Interior Dept. Warns Shell on Arctic Drilling

WASHINGTON — The Shell Oil Company must provide a detailed plan addressing numerous safety and operational issues that plagued its efforts to extract oil beneath the Arctic Ocean last year if it wants to resume drilling off the coast of Alaska, the Interior Department said Thursday.

By JOHN M. BRODER: A version of this article appeared in print on March 15, 2013, on page B2 of the New York edition

WASHINGTON — The Shell Oil Company must provide a detailed plan addressing numerous safety and operational issues that plagued its efforts to extract oil beneath the Arctic Ocean last year if it wants to resume drilling off the coast of Alaska, the Interior Department said Thursday.

Shell has already announced that it will not return to the Arctic Ocean in 2013, saying it would take a “pause” to repair its damaged equipment and review its drilling and safety systems.

Interior Secretary Ken Salazar said that would not be enough. He said the company must demonstrate to the government and an independent reviewer that it has the equipment, the management capacity and a plan for all contingencies before it can resume operations.

“Shell screwed up in 2012 and we’re not going to let them screw up whenever their pause is removed unless they have these systems in place,” Mr. Salazar said in a news briefing Thursday.

The Interior Department conducted an urgent review of Shell’s operations after a disastrous 2012 drilling season notable for ship groundings, environmental and safety violations, the failure of a spill-containment system, weather delays and other mishaps.

The review, completed last week, concluded that Shell had failed in a wide range of basic operational tasks, like supervision of contractors that performed critical work, including towing one of the company’s two drilling rigs. That rig, the Kulluk, ran aground on Sitkalidak Island in Alaska on New Year’s Eve and is now headed to Asia for extensive repairs. No oil was spilled and there were no serious injuries.

The report was harshly critical of Shell management, which has acknowledged that it was unprepared for the problems it encountered operating in the unforgiving Arctic environment. The report did not single out individual managers.

The 32-page study also faulted government agencies, including the Interior Department and the Coast Guard, for failing to anticipate some of the problems Shell faced, including accidents involving both drilling rigs as they traveled to and from drill sites in the Beaufort and Chukchi Seas.

“Government still has a lot to learn,” said Mr. Salazar, who will soon step down and is expected to be replaced by President Obama’s nominee, Sally Jewell, chief executive of Recreational Equipment Inc. in Seattle. “The Arctic is a very difficult environment to operate in. Shell is one of the most resource-capable companies in the world and it still encountered a whole host of problems trying to operate up there.”

“It doesn’t mean that exploration cannot continue,” Mr. Salazar said. “But I think the cardinal lesson is that moving forward on any Arctic exploration needs the comprehensive integration we attempted to bring to last summer and will attempt to do an even better job of in the future.”

A Shell spokesman, Curtis Smith, said the company took the Interior Department’s recommendations seriously.

“Consistent with our recent decision to pause our 2013 drilling program, we will use this time to apply lessons learned from this review, the ongoing Coast Guard investigation and our own assessment of opportunities to further improve Shell’s exploration program offshore Alaska,” Mr. Smith said in a statement. “Alaska remains a high potential area over the long term, and we remain committed to drilling there safely, again.”

Shell lobbied federal officials for several years to persuade them it could drill safely in the Arctic. The company has invested more than $4.5 billion in leases and equipment on the venture, which Shell believes can yield billions of barrels of oil over the next two decades. Tommy Beaudreau, director of the Interior Department’s Bureau of Ocean Energy Management and the leader of the review team, said that Shell conducted some operations well but failed in its oversight of critical contractors.

“Shell simply did not maintain strong, direct oversight of some of its key contractors,” Mr. Beaudreau said in a statement. “Working in the Arctic requires thorough advance planning and preparation, rigorous management focus, a close watch over contractors, and reliance on experienced, specialized operators who are familiar with the uniquely challenging conditions of the Alaskan offshore.”

A number of investigations into the 2010 BP Deepwater Horizon explosion and oil spill in the Gulf of Mexico identified poor oversight of contractors as a central contributing factor to the accident. A trial now under way in federal court in New Orleans will help determine the relative fault of the well operator and its subcontractors.

Marilyn Heiman, director of the United States Arctic Program for the Pew Charitable Trusts, said in an e-mail that the Interior Department review was an important first step toward understanding what went wrong and how to prevent future accidents.

“Improved oversight and rigorous world-leading standards must be put in place before any future Arctic drilling is allowed,” she said. “The violations and mishaps from last year are not acceptable only three short years after the Deepwater Horizon disaster.”

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