"Shell screwed up in 2012," said Interior Secretary Ken Salazar.
Salazar, whose agency released a review of Shell's efforts Thursday, said the company won't be allowed to drill again off the Arctic coast until it presents a plan showing that it can better handle conditions there.
The Interior Department's report said Shell's problems have raised serious questions about its ability to operate safely and responsibly in the challenging conditions off Alaska. The report said Shell entered the drilling season "not fully prepared in terms of fabricating and testing certain critical systems and establishing the scope of its operational plans."
"One of the recurring themes that we identified throughout the review was the failure on the part of Shell to oversee contractors that they relied on for critical components of their operations," Bureau of Ocean Energy Management Director Tommy Beaudreau, who led the probe for the Interior Department, said in a conference call with reporters.
Shell already has dropped plans to drill in the coming year in the wake of the problems. But the company promises to return to Arctic waters at a "later stage."
Shell spokesman Curtis Smith said Thursday that the company appreciates the Interior Department's review and takes the findings seriously.
"Consistent with our recent decision to pause our 2013 drilling program, we will use this time to apply lessons learned from this review, the ongoing Coast Guard investigation and our own assessment of opportunities to further improve Shell's exploration program offshore Alaska," Smith said in an email. "Alaska remains a high-potential area over the long-term, and we remain committed to drilling there safely, again."
The Interior Department review is just one of the investigations Shell is facing.
The Justice Department is probing 16 safety and environmental violations the Coast Guard found on the Noble Discoverer, one of two Arctic drilling rigs Shell is using. It's owned and operated by Shell contractor Noble Corp.
The Coast Guard also is investigating the circumstances of the Dec. 31 grounding of Shell's other Arctic drilling rig, the Kulluk. It was being towed by Shell contractor Edison Chouest Offshore at the time.
Shell and contractor Superior Energy Services also had repeated problems getting its oil spill containment barge ready. At one point the containment dome on the barge was "crushed like a beer can" in testing in the waters off Washington state, according to regulators.
Beaudreau said Shell also had problems working with contractors on emissions controls. The Environmental Protection Agency says both Shell drilling rigs ended up in violation of air-quality standards.
The Interior Department said Shell will need to submit a plan describing every phase of its operations before it can drill in the waters off Alaska again. Shell also will have to complete an audit demonstrating it's ready for the conditions found in the Arctic.
The question is whether the Interior Department will hold Shell to those standards, said Marilyn Heiman, director of the Pew Environment Group's U.S. Arctic Program.
"Their recommendations are good. But the proof will be in how they implement them," she said. "We are hoping for rigorous oversight."
It was the Interior Department that allowed Shell last year to become the first company in two decades to drill in Arctic waters. But the government did not find fault with its own oversight, despite Shell's failures.
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Salazar noted that Shell was only allowed to do preparatory drilling. Salazar's agency did not allow Shell to drill deep enough to hit oil, he emphasized, because of the problems with its spill containment barge.
Salazar said the Obama administration is not backing away from its support of oil exploration in the Arctic.
The Interior Department said Shell was able to drill sections of two wells in the Arctic Ocean last year without significant injuries or spills. The company also responded effectively to changing ice conditions and coordinated well with Native communities, it said.
"Shell was very cooperative in this review and has acknowledged some of these contractor oversight issues," said Deputy Interior Secretary David Hayes.
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