Shell Moves Rig to Avoid Potential Tax Liability

Royal Dutch Shell plc moved the Kulluk drilling rig from Dutch Harbor, Alaska to avoid potential tax liability, The Anchorage Daily News reported a Shell official as saying.

The company preferred that the rig be gone from Alaska by the end of 2012 due to economic factors, Sean Churchfield, operations manager for Shell's Alaska operations, said.

"The end of the year to my understanding was when the tax liability potentially would have become effective," Churchfield said during a May 25 Coast Guard investigation panel hearing in Anchorage, Alaska. Cost of maintaining the rig at Dutch Harbor was another factor, but the potential tax liability was a bigger expense.

Shell moved the Kulluk drilling rig Dec. 7 from Dutch Harbor to a Seattle shipyard for major off-season maintenance, including replacement of the rig's cranes, said Churchfield.

Shell had previously said that taxes were a consideration but not a driving factor for the decision to move the Kulluk to Seattle, the Anchorage Daily News reported.

In early January, the U.S. Coast Guard said it would launch a formal marine casualty investigation into the Dec. 31 grounding of the Kulluk.

Shell reported in February it would put its Alaska drilling plans on hold for 2013 in order to prepare its equipment and employees for future drilling.

In March, the U.S. Department of the Interior determined that Shell failed to finalize key components of its 2012 Alaska Arctic drilling program, including its oil spill containment system, which led to Shell's failure to obtain needed permits to drill into oil-bearing zones in the Chukchi and Beaufort seas.

"Shell's decision to put tax avoidance over the safety of Alaska's coastline was reckless in the extreme," said Greenpeace U.S. Deputy Campaigns Director Dan Howells in a May 28 statement. "It now transpires that instead of taking a safe and precautionary approach, Shell's leadership rushed moving the Kulluk to try to avoid paying the taxes they owed to the state of Alaska. This is part of a corporate culture which puts cost-saving above safety from Nigeria to the North Sea and now the Arctic."

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at


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Scott Boyd | May. 31, 2013
My question would be "why would the government want to tax a rig for sitting in winter harbor ?". If, in fact, that was the deciding factor to move the rig. Shell has already poured millions into the Alaskan economy by drilling there and now they are expected to pay more when the rig sits idle ? Typical of Greenpeace to criticize the oil company and not question why the government(s) would want to tax the oil company to the extreme forcing the company to want to move the rig. If the rig was left in Alaska, would the company have done maintenance on the rig right there over the winter providing jobs for a lot of people ? Maybe....maybe not. Costs are a whole bunch higher up there. But you never see Greenpeace et al coming up with any real solutions. Ive worked for the oil industry now for 35 years and have never seen organizations like Greenpeace put anything into our economy. We do it ourselves. And we do it well.

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