by Kiley Kroh

After struggling to get the last of their drilling equipment out of the Beaufort Sea as winter sea ice encroached, it appeared the long list of criticisms and setbacks that marked Shell’s first Arctic Ocean drilling season had come to an end.

That respite was very brief.

Seattle’s NPR affiliate KUOW has released internal emails between Interior Department officials, obtained through the Freedom of Information Act, detailing Shell’s failed test of underwater oil spill response equipment. Shell and the federal government kept a close hold on the specifics of what exactly went wrong during the test – and now it’s clear why.

The September sea trial was conducted in the temperate waters of Puget Sound – a long way from the harsh Arctic conditions in which it would be deployed – and was expected to last about day. As KUOW reports, the end result was a complete disaster:

• Day 5: The test has its worst accident. On that dead-calm Friday night, Mark Fesmire, the head of BSEE’s Alaska office, is on board the Challenger. He’s watching the underwater video feed from the remote-control submarine when, a little after midnight, the video screen suddenly fills with bubbles. The 20-foot-tall containment dome then shoots to the surface. The massive white dome “breached like a whale” Fesmire e-mails a colleague at BSEE headquarters.

Then the dome sinks more than 120 feet. A safety buoy, basically a giant balloon, catches it before it hits bottom. About 12 hours later, the crew of the Challenger manages to get the dome back to the surface. “As bad as I thought,” Fesmire writes his BSEE colleague. “Basically the top half is crushed like a beer can.”

The oil spill containment dome is an important piece of response equipment that would capture spilled oil in the event of an uncontrolled blowout similar to the one that led to the catastrophic Deepwater Horizon oil spill. Shell first unveiled plans for its oil spill containment system back in 2010, saying it had “designed and equipped the most robust oil spill response system in the Arctic known to the industry.”

As we’ve detailed numerous times, the region’s extreme and volatile conditions, coupled with the dearth of infrastructure and scientific knowledge, add an enormous and unpredictable amount of risk to any Arctic operations. And these warnings aren’t just coming from environmental groups – a major insurance company, bank, legislative body, and even a fellow oil major have added their concerns to the growing chorus of opposition. Therefore, the importance of preparedness cannot be understated and Shell’s track record to date is far from comforting.

Perhaps the greatest irony in the rush to drill the Arctic Ocean is the fact that climate change – the direct result of rampant burning of fossil fuels – is being felt more acutely in the Arctic than any place on Earth, manifesting itself in unprecedented warming and ice melt. The response? Digging up more fossil fuels, which will be burned and emitted into the atmosphere as CO2, perpetuating the destructive cycle. In order to avoid catastrophic warming, the International Energy Agency estimates that we’ll need to leave 2/3rds of global carbon reserves in the ground before 2050.

Continuing on our current path of fossil fuel consumption will drive oil companies into some of the most extreme conditions on the planet, like the fragile Arctic Ocean – a frightening prospect not just for the people and ecosystems that are threatened by their unpreparedness, but also the urgent need to curb our carbon emissions and slow climate change.

Kiley Kroh is the Associate Director of Ocean Communications at the Center for American Progress

by Rebecca Leber and Jackie Weidman

ExxonMobil and Royal Dutch Shell, No. 1 and No. 2 on the Fortune 500 Global companies list, announced their third-quarter earnings on Thursday. Compared to last year’s earnings, both companies’ profits are down slightly — 7 percent for Exxon and 15 percent for Shell — on weaker oil prices. However, ExxonMobil and Shell earned $9.6 billion and $6.1 billion respectively, bringing their total 2012 profits to $35 billion for Exxon and $18.9 billion for Shell.

These two companies, along with the rest of the Big Five, continue to receive century-old annual tax breaks. At the same time, Exxon and Shell funnel a portion of their dollars toward lobbying against environment and public health protections, while also funding climate denier candidates. This summer, Exxon CEO Rex Tillerson said that he recognized carbon pollution causes warming, but minimized the full impact saying “those consequences are manageable.” Meanwhile, extreme weather damages in the U.S. alone have potentially cost up to $144 billion since 2011.

Below are the highlights of where Exxon and Shell spend their earnings:

ExxonMobil:

– Exxon received an estimated $600 million in annual tax breaks. It paid just a 13 percent federal tax rate.
– Exxon spent $5.1 billion — or 53 percent– of this quarter’s profits to buy back its own stock, which enriches the largest shareholders.
– Oil production for Exxon for Q3 in 2012 is 5 percent lower than this time last year (2.1 million of barrels per day in Q3 2012 vs. 2.2 million in Q3 2011).
– In 2012 alone, Exxon spent $12.7 million lobbying Congress, according to the latest Federal Election Commission figures.
– Exxon spent $2.1 million on direct federal and congressional campaign contributions so far in the 2012 election cycle, with 90 percent going to Republicans.
– Some of the biggest Congressional recipients include Senate Minority Leader Mitch McConnell (R-KY), Sen. John Barrasso (R-WY), and Speaker of the House John Boehner (R-OH).
– Exxon’s CEO Rex Tillerson’s total compensation in 2011 was $34.9 million.

Royal Dutch Shell:

– Shell received a $200 million annual tax break in 2011.
– Shell has $18.8 billion in cash-on-hand.
– In the third quarter, Shell used $149 million of its profits to buy back its own stock.
– Shell’s oil production decreased by 5 percent compared to this time last year (1.59 million of barrels per day in 2012 vs. 1.67 million in 2011).
– Shell spent more on lobbying than the other Big Oil companies – $12.9 million so far in the 2012 election cycle – according to the latest Federal Election Commission figures.
–Shell just finished drilling top holes in Arctic waters for the year, after issues with its containment barge and ice flows created delays.

The last of the Big Five oil companies, Chevron, will release its third quarter profits Friday.

Starting tomorrow, the world’s largest oil companies — ExxonMobil, Shell, Chevron, BP, and ConocoPhillips — will begin to announce their third-quarter profits for 2012. In the first half of 2012, these companies — all ranked in the top 10 of Fortune 500 Global — earned over $60 billion.

The oil industry reinvests tens of millions of these dollars for political purposes, including nearly all political contributions to Republicans, lobbying, and campaign ads. Through its enormous spending, these five and other Big Oil companies have fought to maintain $4 billion of their annual subsidies, while seeking to undermine clean energy investments:

$105 Million On Lobbying Since 2011, 90 Percent Of Campaign Contributions To GOP: The big five companies have spent over $105 million on lobbying Congress since 2011, according to lobbying disclosures through the third quarter. The biggest spenders were Shell ($25.7 million), Exxon ($25.4 million), and ConocoPhillips ($22.9 million). The five companies’ oil PACs have donated over $2.16 million to mostly Republican candidates this election cycle. Koch Industries also spends big money to pressure Congress, with $16.2 million on lobbying and more than $1.3 million from its PAC (the top oil and gas spender). In total, the oil and gas industry sends 90 percent of its near $50 million in contributions to Republicans, far eclipsing their record spending in 2008.

Misinformation Campaigns, Including Over $150 Million In Election Ads:
Over $150 million has been spent on TV ads promoting fossil fuel interests, particularly oil and coal, reports the New York Times. In addition to traditional campaign donations, the oil industry has turned to outside groups running attack ads. Earlier this year, Americans For Prosperity — founded and funded by the Koch brothers — launched a bogus ad claiming that clean energy stimulus dollars went overseas. And the oil lobby American Petroleum Institute has its own campaign promoting myths about oil production and gas prices. For example, API chief Jack Gerard, rumored to be on Mitt Romney’s shortlist for a White House or agency appointment, claimed that oil production on federal land is down. This is simply not true, since oil production is up 240 million barrels on federal lands and waters under President Obama compared to the Bush administration. And oil companies hold 20 million acres of federal oil, gas leases in Gulf of Mexico that remain unexplored or undeveloped. This is just one of the many myths Big Oil has pushed this campaign cycle.

Behind-The-Scenes Campaign To Defeat Clean Energy: Koch Industries and fossil fuel groups are mobilizing to defeat the extension of modest tax incentives for wind energy, even though oil tax breaks are permanent. The American Energy Alliance, which has Koch ties, aims to make the credit “so toxic” for Republicans it would be “impossible for John Boehner to sit at a table with Harry Reid.” The Koch-funded Americans For Prosperity is also campaigning against wind energy. Meanwhile, the industry has argued its own century-old tax breaks are necessary to maintain, despite years of record-breaking profits.

Overall, these efforts to keep their tax breaks while weakening public health safeguards from pollution have paid off in Congress and for Republican candidates. The House of Representatives is the most anti-environment in Congressional history, averaging at least one anti-environment vote per day to eliminate or undermine pollution protections, many benefiting Big Oil. And the Romney/Ryan budget plan would give the big five oil companies another $2.3 billion annual tax cut beyond existing loopholes.

After the big five companies’ second quarter profits, ThinkProgress calculated what a typical 24 hours looks like for the oil industry:

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by Kiley Kroh

Joining the chorus of influential voices in opposition to offshore drilling in the Arctic, British lawmakers today called for a halt to drilling in the Arctic Ocean until necessary steps are taken to protect the region from the potentially catastrophic consequences of an oil spill.

In a report citing the myriad risks and challenges of operating in the untested region, the Environmental Audit Committee of Britain’s House of Commons urged action to halt oil and gas drilling in the Arctic until new safeguards are put in place.

Lawmaker Caroline Lewis, member of the committee, explained their concern that “the race to carve up the Arctic is accelerating faster than our regulatory or technical capacity to manage it.”

An oil spill anywhere in the region could impact all of the surrounding Arctic nations, prompting the committee to call for the Arctic Council to draft a universal standard on disaster response.  In addition, the report recommends a “much higher, preferably unlimited, financial liability regime for oil and gas operations.”  Until there is greater certainty that individual companies and the Arctic nations are prepared to respond to a spill in the remote and unpredictable region, the committee maintains the Arctic Ocean should be off-limits to drilling.

The British parliament is yet another authoritative body expressing serious concern about the risks presented by offshore drilling in the planet’s last great frontier.

Earlier this year, insurance giant Lloyd’s of London issued a report warning that responding to an oil spill in a region that is “highly sensitive to damage” would present “multiple obstacles, which together constitute a unique and hard-to-manage risk.”

Soon after, German bank WestLB announced it would not provide financing to any offshore oil or gas drilling in the region, saying the “risks and costs are simply too high.”

Hamstrung by ice clinging to Alaska’s northern shore much longer than usual (ironically during a year with record-low ice) and a series of mishaps with its equipment, Shell Oil announced earlier this week that it would only pursue preparatory drilling in the Arctic Ocean this summer.  But as the company lays the foundation for a “multi-year exploration program” in the region, it is critical to note that the glaring deficiencies in science, infrastructure, and technology must be addressed.

Seen as the bellwether for climate change, the Arctic is warming twice as fast as the rest of the planet – leaving industries such as shipping, tourism, fisheries, and oil and gas chomping at the bit to stake their claim on the Arctic’s previously inaccessible riches.  The rapid industrialization of an already fragile ecosystem could be completely devastating.  With Arctic sea ice shrinking to the smallest extent ever recorded this summer, the committee’s report warns that “such development could result in significant environmental damage in a region already feeling the effects of climate change more than the rest of the planet.”

Michael Conathan, the Center for American Progress’ oceans policy director, explained the insanity of pursuing oil drilling in a part of the world under serious threat from climate change in an interview with E&E TV this week:

“I hope the irony isn’t lost on people: it is the fact that we have burned so many fossil fuels that have led to climate change that has allowed the ice to recede and that has subsequently now opened up these areas to drilling, and our response is to go in and extract more fossil fuels that we can burn and perpetuate the cycle.”

Not only is Shell ignoring the advice of some of the largest financial institutions and risk assessors, it’s also ignoring the world’s climate scientists.

Kiley Kroh is Associate Director of Oceans Communications at the Center for American Progress.

by Kiley Kroh

Today, Shell Oil announced it will postpone efforts to drill for oil in the Arctic Ocean after the company’s oil spill response barge failed another round of testing. The company says it will resume operations next year.

The decision to halt operations comes a week after the company began preparatory drilling in the Chukchi Sea – and was forced to suspend operations just one day later due to a massive ice pack covering approximately 360 square miles drifting toward the site.

The ongoing problems with the company’s oil containment barge, a critical piece of oil spill response equipment, is just the latest in a series of setbacks in Shell’s quest to tap oil under the Arctic Ocean. These problems raise serious questions about its preparedness to drill in some of the harshest conditions on the planet.

Though Shell has vowed to spend the remainder of the season drilling as many “top holes” as possible in order to quickly resume drilling operations next year, the most glaring challenges will not dissipate. As detailed in the Center for American Progress report, Putting a Freeze on Arctic Ocean Drilling: America’s Inability to Respond to an Oil Spill in the Arctic, the dearth of supporting infrastructure throughout Alaska’s North Slope — including ports, roads, railroads, and permanent Coast Guard facilities — coupled with the lack of sound science and extremely volatile conditions make offshore operations extremely difficult and hazardous. The remote location, harsh and unpredictable conditions, and absence of proven clean-up technologies designed for Arctic conditions would make large-scale response efforts nearly impossible.

Citing many of these challenges and deficiencies, insurance giant Lloyd’s of London issued a report earlier this year warning that responding to an oil spill in a region that is “highly sensitive to damage” would present “multiple obstacles, which together constitute a unique and hard-to-manage risk.”  Soon after, German bank WestLB announced it would not provide financing to any offshore oil or gas drilling in the region, saying the “risks and costs are simply too high.”

The prospect of drilling in Alaska’s Arctic Ocean – and the threat of an oil spill – has drawn the concerns of Alaska Natives who depend on the Arctic Ocean for their livelihood. In addition, the U.S. Coast Guard and the scientific community have expressed doubts about the lack of knowledge about oil spills in the region.

After five years and $4.5 billion invested in Arctic Ocean drilling, Shell’s delayed drilling plan is an illustration of how difficult and dangerous it is to drill for oil in the world’s last great frontier.

Watch our recent documentary on these challenges in the Arctic:

Kiley Kroh is Associate Director of Oceans Communications at the Center for American Progress.

by Michael Conathan

After five years of waiting and billions of dollars invested, Peter Slaiby, Shell Oil’s Vice President for Alaska, gushed to the Alaska Daily News last Sunday, that he was “happy, happy, happy” his company had driven its first drill bit into the floor of the Chukchi Sea.

Now it seems Slaiby’s delight about offshore drilling in the Arctic may have been short-lived.

Yesterday, just one day after beginning its long awaited drilling operations, Shell suspended drilling due to a massive ice pack covering approximately 360 square miles drifting toward the site. Its trajectory has forced the oil giant to disconnect its drilling ship, costing the company at least one of just 15 days it has been allowed to drill before the government will force operations to shut down for the winter.

The arrival of this titanic ice sheet just days after Shell received permits from the Department of the Interior to begin drilling is yet another reminder of the inherent peril of operating in such a remote and extreme environment — and it contradicts Shell’s insistence that its operations will not pose a threat.

Addressing the World Ocean Conference in Singapore last February, Shell International Senior Adviser  Robert Blaauw insisted his company’s operations would be “benign”:

When there will be drilling, there will be drilling in open water seas and when the conditions are benign – more benign than the Gulf of Mexico – in shallow water in 24-hour daylight.  And we’ll stop drilling actually more than a month before the ice comes back.

For the record, when Shell’s drill bit first hit the ocean floor at 4:30 AM local time, it was dark. The sun didn’t rise that day until 7:11 AM.

As a report and short documentary video from the Center for American Progress points out, responding to an oil spill in the Arctic would be a daunting challenge even in the best case scenario Blaauw describes. In a region with virtually non-existent infrastructure or support facilities, there would simply be no way to house, feed, and supply the workforce that would be necessary to clean up a large-scale spill. And scientists know very little about how oil would affect the Arctic environment.

The decision to suspend operations must be particularly frustrating to Shell because it has already taken far longer than the company would have liked to get to this point. Sea ice has remained in the area longer than anticipated, and a series of gaffes — from failed Coast Guard inspections to a drilling rig slipping its mooring — prevented the company from receiving its permits and commencing operations in early August as it had anticipated.

Shell has petitioned the government for an extension of its drilling season beyond the September 24 deadline because its scientists predicted that sea ice would be later than anticipated coming back to the region. Given these latest developments, it seems granting such an extension would be rather ill-advised.

With the clock ticking and a massive ice sheet bearing down on their drill site, it seems Shell may not have as much room to operate as they originally thought.

Michael Conathan is Director of Oceans Policy at the Center for American Progress.

Every hour so far in 2012, the five largest oil corporations have recorded a $14,400,000 profit. And every hour, they received more than $270,000 in federal tax breaks. That adds up to $2.4 billion in subsidies every year for the five largest oil corporations — Royal Dutch Shell, ExxonMobil, Chevron, BP, and ConocoPhillips — all ranked as the top 9 companies in the world.

Even though BP posted an unexpected second-quarter loss, these five companies are on track to meet last year’s record profits. Put these numbers into context, and they are not so “disappointing“: Big Oil profits more in one minute than what 96 percent of American households earn in one year. Even so, Mitt Romney and House Republicans want to double what the five companies receive in federal tax breaks to $12.8 million per day, even though the three publicly owned U.S. companies paid an average tax rate of under 17 percent.

The graphic below illustrates where Big Oil directs these profits and its pollution over the course of a day:

¹ Center for American Progress, 7/30
² Center for American Progress, 7/31
³ EPA
⁴ Wall Street Journal
⁵ Open Secrets

The top two corporations on the Fortune 500 Global ranking, Royal Dutch Shell and ExxonMobil, announced their 2012 second-quarter earnings today, bringing the total profits for three Big Oil companies to $44 billion for 2012 or $250 million every day this year. Exxon profited by $16 billion this quarter, bringing its earnings for 2012 to $25 billion.

The New York Times wrote that Exxon and Shell’s earnings “disappoint,” because energy prices unexpectedly dropped for consumers this summer. Put their profits in the appropriate context, however, and Exxon and Shell still made a combined $160,000 per minute last quarter, even though the top five oil companies benefit from $2.4 billion federal tax breaks every year.

Below we look at what Exxon and Shell spends its earnings on:

ExxonMobil:

– Exxon spent 42 percent — or $10.7 billion — of its 2012 profits buying back its stock, which enriches executives and largest shareholders.

– Exxon has spent $17 million lobbying for the past 18 months, making it the top spender in the oil and gas industry. It has spent more than $52 million lobbying for the first three years of the Obama presidency, 50 percent more than in the Bush administration.

– Exxon is sitting on $18 billion in cash reserves.

– Exxon send federal candidates $1.3 million in campaign contributions so far this campaign cycle, sending 91 percent to Republicans.

– Exxon paid just 13 percent in federal taxes last year, lower than the average American family. Right after Mitt Romney, Senate Minority Leader Mitch McConnell (R-KY) is the top recipient of Exxon federal contributions.

– Exxon CEO Rex Tillerson received $24.7 million total compensation.

Royal Dutch Shell:

– Shell will start drilling in the Arctic this summer, but its oil spill response plan is still behind schedule. It’s off to an inauspicious start in the Arctic, recently losing control of an Arctic drilling rig.

– Shell has spent nearly $22 million for the past 18 months, making it the second-biggest spender of the oil and gas industry.

– Shell has more than $17.3 billion in cash reserves.

– Shell bought back 15 percent of its second-quarter profits, or $900 million.

– Shell CEO Peter Voser’s compensation more than doubled in 2011 to $15.3 million. His salary increased (in euros) by 113 percent.

– In its annual report, Shell noted that the number of oil spills increased from 195 in 2010 to 207 during 2011.

While these companies already benefit from billions in tax breaks, Mitt Romney has offered the industry even more. A Center for American Progress Action analysis finds that Romney’s tax plan could lower five companies’ annual tax bill by another $2.3 billion, virtually doubling what they already receive in tax breaks.

Chevron and BP are the last two of the Big Oil companies to announce profits.

The Big Five oil companies – BP, Chevron, ConocoPhillips, ExxonMobil and Shell – are slated to announce their 2012 second-quarter profits later this week.

We can expect these companies, all of which rank in the top 10 of the “Fortune 500 Global Ranking,” to reveal billions of dollars more in profits, after earning $375 million in profits per day in 2011 ($261,000 per minute), and $368 million per day in the first three-months of 2012 — bringing their combined profits to $1 trillion from 2001 through 2011.

Below is a quick look at just how much these Big Oil companies are making, and where they are spending their billions in profits.

Big Oil’s Big Profits, In 24 Hours

• The five biggest oil companies earned a combined profit of $375 million per day, or a record $137 billion profit for the year, in 2011, despite reducing their oil production.

• In 60 seconds, these five companies earned $261,000 — more than 96 percent of American households make in one year.

• These five oil companies received $6.6 million in federal tax breaks every day.

• In 2011, the three largest domestic public oil companies spent $100 million of their profits each day, or over 50 percent, buying back their own stock to enrich their board, senior managers, and largest share holders.

• The entire oil and gas industry spent on average $400,000 each day lobbying senators and representatives to weaken public health safeguards and keep big oil tax breaks, totaling nearly $150 million.

• Each CEO of the Big Five companies received an average of $60,110 in compensation per day last year. On average, their pay jumped 55 percent in 2011. Exxon CEO Rex Tillerson’s compensation came close to $100,000 per day last year.

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The Arctic is undergoing rapid changes accelerated by a warming planet, opening up new potential shipping routes, tourism opportunities, and fossil fuel reserves.

Royal Dutch Shell is leading the charge in oil extraction. The company has already shipped its fleet of rigs up to Alaska where it is waiting for the go-ahead from the federal government to begin exploratory drilling in icy Arctic waters.

Other companies such as Exxon Mobil, Gazprom, Statoil, and Total are also planning on expanding future operations in the Arctic.

But a growing group of disaster-response officials, political leaders, environmental groups, and scientists are all raising concerns about the environmental impact of this new drilling activity. With virtually no infrastructure in place to clean up an oil spill, the consequences of a well blow-out could be disastrous.

The long-term consequences could be equally bad. As Arctic sea ice continues its death spiral, fossil fuel companies seeing new opportunities under the waters are swooping in — increasing the extraction of carbon-based fuels that are contributing to global warming.

In this podcast, linked above, we’ll speak with Michael Conathan, director of oceans policy at the Center for American Progress, who has been watching the activity in the Arctic closely. He’ll discuss a new report, Putting a Freeze on Arctic Ocean Drilling, and talk about the various environmental and infrastructure challenges in the region.

You can follow our podcast RSS feed here. A transcript of the conversation is below:

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