Shell Rushed Rig to Arctic Sea to Avoid Alaska Tax: U.S.

A desire to avoid millions of dollars in Alaska state taxes played a role in Royal Dutch Shell Plc (RDSA)’s decision to move a drilling rig, which later broke free from a tow boat and ran aground on an uninhabited island in Alaska, the U.S. Coast Guard said in a report.

Shell had decided to move the Kulluk drill rig to Seattle for repairs because it might have been subject to a state property tax had it remained in Alaska waters beyond Jan. 1, 2013, according to the report released yesterday that offered eight recommendations to improve safety.

“A complex series of events contributed to the error chain that resulted in the grounding,” the report states. “The most significant factor was the decision to attempt the voyage during the winter in the unique and challenging operating environment of Alaska.”

Shell has spent billions of dollars in its effort to drill for oil Alaska’s Beaufort and Chukchi seas, which are part of the Arctic Ocean. The Hague-based company hasn’t resumed work in Alaska waters, and said in January that it didn’t plan to return to the Arctic this year. The decision followed an appellate court ruling that challenged the validity of a lease sale in the Chukchi.

“We appreciate the U.S. Coast Guard’s thorough investigation into the Kulluk towing incident and will take the findings seriously,” Shell said in a statement.

A series of mishaps, including damage during testing to a containment dome that would be used to cap a spill, prompted the U.S. Interior Department to examine Shell’s Arctic operations in January 2013. The review criticized Shell’s oversight of contractors that were part of its Arctic drilling operations.

Senator Lisa Murkowski, an Alaska Republican, praised the Coast Guard for the report and said energy resources in the Arctic can be developed, “but it requires that we adhere to world-class safety standards.”

Senator Edward Markey, a Massachusetts Democrat, said in a statement that the report raises “major red flags for any future Arctic drilling plans.”

To contact the reporter on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Steve Geimann

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.