Cost to Shell of Kulluk Grounding? $90 Million and Counting ....

Shell's preliminary depiction of its 2012 Arctic drilling deployment
one which ultimately proved inaccurate

Thursday, at Shell Oil's annual Results Conference in London, Shell CEO Peter Voser delivered a prepared address on the company's global performance during 2012.  It included little information about the energy giant's 2012 Alaska Arctic drilling season fiascos we don't already know:

"Despite making some progress we have run into problems in the last few months. Our rigs will need more work if they are going to be ready for the 2013 drilling season. One, the Noble Discoverer needs a series of upgrades, and the other, the Kulluk, ran aground in a heavy storm on New Year’s Eve and has been damaged."

After the address, though, Vosser answered questions from the press.  His answers provided some new information.  Questioned on whether or not Shell had decided to move the rigs when they did to avoid paying millions in Alaska taxes, Vosser tried to wriggle out from under previous statements and information available through Shell officials in Alaska:

Tim Webb, the energy editor at The Times in London, asked Voser if Shell was moving the rig from Unalaska to Seattle in order to evade Alaska’s oil and gas property tax. 

“Assuming you say that’s true, because I think that came from Shell, would you say that’s an example of Shell not managing risks correctly, or making a poor decision in terms of managing risk in Alaska?” 

In response, Voser denied that the decision to move the rig had anything to do with taxes, saying that the $5-6 million they would have had to pay is nothing in the grand scheme of things. 

“There was a statement made by a Shell person, but in a completely different context, in a completely different meeting. That was then taken out of that context and then someone made a story out it. Just to be very clear on this one.” 

The original story was written by Dutch Harbor Fisherman reporter Jim Paulin. In it, he quoted an email from Shell spokesperson Curtis Smith that was sent before the grounding. 

Paulin says he stands by his reporting. “ 

And I don’t think Shell would be backing away from that comment had it not gone aground. I think they would have been sending lobbyists to Juneau to try to repeal that tax. And I think that would be, in my opinion, the motivation for making that comment that it influenced their decision to move it.”

Reporter Paulin's statement about Shell lobbyists in Juneau is, if anything, understatement.  During the same day Shell CEO Vosser  was delivering his annual report, in Juneau, the oil industry was flexing its muscle as it only can in Alaska.

The 2012 election brought an end to a Senate bipartisan coalition that dated back to shortly after the FBI busted a number of Alaska legislators for taking bribes from the major oil field service company in Alaska, Veco.  Although it was understood at the time that Veco's bribers were working on behalf of oil giant ConocoPhillips, no employees from the latter were ever indicted by the Justice Department.  The crooked legislators smugly called themselves "The Corrupt Bastards Club," and even had baseball caps made with the term plastered across them.

Replacing the bipartisan Senate coalition is a new GOP-run super majority that is intent on ramming through Senate Bill 21, which will repeal the most important element of Alaska's taxation of oil fields here, and strip billions of dollars per year from state coffers and give it to immensely wealthy oil companies, like ConocoPhillips, British Petroleum and Exxon-Mobil. 

Tuesday through Thursday, the Senate Special Committee on TAPS [Trans-Alaska Pipeline System] Throughput held telephonic hearings across the state on SB 21.  About 90% of the testimony was in favor of not implementing SB 21, or of even tweaking our tax rate on the oil industry, which is already among the lowest in the world.

The committee is chaired by Sen. Peter Miccice, who is the manager of ConocoPhillips' Kenai LNG facility.  He has been questioned by the media about the seeming conflict of interest of his chairing a committee that might have a beneficial or an adverse impact on his employer, and on his stockholdings in it.

On Thursday, during telephonic testimony before Micciche's committee, frequent outspoken critic of the oil industry, Anchorage resident Kelly Walters began his testimony addressing the chair's outrageously blatant conflict of interest:

Chairman Micciche, with all due respect, I take issue with your claims of being conflict-of –interest-free. You, sir, are a ConocoPhillips employee who is a member of the Senate Resource Committee-and the Chairman of the TAPS Throughput subcommittee, tasked with shaping Alaska’s Oil Tax policy. 

Crafting and voting on legislation that will increase your employers’ bottom line by BILLIONS of dollars annually and positively affecting the stock, which you hold, is an obvious, unprecedented, unambiguous, and massive conflict of interest. 

I urge you to resign from committees reviewing oil tax legislation and recuse yourself from the vote, as should Senator Kevin Meyer, also a ConocoPhillips employee. 

While sitting on and chairing committees and then voting with an overt conflict of interest is legal, it does not make it right. Slavery, at one time, was also legal. 

If this billion dollar giveaway passes into law, it will go down as the biggest theft of The People’s resource in history, making the Corrupt Bastards Club look like child’s play.

Witness after witness brought forth similar outrage and criticism of this bill, being pushed by Gov. Sean Parnell, a former employee of ConocoPhillips, and attorney for Exxon.

As alluded to in Dutch Harbor Fisherman reporter Paulin's response to Shell Oil's potential ability to lobby on its own behalf in Juneau or Washington DC, or wherever it operates, we're as much hostages to these giant corporations here as are fishermen in the Niger Delta.

Back to how expensive Shell's 2012 Arctic clusterfuck's Kulluk episode is getting.  Alaska Public Radio's Unalaska reporter, Stephanie Joyce, for radio station KUCB:

If the company was moving the rig for tax purposes, the cost of the incident has definitely exceeded what they would have saved. Chief Financial Officer Simon Henry said they anticipate spending at least $90 million on the incident in the first quarter of 2013. 

“The $40 million I mentioned is the pure salvage cost to salvage operators. The $50 million is everything else — the Coast Guard, our own vessels etc.” 

Henry added that those figures don’t include the cost of repairing the rig — he said that information won’t be available until there are more details about the extent of the damage. [emphases added]

My guess is that they will spend more like $120 million through March, 2013 on this - not counting repairs on the hull below the waterline.

Since my last report for firedoglake, where I reported Shell is seriously considering putting the Kulluk onto a gigantic double-wide floating drydock, because of the extent and nature of the bottom hull damages, AP reporter Dan Joling asked Shell about my information:

ANCHORAGE, Alaska (AP) — The united command overseeing the salvage of the Royal Dutch Shell PLC drill barge says the vessel's damage poses no threat to its stability while it's anchored off an Alaska island. 

But spokesman Kevin Hardy said Wednesday he could not answer whether hull damage will make the Kulluk unsuitable for towing, whether it could be moved by heavy lift ship rather than by towing, or whether it will be moved for repairs to an Asia shipyard rather than a Pacific Northwest shipyard. 

"The evaluation continues," Hardy said in regard to hull damage. "When there's something to report, I presume, that will be reported as appropriate." He referred other questions to Shell. Spokesman Curtis Smith said he did not have new information to pass on. Details of future actions will depend on the outcome of ongoing assessments and permissions. 

"I'm not going to speculate on potential next steps," he said.

Even before the 2012 Arctic drilling season began for Shell, they were estimating the operation had cost them over $4.5 billion.  This summer, fall and winter's deployment of sometimes dozens of expensive vessels, Coast Guard cutters, helicopters and C-130s, U.S. Army C-47 Chinooks, a team of almost 700 Unified Command human drones, and some of the most inept public relations flacks in the history of Alaska has been epic.  The total failure of the Arctic Challenger's main piece of equipment (the containment dome), the dubious fitness of their drill rig Noble Discoverer, and the grounding and serious damage to the Kulluk can be looked at more than one way.

Here's Shell CEO Peter Voser's take:

I cannot say what the learning is at this stage. But let me also say, and I know this is always dangerous to say because it will generate the headlines, but I have not seen in the world any business, not just the energy business, but all businesses — they have risks at the end of the day. And you need to manage those risks, and we do it is as good as we can. We learn when it doesn’t work and we will manage these risks going forward. But I cannot say there will never be an incident — that just isn’t going to work.

Let me put it another way for Mr. Voser:

Shell Oil took every risk it could this past season:  outfitting old drilling and response units hurriedly, even though they've had years to prepare; pushing modifications beyond the limits of prudent engineering; putting pressure on professional mariners to risk equipment - and LIVES. 

The only miracle of this season is that there aren't as many dead bodies up here in Alaska as were blown up or burnt to death on the Deepwater Horizon.