Noble pleads guilty to violations involving Arctic drillship

WASHINGTON — Noble Drilling pleaded guilty Monday to eight felony charges tied to pollution, propulsion and record keeping problems with the two drilling rigs that bored Arctic oil wells for Shell in 2012.

The company, with major U.S. operations in Sugar Land, will pay $12.2 million to settle alleged violations of marine and environmental laws in connection with those vessels, the Noble-owned drillship Discoverer and the Kulluk, a non-propelled drilling unit owned by Shell. As a Shell contractor, Noble crewed the Kulluk and operated the Discoverer in Arctic waters north of Alaska two years ago.

Although Shell Oil Co. is not facing related legal action, the plea agreement and charges filed in federal court Monday are a fresh reminder of the problems the firm encountered during the 2012 Arctic drilling season and may revive concerns about its oversight of contractors. The deal also is fodder for environmentalists who oppose Arctic drilling, even as Shell seeks to persuade regulators it is ready to resume work in the Chukchi and Beaufort seas next summer.

Read more: Shell formally launches 2015 Arctic drilling bid

Most of the violations are tied to the Discoverer, centering on insufficient record keeping, improper handling of bilge water and problems with the drillship’s propulsion system.

The Justice Department said Noble failed to notify the Coast Guard of “hazardous conditions” on board the ship.

“During 2012, the Noble Discoverer experienced numerous problems with its main propulsion system, including its main engine and its propeller shaft, resulting in engine shut-downs, equipment failures and unsafe conditions,” the Justice Department said in a news release. “At times, the condition of the Noble Discoverer’s main engine also created high levels of exhaust in the engine room, multiple sources of fuel and oil leaks and backfires.”

As part of the deal, Noble admitted that it knowingly made false entries and failed to record its collection, transfer, storage and disposal of oil in the oil record books for the Discoverer and the Kulluk.

The company also admitted to negligently discharging bilge water from the Discoverer and causing a sheen in Broad Bay, Unalaska in July 2012 — the result of an overflowing holding tank.

Some of the violations were discovered during a Coast Guard inspection of the Discoverer on Nov. 26, 2012, in Seward, Alaska. The Coast Guard found evidence that the Discoverer’s propulsion systems were compromised and that the drillship needed tow assistance to safely maneuver in some conditions. Pollution control systems on the ship were deemed inoperable.

And the bilge water management system had been modified with what the Justice Department described Monday as “a makeshift barrel and pump system.” The result was that the bilge and wastewater accumulating in the engine room spaces of the Discoverer were discharged without being processed through required pollution prevention equipment.

The Discoverer, a former log carrier converted for the oil industry in 1976, had finished drilling in the Chukchi Sea weeks earlier.

Related: Coast Guard documented 16 deficiencies on Arctic drillship

Noble has since spent $190 million on repairs and improvements to the drillship, adding new, lower-emission engines, an enhanced mooring system and better drainage. Deck cranes were replaced with new ones suitable for cold-weather operations. Steel was replaced vessel-wide. And sponsons were added to the side of the Discoverer to boost the ship’s stability.

Some changes, like the crane replacements, were designed to equip the Discoverer for another tour in the unforgiving Arctic cold. For instance, old water makers and sewage treatment units were removed and replaced with systems suitable for cold weather operations. Additionally, Noble added seven feet to the wind walls that insulate workers on the drill floor.

The work, conducted in a Jurong, Singapore shipyard, repaired all of the vessel-related problems identified in Monday’s agreement with the Justice Department.

Additionally, under the plea deal, Noble Drilling will spend four years under the scrutiny of an independent monitor, who will examine the company’s performance under a new environmental compliance plan.

Noble’s parent corporation, Noble Corp., headquartered in London, also will implement an environmental management system for all mobile offshore drilling units owned by the company and its subsidiaries.

Noble has already moved to boost the training of its global workforce and last year launched a simulation center in Sugar Land where hundreds of employees annually can run through realistic scenarios of their work on rigs, from operating cranes to drilling wells.

Read more: Inside Noble’s new high-tech training center

“We’ve truly learned from these mistakes and are committed to having made these systematic changes that are going to lead us to not repeat them,” said company spokesman John Breed.

“We’ve put a serious amount of effort into finding a solution and at the same time making the company better,” Breed added. “We’ve tried to take everything that came from the investigation and build on that and hopefully the company comes out of this better able to do what we’re in business to do, which is drilling wells.”

The company’s penalty includes $8.2 million in fines and $4 million in community service payments.

Noble first acknowledged the likelihood of charges in financial statements in 2012 and declared it had set aside $12 million in anticipation of a deal during the first quarter of 2014.

Shell spokesman Curtis Smith said the company was “disappointed” by the 2012 episode, but stressed that “Noble took immediate steps to investigate the incidents and enhance its training and compliance programs.”

“While Noble has worked to resolve all of the issues and has appropriately accepted responsibility, we’ve made clear that their actions in 2012 are not aligned with Shell’s business principles and are not acceptable,” Smith said. “Both Shell and Noble have initiated procedural and safety management system reviews that will be verified through internal and external audits and a series of operational tests.”

Shell has since scrapped its Kulluk drilling unit — a roughly $200 million loss — after it ran aground on an Alaskan island on Dec. 31, 2012. Earlier this year, the Coast Guard faulted the decision by Shell and its contractors to tow the drilling rig across predictably stormy Alaska waters in part to avoid a potential multimillion-dollar tax bill from the state of Alaska.

With the Kulluk out of service, Shell has contracted Transocean’s Polar Pioneer, with plans to use it alongside the Discoverer in the Chukchi Sea.