Shell Admits Kulluk Rig was Moved to Avoid Taxes

On 7th December 2012 Shell decided to move the Kulluk floating drill platform from its berth in Dutch Harbour, south to a Seattle shipyard where it would receive major repairs and general maintenance during the off-season. Shell claimed that they had assessed the possibility of making the repairs in Alaska, but it was deemed that a larger shipyard was needed.

The Kulluk, under tow from the Aiviq, departed Dutch Harbour on 21st December. On 27th December the main towing gear failed, just as an Arctic storm approached and the seas began to pick up. Repeated attempts to connect the Kulluk to a number of different vessels that had come to help, all failed, and the rig finally drifted off and ran aground on New Year’s Eve.

The whole fiasco continued for some days and was well documented by the media as it capped off a dismal year for Shell’s Arctic operations.

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At the time, when asked by reporters if the main reason for Shell’s decision to rush the Kulluk rig down to Seattle had been to avoid Alaskan taxes, Sean Churchfield, the operations manager for Royal Dutch Shell in Alaska, stated: “No, the reason we boated down there was actually to get the off-season repairs done. Once we had the rig ready for tow, prepared and inspected, was when we moved down to give us the maximum time to ready for the 2013 season.”

In later interviews with Shell representatives it was mentioned that the tax issue was indeed a factor to be considered, but by no means the deciding factor.

Now Churchfield has admitted in his testimony for the Coast Guard’s investigation into the matter, that the prospect of paying millions in taxes had forced Shell to move the rig from Dutch Harbour.

When addressed by Lt. Cmdr. Brian McNamara, the Coast Guard’s legal adviser , Churchfield said that the “preference for the timing was to be gone before the end of the year, driven by the economic factors.”

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“Why specifically was the end of the year such a concern?” McNamara asked.

“The end of the year to my understanding was when the tax liability potentially would have become effective,” replied Churchfield.

The Kulluk rig would have had to be back up in Alaska by the beginning of June to take part in this year’s drilling season, but Shell has decided to postpone its Arctic drilling program for this year as it regroups and prepares for a new attempt next year.

By. Charles Kennedy of Oilprice.com