waters on Jan. 1, but the potential liability was upwards of $6 million, according to the value of recent renovations of the rig.
Shell’s explanations about the decision have shifted slightly, though it appears financial considerations did play a role in the decision to send the Kulluk south to Seattle — if not the late December timing of that trip.
The company planned to conduct maintenance on the conical drilling unit during the winter, when ice locks it out of Arctic waters, but in October, it still wasn’t clear where that work would be done. One option was the Vigor Shipyard in Seattle, where Shell’s contracted drillship Noble Discoverer was set to undergo work.
Dutch Harbor was also a possibility, though Shell spokesman Curtis Smith has stressed that it is not a working shipyard well-suited for the maintenance work, which included installation of two new cranes.
Shell previously purpose-built a dock for the Kulluk in Dutch Harbor, and the company considered doing the off-season maintenance there. Smith called it “an excellent deep-water port for Shell” and said the Kulluk’s dock was built “for potential future shipyard work.”
“Unfortunately, it has proven very difficult logistically,” he said. “The weather is unpredictable in Dutch and there just is a real lack of hotel rooms and space for the workers who would perform this maintenance. As a result, we made the decision to move back to Seattle for another season for post-season maintenance.”
“It’s something we were aware of,” Smith acknowledged at the time. But, he insisted, “it did not impact our overall or our general decision to leave in December.”
On Jan. 4, Smith told the Dutch Harbor Fisherman newspaper that “the current tax structure related to vessels of the type influenced the timing of our departure.”
On Friday, Smith insisted that the tax liability wasn’t a major driver in the decision to go forward.
“Tax considerations would not have played a part in the specific ‘go/no-go’ decision to sail away,” Smith said in an e-mail. “Our strategic plan for when and where our dozens of Alaska assets and hundreds of people will be moved over the winter is based on a large number of criteria. Financial costs, including tax, is certainly one of them, as is the case with any project. But on the day the Aiviq and the Kulluk got underway, the operational decision to sail would have adhered to an approved and strictly prescribed tow plan that included clearly defined weather criteria.”
Smith added that if the weather forecast had not met that criteria, “the Kulluk would not have sailed on that day.” Shell previously has said it relied on a “two-week window” of good weather in sending the Kulluk and Aiviq out of Dutch Harbor on Dec. 21.
But National Weather Service meteorologists say forecasts for the volatile region are only reliable up to 60 hours out.
Two months before it grounded, the Kulluk drilling rig was boring an exploratory oil well in the Beaufort Sea north of Alaska. Shell has invested roughly $5 billion in its latest Arctic venture.
It is unclear how much the Kulluk grounding will end up costing the company, but Coast Guard Capt. Paul Mehler has stressed that Shell will foot the bill for the salvage operation that pulled the rig to Kiliuda Bay, Alaska on Monday and debris cleanup.
And that 2 percent Alaska tax bill? It may still be on the table. Although state assessors told Bloomberg they have not decided yet how to treat the once-grounded rig, it has been in state waters ever since New Year’s Day.