Kulluk recovered, investigations begin
It has not been a good week for Shell. On the good news side, Shell extracted its grounded drill vessel Kulluk from the beach on a small island near Kodiak’s south shore and moved the rig to a protected bay for inspections, which are ongoing.
On the bad news side, the grounding has whipped up more intense national controversy over Shell’s Arctic drilling program, which may cause federal agencies to turn up the heat again on regulatory oversight.
Greenpeace and other conservation organizations have been beating the drums against Shell since the Kulluk went aground in a fierce storm Dec. 31. On Jan. 8 the U.S. Department of the Interior announced that it would conduct an “expedited” review of Arctic drilling safety.
“The review is expected to be concluded in 60 days, and will pay special attention to challenges Shell encountered in connection with certification of its containment vessel, Arctic Challenger, the deployment of its containment dome, and operational issues connected with its two drilling ships, the Noble Discoverer and the Kulluk,” according to a statement from the Interior Department.
Meanwhile, Gov. Sean Parnell criticized environmental groups for raising new alarms about Shell’s Arctic offshore exploration based on the Kulluk grounding.
“Some anti-drilling organizations are using this transportation mishap to demand an immediate halt to offshore drilling. We disagree,” Parnell said in a statement issued late Jan. 8.
“Many wells have been safely drilled in the Arctic Outer Continental Shelf, and the development of offshore oil production is a critical part of our energy future. We believe it is strongly in the state’s and the nation’s interest that we continue to responsibly explore the vast hydrocarbons known to be available in the shallow waters of the Arctic OCS,” the governor said.
Alaska has a keen interest in Shell’s offshore drilling because any commercial discoveries could add much-needed throughput to the Trans-Alaska Pipeline System, which is running at just more than one-fourth its original capacity.
Shell’s eastern Alaska Beaufort Sea prospects, where the Kulluk started a test well last fall, are particularly important, state officials have said, because any production there could be moved to TAPS relatively quickly because of existing onshore pipeline infrastructure that now extends east of the Prudhoe Bay field.
As for the Kulluk grounding, the U.S. Coast Guard also announced the start of a maritime casualty investigation Jan. 8, a proceeding that will probe causes of the accident including management decisions by Shell. It will take several months for the investigation to be concluded, the Coast Guard said.
If the investigation concludes that Shell made errors in key decisions on the movement of the Kulluk there will be fresh fuel added to the controversy.
A key point of the investigation will be on why all four engines on Kuulik’s prime tow ship, the Aiviq, quit at a critical time during efforts to regain control of the drill ship after towlines had initially separated. A fuel problem to the engines is a suspected cause, possibly from some form of contamination.
What isn’t helping Shell is that permit violations have been found on its other drillship, the Noble Discoverer. The Coast Guard ordered the Discoverer to be moved to Seward while the investigation continued.
Adding salt to Shell’s wounds, because the Kulluk was within the state of Alaska on Jan. 1, as it sat grounded off Kodiak, it may have become subject to the state’s 20-mil state property tax on oil and gas exploration and production equipment.
State property tax assessor Jim Greely said the tax law indicates the tax would apply to the Kulluk, and that he expects Shell to file a tax return. When the tax return is filed Greely will ask the state Attorney General for an opinion on the matter because of the unusual nature of the incident, he said.
If the tax is applied in full, however, Shell might have to pay several million dollars in state property tax. The oil and gas property tax is the only state property tax. All other property taxes levied in Alaska are by municipalities.
Meanwhile, U.S. Coast Guard air rescue crews are being lauded for the tricky rescue by helicopter of the Kulluk’s crew as the vessel, which does not have its own propulsion, rolled in heavy seas and stormy weather south of Kodiak.
Tow lines connecting the Kulluk with two support tugs were repeatedly being broken in heavy seas and as the Kullik neared land a decision was made to let it drift. The vessel grounded just offshore a gravel and sand beach on Sitkalidak Island.
Shell and Coast Guard officials are also being credited by mariners familiar with south Kodiak waters for their action in maneuvering the Kulluk in difficult conditions to a location where the vessel would ground offshore on a gravel and sand beach, and avoiding areas where there were rocks.
After several days of preparation the Kulluk was pulled from its grounding location the night of Jan. 6 and moved on the morning of Jan. 7 to Kiluda Bay, a protected area on Kodiak’s southeast shore.
Shell and the Coast Guard are being credited for having pulled off the refloating and initial inspections of the Kulluk without serious injuries or safety problems.
A Remote Operated Vehicle, or ROV, was moved to Kiluda Bay Jan. 8, so that inspections of the hull can begin. Divers will assist the operation.
There was no evidence during the transit that the outer hull, which is 1.5-inch-thick steel, or any of the fuel storage tanks on the Kulluk had been damaged. No oil sheen or evidence of a spill was detected. Initial inspections showed some damage to the Kulluk’s “topside,” its deck area, caused by waves. Water had also entered at least one interior compartment, possibly from one of the watertight doors having been breached or left open.
The big question now is the extent of any damage to the Kulluk and whether it can be refitted in time for Shell’s 2013 exploration season. Shell plans to have both of its drill vessels, the drillship Noble Discoverer and the Kulluk, back in the Arctic in July or August to complete two exploration wells started in 2012 and to drill new wells.
However, there must be two drill vessels available for even one vessel to be given the approval by regulators to drill into potential hydrocarbon-bearing zones. Shell did only “top hole” drilling in 2012, the top part of the well that stopped short of where oil and gas might be found.
In 2012 the Kulluk, drilling in the Beaufort Sea, served as a backup drill vessel for the Noble Discoverer, which was working in the Chukchi Sea, and the Discoverer served as the backup for the Kulluk.
A problem for Shell is that if the Kulluk is not available in the 2013 drilling the Noble Discoverer cannot work alone in drilling down to actually test oil and gas prospects. If Shell can line up another vessel it will still take time to make any needed modifications and to secure permits for the vessel to operate in the Arctic.
Shell is not speculating on the 2013 season for now. In a statement, Shell president Marvin Odum said, “At this stage it’s too early to guage any impact on our ongoing exploration plans, but with the Kulluk safely recovered, we’ll carry out a detailed assessment of the vessel to understand what those impacts might be.
“In the meantime we will participate in the U.S. Coast Guard’s investigation into the causes of this incident and will implement lessons learned.”