Shell Drilling Rig in Arctic Was Moved in Winter to Avoid Tax

Bloomberg BNA — A desire to avoid millions of dollars in Alaska state taxes played a role in Royal Dutch Shell Plc's decision to move a drilling rig, which later broke free from a towboat 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 April 3 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 doesn'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.

Sen. Lisa Murkowski (R-Alaska) 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.”

Sen. Edward Markey (D-Mass.) said in a statement that the report raises “major red flags for any future Arctic drilling plans.”

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