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Shell Sends Alaskan Rigs for Repairs, Clouding Work Outlook

Royal Dutch Shell Plc sent two of its drill rigs in Alaska to Asian shipyards for repair, casting doubt over prospects for exploration in the Arctic this year.

The Kulluk, damaged when it ran aground six weeks ago, will be towed to a dry dock in Asia, Europe’s biggest oil company said today in a statement. The Noble Discoverer will go to a shipyard in Korea. The outcome of inspections and any repairs will determine when they return to service, the company said.

Shell had spent about $4.5 billion in the past seven years seeking to drill in Alaskan waters before the Kulluk broke free of a tugboat in a storm on Dec. 31 and ended up stranded on an uninhabited island. The Noble Discoverer slipped its mooring in the Aleutian Islands in July and drifted toward the shore.

“We have not made any final decision on 2013 drilling,” said spokesman Jonathan French. “Shell remains committed to safely exploring for Alaska’s offshore energy resources.”

Shell rose 0.7 percent to 2,162 pence in London.

The company’s work was also set back when a containment dome designed to cap oil spills had difficulty getting U.S. certification and was damaged during tests in September.

Shell is being “very cautious” in the environmentally sensitive region and the two rigs would need more work to be ready for the 2013 season, Chief Executive Officer Peter Voser said Jan. 31. The producer missed fourth-quarter estimates for earnings on higher costs for bringing oil and gas to production.

60-Day Review

U.S. Interior Secretary Ken Salazar ordered a 60-day review of Shell’s activities on Jan. 8. The company’s “mishaps” may keep the company from continuing its work this year, he said.

Oil prices higher than $100 a barrel and receding Arctic sea ice, which last year shrank to a record in the annual melt season, have sparked a race to explore for untapped oil and gas in the waters off Greenland, Alaska and Russia. The push has raised concerns that spills will be harder to clean up in the harsh conditions as oil takes longer to decompose in the cold.

Environmental groups said Jan. 3 they would ask President Barack Obama to suspend current and pending Arctic drilling permits until operators prove they can work safely.

The U.S. Environmental Protection Agency issued a notice to Shell last month saying operating the Kulluk while drilling in the Arctic Ocean violated its permit under the Clean Air Act. Each violation can mean a penalty of $37,500 a day, it said.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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