UPDATE 1-US Interior Dept report says Shell needs integrated Arctic plan

Thu Mar 14, 2013 7:51pm EDT

* Interior Secretary Salazar says Shell "screwed up" in 2012

* Interior report says Shell did not fully plan

* Shell will need third party audit of management systems

By Ayesha Rascoe

WASHINGTON, March 14 (Reuters) - The U.S. Interior Department said Royal Dutch Shell must submit an in-depth plan before the company is allowed to drill in the Arctic again, as the government slammed what it termed the company's inadequate preparation for its troubled 2012 drilling season.

Shell has already said it is "pausing" plans to drill in the Arctic again this year after facing numerous setbacks in 2012, when the company undertook preliminary drilling activities.

"Shell screwed up in 2012 and we're not going to let them screw up ... after their pause is removed," Interior Secretary Ken Salazar said on a press call.

Salazar requested a 60-day day review of Shell's drilling activities after the grounding of one of its rigs off the coast of Alaska in late December.

The Coast Guard is currently investigating the rig accident.

While Shell was able to safely drill portions of two wells in the Arctic, the Interior Department's report released on Thursday said the company was not "fully prepared in terms of fabricating and testing certain critical systems and establishing the scope of its operational plans."

Shell has spent $4.5 billion so far in its effort to explore for oil and gas in the Arctic, but has yet to fully complete a well.

The company was able to begin drilling in 2012, but was not able to drill in areas containing oil because it was not able to get its oil spill containment system certified by the government in time.

Interior's report found that Shell's problems with its containment system were the result of "shortcomings" in the company's oversight of key contractors.

In addition to submitting a plan outlining all the aspects of Shell's expected operations in the Arctic, the company must also commission a third-party audit of all of its management systems.

Shell said it remains committed to drilling off Alaska again.

"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," the company said in a statement.

Critics of Shell's drilling program said the report confirmed their suspicions that the company was not ready to begin exploration in the fragile and harsh Arctic environment.

"Until Shell demonstrates beyond a shadow of a doubt that they have the capability to drill in the Arctic safely, their drilling plans should remain on ice," said Congressman Edward Markey of Massachusetts, the top Democrat on the House natural resources committee.

Green groups, who have long argued that drilling in the Arctic threatens the environment, said Interior's review did not go far enough.

"After all the reports that were submitted to Interior, this additional report does not give the public confidence that key concerns with these extraordinarily complex drilling and marine transport operations will be addressed," said Lois Epstein, Anchorage-based Arctic program director for The Wilderness Society.