HOME PAGE SUBSCRIPTIONS, Print Editions, Newsletter PRODUCTS READ THE PETROLEUM NEWS ARCHIVE! ADVERTISING INFORMATION EVENTS PETROLEUM NEWS BAKKEN MINING NEWS

Providing coverage of Alaska and northern Canada's oil and gas industry
August 2010

Vol. 15, No. 35 Week of August 29, 2010

Canada’s offshore in melting pot

Drilling winds down at only well in Canadian waters as demands increase for tougher offshore and unconventional rules, more research and development spending, review of operator liability

By Gary Park

For Petroleum News

The only deepwater well currently being drilled in Canadian waters is nearing completion in Newfoundland’s Orphan Basin just ahead of what shapes up as a full-scale national debate on the future of offshore activity.

Unlike the Great Barasway F-66 wildcat, its predecessor in the same program, the Chevron Canada-operated Lona O-55 has apparently had a trouble-free run over the past three months in 8,500 feet of water, making it the deepest well in Canadian offshore history.

Trouble-free, that is, except for the tremors from BP’s Macondo well blowout in the Gulf of Mexico that extended to Canada, where politicians, environmentalists and one of Canada’s largest investment funds have called for either a ban on future offshore drilling or the imposition of tougher rules.

Facts didn’t support shutting down drilling

The Macondo aftermath included offshore reviews by Canadian federal and provincial regulators, which generated an unusually swift response from the energy committee of the Canadian Senate, which heard from 26 witnesses at a public hearing and reached the unanimous conclusion that the facts did not justify shutting down the Lona well.

“We are satisfied that the oversights are such that there is not any imminent danger,” said committee chairman Senator David Angus.

And the bipartisan committee said that there was, similarly, no risk of a spill in the Arctic or Western Canada, even though no drilling is happening or scheduled for those regions.

Angus said his committee rejected any suggestion that the Chevron operation should be stopped “just because of possible fears.”

In any event, there was a good chance Chevron would have finished its drilling before any action could have been taken.

Chevron won’t provide a specific timeline for completion of the current phase beyond promising a brief announcement. The results of the Lona well can remain confidential for up to two years.

But whether Chevron or any other operators can draw comfort from the Senate report is a matter of conjecture, since so much pressure is being applied on the Canadian government to, at the very least, expand its scrutiny of offshore exploration.

Senate committee urges more R&D spending

Even the Senate committee has urged operators to spend more on researching how to avoid and respond to deepwater failures.

“It appears from the evidence that technology to stop underwater blowouts a mile below the surface has not progressed at the same pace as technology to drill wells at that depth,” the committee said.

“It would be reassuring to know that research and development into technologies for drilling at greater depths is match with corresponding R&D to respond to and contain potential spills in those areas.”

But the committee indicated it was reassured by witnesses it heard from that as more is learned about the Macondo well events there will be greater emphasis on avoiding future failures.

Angus said Chevron has indicated that crude escaping from a catastrophic blowout would disperse without harming any sensitive areas.

“How comfortable are we that it won’t happen?” he said. “We are not crazy enough to suggest that it will never happen, nor (is Chevron), but in terms of the balance of probabilities … that has to be arrived at by people who are experts.”

The committee said it was impressed by the R&D spending by major players in the Canadian offshore industry, but agreed that “more such spending is desirable and would have a positive outcome respecting the development of new technology addressing catastrophic incidents.”

Over the past 15 years, the Sable offshore natural gas project in Nova Scotia waters has made R&D expenditures totaling C$26.7 million, and the ExxonMobil Canada-led project has pledged another C$3 million by 2012.

Offshore companies operating in Newfoundland waters spend about C$25 million-$35 million per year, with ExxonMobil accounting for about C$10 million.

Husky Energy has invested about C$30 million over the past five years and Chevron expects to invest hundreds of millions of dollars over the next 10 to 20 years.

Concern expressed about private spill group

However, the committee expressed “serious concern” that the Eastern Canada Response Corporation – a private-sector funded and operated organization – would not see an operator’s contingency spill plan in detail until there was a spill.

The committee also called for a comprehensive review of current mandatory levels of operator liability, which includes an automatic payout of C$30 million from the absolute liability fund for damage claimants irrespective of fault or negligence, while the offshore regulatory boards can access an additional C$70 million in cases where there is proof of fault or negligence on the operator’s part.

A company drilling in offshore areas must be able to show that it has the financial capacity to pay any third-party damage and spill clean-up costs of at least C$250 million, but there is no ceiling on third-party damage claims or on what operators must pay to clean up a spill.

However, the committee said the liability thresholds, set in 1986, are due for adjustment.

Study did not include ice conditions in Arctic

Regardless of the Senate committee’s initial findings, further exploration of the Canadian offshore is far from certain, especially in the Arctic, where no drilling approvals are expected before 2014.

Senator Grant Mitchell, a Liberal member of the committee, acknowledged that the offshore study did not cover “what it’s like under the ice or above the ice” in the Arctic region.

“We don’t know whether there will still be ice there when they give a license to drill,” he said. “So we don’t want anybody to go away thinking that we have views of the Arctic, because we simply didn’t do that study.”

Push for comprehensive industry review

Dennis Bevington, the Member of Parliament for the Western Arctic and northern development spokesman for the New Democratic Party, dismissed the Senate report as a “whitewash” that failed to examine the offshore issue in depth.

He said the government should follow through on a recent vote in Parliament to conduct a comprehensive review of all unconventional oil and gas development along with its consequences, weighing that against options such as renewable energy.

“There’s fundamental issues that have to be addressed in terms of the changing nature of the industry, whether it’s shale gas, the tar sands or deepwater drilling.”

The push for a wider review gained an added thrust in a Liberal party report urging the government to take action against air and water pollution from the oil sands sector.

Meanwhile, the British Columbia Investment Management Corporation, BCIMC, said federal regulators should impose “strong rules” on offshore drilling, describing BP’s stock price collapse since the Macondo spill “one of the greatest environmentally-related destructions of shareholder value in history.”

Doug Pearce, chief executive officer of BCIMC, which manages C$80 billion in assets, said Canada’s National Energy Board, NEB, should require companies to “seek a more sustainable approach to their pursuit of oil and economic prosperity” in the offshore.

NEB asked to look at all risks of oil and gas operations

The BCIMC got support from an unexpected quarter when the federal Department of Fisheries and Oceans broke ranks with other federal departments by calling on the NEB to broaden its offshore review to examine “all risks associated with oil and gas exploration and production.”

It recommended a strategic environmental assessment of the Beaufort region, noting that the Arctic is a “data-poor region.”

“For example, in the event of a spill, the Beaufort Sea ice gyre rotates clockwise and would move the ice-plus-oil toward the Alaska offshore where, in the spring, it will be released in U.S. water by melting ice,” the department said.






Petroleum News - Phone: 1-907 522-9469 - Fax: 1-907 522-9583
[email protected] --- http://www.petroleumnews.com ---
S U B S C R I B E

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)©2013 All rights reserved. The content of this article and web site may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.