THE BLOG

Did Alaska Tax Liability Play Role in Shell Oil's Drill Rig Fiasco?

01/04/2013 12:03 am ET | Updated Mar 05, 2013

Hopes of avoiding millions in state taxes may have faded for Royal Dutch Shell when the clock struck midnight on Jan. 1 and 2012 became 2013. Just hours earlier, its Arctic drill rig, the Kulluk, had grounded on an island in the Gulf of Alaska, exposing Shell to a unique Alaska property tax on equipment dedicated to oil and gas development and exploration.

If the rig had been just three miles from state shores, the tax could have been avoided. Instead, because the vessel had found its way back to Alaska just in time to ring in the new year, the company's hopes for good weather and a quick run to port in another state were dashed in the worst possible way.

According to Shell Alaska spokesman Curtis Smith, there was a two-week window in which the weather looked good through the Gulf of Alaska at the time the Aiviq left Dutch Harbor with the Kulluk in tow on Dec. 21. That was the primary reason that the vessels set out when they did, hoping to make a run to port in Washington for repairs and maintenance.

A week later, the Aiviq suffered multiple engine failures just as a subtropical cyclone made its way into the North Pacific, bringing with it high seas and whipping winds. Multiple attempts to re-establish a lasting towline between the Kulluk and a variety of tow vessels failed.

Eventually, the hulking drill unit found itself resting in shallow water, pounded by waves as officials scratched their heads, trying to figure out what to do next.

Though the favorable forecast was a primary reason for Shell leaving Dutch Harbor when it did, there was another factor: money.