After dedicating nearly eight years and $5 billion to the quest, Shell’s plans to continue hunting for Arctic oil this summer are in jeopardy, as company officials on Monday confirmed they will tow two drilling units to Asian dry docks for repairs.
Although Shell Oil said the firm has not ruled out drilling in the Chukchi and Beaufort seas north of Alaska this summer, it appears unlikely the vessels will be able to make the two-to-four-week treks to those Asian ports, undergo repairs, clear U.S. inspections and return to those Arctic waters in time for the drilling season that begins in July.
The decision also could provide fresh fodder to federal regulators conducting a searching, high-level review of problems Shell encountered during the 2012 Arctic drilling season and embolden environmentalists who oppose oil exploration in the remote, icy waters.
Shell’s Kulluk drilling rig ran aground on an Alaskan island on New Year’s Eve and the drillship Noble Discoverer experienced propulsion problems pulling into Seward, Alaska last November. Inspections of the 29-year-old Kulluk conical drilling unit have revealed hull damage that warrants major repairs and further assessments, Shell said.
The Discoverer is destined for a shipyard in Korea, and Shell is planning on sending the Kulluk to an undetermined Asian shipyard with a suitable dry dock, said spokesman Curtis Smith.
The drilling rigs will be towed to the ports with massive oceangoing dry docks capable of holding aloft and hauling heavy vessels across the globe. Smith said the drilling rigs could begin their long journey in three to six weeks.
“The outcome of further inspections for both rigs will determine the shipyard schedule and timing of their return to service,” Smith said. “Dry towing is a time-efficient way to get both rigs to suitable shipyards to begin necessary work that will allow us to better assess our options.”
Smith said the company has “not made any final decisions on 2013 drilling,” but is “exploring a range of options for exploration work offshore Alaska in 2013.”
Even if regulators approved the work, there may be no ready replacements for the specialized Arctic drilling vessels, which are both uniquely designed to weather ice.
Shell used the Kulluk and Discoverer to drill the first half of two wells in the Beaufort and Chukchi seas last summer, seven years after buying drilling leases in the region for $2.2 billion.
Shell was forced to constrain its 2012 operations to such so-called “top-hole drilling” of only the initial 1,500 feet of its Arctic wells when its oil spill response system could not win approval and get to the area before ice started encroaching. The company experienced other high-profile blunders: The Noble Discoverer drifted out of control briefly near Dutch Harbor, Alaska, last July, and the Environmental Protection Agency cited the company for violating the terms of air pollution permits while hunting for Arctic oil.
Critics say the problems should force Shell to rethink its Arctic aspirations.
“It’s time for Shell to re-evaluate whether it makes sense to continue pouring money into this complex and difficult drilling effort,” said Lois Epstein, Arctic Program Director for The Wilderness Society. “These serious transportation, logistics, and drilling failures – collectively – provide strong evidence of Shell’s inability to effectively undertake oil drilling in the harsh environment of the Arctic Ocean, and raise questions about any company’s capacity to do so.”
Mike LeVine, Pacific senior counsel for Oceana, said Arctic oil exploration “should be suspended until and unless companies can prove they can operate safely and without risking the health of our oceans.”
“Even if the company can somehow get its damaged vessels repaired, our government has no business allowing Shell back in the Arctic,” LeVine said.
Interior Secretary Ken Salazar announced in January that the administration was launching a 60-day probe of Shell’s Arctic drilling operation. Salazar told reporters at the time that the possible damage to the Kulluk might preclude Shell from drilling in 2013, regardless of the outcome of that review.
Shell officials have argued that the Kulluk grounding and Discoverer problems were maritime mishaps — not drilling problems — and have stressed that dozens of wells have been successfully bored into Arctic waters before.
Both vessels have storied histories. The 29-year-old Kulluk hibernated in Canada for more than a dozen years before Shell bought it, and the Discoverer, a revamped 1960s-era drillship, spent a previous life as a log carrier before it was converted for the oil industry in 1976.
Shell spent nearly half a billion dollars renovating the two drilling vessels before they set sail from a Seattle shipyard last year.
The company also has built a broad infrastructure in Wainwright, Barrow and Deadhorse, Alaska to support its offshore exploration program, including installing crew camps and an airplane hanger along the state’s northern coast. And it poured more than a half billion dollars into building specialized emergency oil spill response systems and two ships designed for the Arctic environment.