Rig grounding could put Shell’s Arctic drilling plans on ice

Even if Shell is able to free its grounded Kulluk drilling rig from a rocky Alaskan island shore, it may be too damaged to resume hunting Arctic oil this summer.

The 29-year-old conical drilling unit is uniquely designed to weather floating ice, and replacements aren’t readily available. Even if Shell Oil Co. could find an Arctic-ready rig, it almost certainly would not secure air pollution permits for a different vessel in time to resume drilling wells this July.

“These are very specialized rigs,” noted Dave Pursell, managing director of the Houston-based energy investment bank Tudor Pickering Holt & Co. “If Shell figures out there’s enough damage they can’t get it repaired, I don’t know that they have enough time to acquire another.”

The Kulluk hit the rocks on Sitkalidak Island near Kodiak City, Alaska, on Dec. 31, following a five-day battle to tow the unpropelled rig to safe harbor amid 70-mph winds and waves that climbed four-stories high. Shell had been towing the 266-foot floating rig to a Seattle shipyard for repairs two months after it finished boring the first half of an exploratory oil well in the Beaufort Sea.

Salvage specialists are devising a plan to wrest the beached rig away from an area that is critical habitat for endangered Stellar sea lions, threatened sea otters and other wildlife, without releasing some 140,000 gallons of diesel on board.

While there are no signs of a fuel leak, initial inspections reveal the Kulluk has sustained water and electrical damage.

The episode caps a series of recent mishaps in Shell’s seven-year, $5 billion quest for Arctic oil, including the drifting of the drillship Noble Discoverer in Dutch Harbor last July and damage to a unique oil spill containment system during a deployment drill last September.

The latest incident has stoked fears about the dangers of even routine operations in the icy waters around Alaska _ much less full-scale drilling operations high above the Arctic circle _ and environmentalists are pleading with the Obama administration to halt the work.

Shell stresses that the Kulluk and Discoverer incidents were maritime mishaps _ not drilling problems _ and notes that dozens of wells have been successfully bored into Arctic waters.

Shell used its other drilling unit, the Discoverer, to begin a well in the Chukchi Sea last summer. But under Shell’s government-approved oil spill response plans and broad drilling blueprints for the region, the company is obliged to have a second rig in the region to drill a relief well in case of an emergency.

Under that requirement, if neither the Kulluk nor a replacement rig is available, Shell would be blocked from oil drilling on the Chukchi and Beaufort sea leases it bought for $2.2 billion beginning in 2005.

Shell spokeswoman Kelly op de Weegh said the company was “fully committed to the regulatory requirements that call for the presence of two rigs when drilling into oil-bearing zones offshore Alaska.”

Shell’s approach suggests the company could be looking for a way to salvage some of the 2013 season, even if the Kulluk is out of commission, by once again forgoing penetrating underground zones that could contain oil and gas. Shell was forced to limit 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.

Bureau of Safety and Environmental Enforcement officials declined to comment on whether the agency would authorize top-hole drilling in Arctic waters without a standby rig.

Environmentalists vowed to fight to preserve the two-rig standard for all Arctic drilling operations. Even top-hole drilling, they say, furthers a “fairy tale” belief that Arctic oil exploration can be done safely.

“To go up there and drill top holes while Shell goes back and moves around the deck chairs and fiddles with their spill-response plan just perpetuates the myth that there’s a way to do it right,” said Niel Lawrence, senior attorney with the Natural Resources Defense Council.

ConocoPhillips, Statoil and Repsol all hold leases to drill in U.S. Arctic waters, with ConocoPhillips the closest to launching operations.

Even before the Kulluk grounded, Shell’s performance was likely to dictate some of the terms for its competitors’ planned drilling. For instance, while federal regulations don’t explicitly require companies to have a system for reining in a runaway Arctic well, Shell’s decision to build one sets a standard other firms will probably have to follow.

The Kulluk grounding also could spark new scrutiny on drilling equipment used in Arctic waters.

While ConocoPhillips has planned to use a tabletop-like jack-up rig with reinforced, ice-capable legs for exploration and appraisal drilling at its Devil’s Paw prospect in the Chukchi Sea, it appears unlikely federal regulators will sign off on that approach. A government-commissioned study of Arctic oil technology previously concluded that jack-up rigs are “unsuitable for the Beaufort and Chukchi seas.”

Shell can capitalize on potential rewards of being the first in a new era of Arctic oil exploration. But that also means that Shell will take hits, while competitors watch and learn.

Beyond the billions that Shell has spent buying its Arctic drilling leases and renovating rigs, the company has built a broad infrastructure.

Shell has installed crew camps in Wainwright, Barrow and Deadhorse, Alaska and built a new airplane hangar in Barrow. It is leasing a hangar in Deadhorse and has stashed oil spill response equipment along the Alaska coast.

Every dollar Shell has spent toward oil development in the region is further investment _ and commitment to _ its Arctic quest. Analysts say that shows Shell’s resolve.

Pursell predicts that even if Shell is forced to delay its planned 2013 Arctic drilling, it will only be a temporary timeout.

“The risk is that you lose a season,” he said, adding: “They take this stuff pretty seriously. They know there’s a microscope on them.”

Below a detailed article for more information:

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Stuck but intact
http://www.petroleumnews.com/pntruncate/44252949.shtml
Salvage team inspects Shell rig aground on shore of Sitkalidak Island
Week of January 06, 2013
By Alan Bailey
Petroleum News

The Kulluk, Shell’s floating drilling platform, aground on the shore of Sitkalidak Island to the southeast of Kodiak Island, appears to be intact and stable, according to the team responding to the grounding incident. A five-member team of salvage experts visited the vessel for about three hours on Jan. 2. And a helicopter overflight of the grounding site on the same day spotted three of the Kulluk’s lifeboats near the stricken vessel, but no signs of any debris.

Shell has chartered Smit Salvage to head the salvage operation for the Kulluk. Shell presumably hopes to recover the vessel relatively intact, but at this stage the response team is unwilling to speculate on the means, timing and outcome of recovering the vessel.

However, an emergency towing system was placed on the Kulluk during the Jan. 2 inspection, U.S. Coast Guard Capt. Paul Mehler, the federal on-scene coordinator for the Kulluk response, explained during a press conference on the evening of Jan. 2.

“The plans for the Kulluk, once we’ve recovered it, will depend very much on the state of the vessel,” said Sean Churchfield, Shell’s incident commander.

On beach

Steve Russell, the state on-scene coordinator, said that the Kulluk had run aground in water off a cobble beach with mixed sand and gravel. The beach is at the base of a 200-foot bluff.
Apparently the Kulluk was carrying 143,000 gallons of ultra-low sulfur diesel and roughly 12,000 gallons of other petroleum products, with much of the fuel acting as ballast, to stabilize the vessel in the sea. The fuel tanks are in the interior of the vessel, isolated from the vessel’s hull.

“I am encouraged by what we saw today and we are awaiting the salvage team’s assessment, to finalize plans to remove the potential for any (fuel) release,” Mehler said.

During a Jan. 1 press conference Russell said that the prime landowner in the area of the grounding is the Old Harbor village Native corporation. DEC says that three species listed under the Endangered Species Act may be present in the area, while wildlife known to frequent the area includes harbor seals.

Meantime, the chronicle of events leading to the grounding has emerged from a sequence of press releases, press conferences and statements to the media.

Maintenance needed

Having demobilized the Kulluk from its 2012 drilling operations in the Beaufort Sea, Shell decided to move the drilling vessel from Dutch Harbor in the Aleutian Islands to the Seattle area of the U.S. West Coast for maintenance work, in preparation for a continuation of Arctic drilling in the summer of 2013. And, with the vessel not being self-propelled, Shell’s new anchor-handling vessel, the Aiviq, would tow the vessel for the three- to four-week voyage south. The Aiviq, launched early in 2012, has four engines, with a combined power of 21,776 horsepower. The Kulluk was equipped with one main towline, and a second emergency towline for use should the first line fail.
It was necessary to tow the Kulluk to the West Coast for maintenance, Shell spokesman Curtis Smith has told Petroleum News. Dutch Harbor is not a working shipyard and it would have been too logistically difficult to move the maintenance crew and materials to the Aleutian Islands port, Smith said.

Departed Dec. 21

The Aiviq and the Kulluk set out from Dutch Harbor on Dec. 21, following a weather-guided route that approximately paralleled the coastline. During a Jan. 1 press conference Churchfield said that the routing of the tow and the decision to depart Dutch Harbor relied on the weather forecasts at the time, with Shell setting a departure window but giving the Aiviq’s master discretion on when to leave. Once en route, the two vessels would travel at about four knots, Churchfield said.
Churchfield said that the U.S. Coast Guard had inspected the Kulluk in Dutch Harbor and that the tow company, warrantee surveyors and others had approved the tow plan.

Smith told Petroleum News that at the time of departure the weather forecast indicated a “favorable two-week window.”

“Our towing plan and the choice of the Aiviq had been positively reviewed by the Coast Guard,” Smith said.

But predicting the weather more than a few days ahead is notoriously difficult. By Christmas Day a winter storm was in the forecast for the seas to the south of Kodiak, in the area that by then the Aiviq and Kulluk were beginning to traverse.

Hawser parted

Trouble started on Thursday, Dec. 27, when the towing hawser between the two vessels parted. Shell has not at this stage provided any insights into why the line broke — the company says that a diagnosis of the reason for the breakage will form part of a subsequent investigation into the Kulluk incident.
“The Aiviq has (previously) towed the Kulluk on a single towline for more than 4,000 miles, including in conditions similar to what we are seeing now in the Gulf of Alaska,” Smith told Petroleum News Jan.2.

Engine failure

The initial problems with the towline escalated in the early hours of Dec. 28, at which time all four engines on the Aiviq failed when the Aiviq and the Kulluk were about 50 miles south of Kodiak. The engine failure appears to have resulted from fuel contamination, although that has yet to be confirmed. At about 8 a.m. the crew of the Aiviq succeeded in restoring power to one of the vessel’s engines, thus enabling the use of thrusters to maintain position.
Meantime, with the wind blowing at 40 mph, and with 35-foot seas and worsening sea conditions, the U.S. Coast Guard had dispatched the cutter Alex Haley to the scene to provide assistance. The Alex Haley succeeded in establishing a tandem tow with the Aiviq and the Kulluk. But at about 6:30 a.m. the towline parted and became tangled in the cutter’s port propeller, the Coast Guard said. The cutter subsequently returned to Kodiak for repairs.

The Coast Guard dispatched the cutter Hickory from Homer and the cutter Spar from Kodiak.

Vessels deployed

Following the engine failure in the Aiviq, Shell started deploying vessels from its drilling fleet — the Guardsman, a support vessel, set out from Seward, while Shell’s oil spill response vessel, the Nanuq, also headed out.
The Guardsman arrived on scene south of Kodiak in the afternoon of Dec. 28 and succeeded in securing a towline to the Aiviq. In the evening, concerned about the safety of the 18 crew members on the Kulluk, Shell asked the Coast Guard to evacuate the crew. Early the following morning, the unified command authorized the Kulluk’s crew to drop its anchors off the coast of Kodiak, in an attempt to slow the drift of the vessel.

At 5:30 a.m. on Saturday, Dec. 29, the crew of the Guardsman reported that the towline from the Guardsman to the Aiviq had failed. But at 6:30 a.m. the Nanuq arrived and successfully connected a second towline.

Also on the Saturday morning, Coast Guard Jayhawk helicopters from Kodiak delivered engine parts to the Aiviq, to enable the Aiviq’s engines to be repaired. At 9:30 a.m. the Aiviq’s crew managed to restart a second engine.

Crew evacuated

Later in the day, the Coast Guard announced that it had succeeded in evacuating all of the Kulluk’s crew by helicopter and that all four of the Aiviq’s engines were running again.
The Alaska Department of Environmental Conservation and a representative from the Kodiak Borough joined the unified command for the response to the incident.

During the morning of Sunday Dec. 30, with the severe weather continuing, the Kulluk remained under tow by the Aiviq and the Nanuq, by then about 20 miles south of Kodiak Island. Shell had also commissioned the tug Alert to join the response effort. The Alert, based in Valdez as part of Alyeska Pipeline Service Co.’s support fleet for the marine terminal at the southern end of the trans-Alaska oil pipeline, arrived on scene on the Sunday afternoon.

Adrift again

But by 4:30 p.m. on that same day the towlines between the Kulluk and the Aiviq and the Nanuq had separated, leaving the Kulluk adrift again. At about 12:45 a.m. on Monday, Dec. 31, the Alert was able to attach to the 400-foot line that had become detached from the Aiviq. The Aiviq subsequently reconnected to the drilling rig. And, with the weather improving somewhat, there appeared to be an opportunity to better secure the rig before the next storm moved in.
“The sea state is actually significantly diminished but we anticipate that it’s going to build up again pretty quickly into a severe state,” Smith told Petroleum News at 9:30 a.m. on Dec. 31. “Right now unified command is considering options to further secure the vessel. That includes potentially new towlines, just for redundancy, and/or safe harbor further to the north.”

The Coast Guard briefly deployed technicians to the Kulluk to check the condition of the towlines on the vessel. But winds in excess of 60 mph were forecast for the evening.

Grounded

At 4:30 p.m. the Aiviq lost its tow to the Kulluk and the Alert experienced severe engine problems shortly afterwards. In the interests of safety, the towline from the Alert was released at 8:10 p.m. and before long the Kulluk drifted aground on the shore between the north end of Ocean Bay and Partition Cove on Sitkalidak Island.
As responsible party, Shell has said that it will pay for the cost of the response to the Kulluk incident, including costs incurred by the Coast Guard and the State of Alaska. Three people have been injured during the incident, but these injuries were minor in nature, Mehler said on Jan. 1.

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