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Vol. 15, No. 25 Week of June 20, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

NEB plans public role

Canadian regulator invites public participation in Arctic offshore S&E rules

Gary Park

For Petroleum News

Canada’s federal energy regulator is seeking public input to its upcoming review of Arctic offshore drilling, while the Newfoundland government, the only province where offshore drilling is currently taking place, is fending off pressure to require a relief well to accompany the exploration phase.

In addition to its own review, the National Energy Board will station an inspector in Greenland to oversee a summer drilling program in the iceberg-infested David Strait, Environment Minister Jim Prentice said.

In establishing the terms of reference for its Arctic review, the NEB said public presentations would have equal status to those of the industry during what it expects will be a combination of community sessions and technical workshops.

A deadline of July 16 has been set for participants to register. The final timetable and format has yet to be released.

Although no drilling is scheduled for Canada’s Beaufort Sea, a partnership of Imperial Oil and ExxonMobil Canada, as well as BP have been in the preliminary stages of seeking permits for exploratory wells.

Scott Gedak, the NEB’s project manager for the review, said time is needed to “set up a broad review of this nature and we want to take advantage of this lead time to get things ready to go. When that information is available we will be ready to discuss it with both the industry and the public.”

Information, lessons learned

The review will consider what information a company will have to provide before it is allowed to start drilling in the Arctic, including how it will respond to accidents and emergencies when they happen.

It will also consider what lessons can be learned from major spills, such as BP’s Macondo blowout in the Gulf of Mexico, and how they could be applied to northern drilling.

Northwest Territories Premier Floyd Roland said he is eager to see drilling eventually take place in the Beaufort, but first wants to be certain the resources are in place to handle a spill and to understand what happened in the Gulf.

“We need to be shown that the technology could work in Arctic conditions,” he said, noting that his government wants to build an economy in a sustainable way.

Chris Feltin, an analyst with Macquarie Securities Canada, said a “whole lot of ‘what-if’ scenarios” are doing the rounds these days, pointing to tighter scrutiny for offshore operators.

But so far, he said, there has been no sign of downward pressure on the share values of Canadian-based companies with both domestic and foreign offshore operations, such as Nexen, Suncor Energy, Canadian Natural Resources, Husky Energy and Talisman Energy.

Feltin said there has been no pullback or weakness “in step with what we’ve seen in the United States, but we anticipate that offshore producers globally will see higher insurance premiums and delays in project timelines.”

Greenland wells close to Canada

Prentice, although concerned that Scottish-based Cairn Energy will drill two wells in Greenland waters close to the Canadian coastline, said he is “impressed with the amount of work the Greenlanders have done and that they are determined to enforce the highest possible environmental standards for Arctic drilling.”

Greenland has adopted Norway’s offshore regulations, considered among the most stringent in the world.

It has also agreed to work with the NEB as its own regulators conduct frequent inspections of the Cairn activities.

Prentice said the fact that two rigs will be drilling this summer means one can immediately be switched to drilling a relief well if a blowout occurs, a process he estimates would take about a month, given the fact that the drilling depths being targeted are shallower than those in the Gulf of Mexico.

Newfoundland well under way

With a Chevron Canada-operated well under way in Newfoundland’s Orphan basin, Premier Danny Williams said he has no intention of imposing a moratorium on offshore drilling.

“I think we are doing everything we can in the province of Newfoundland and Labrador to prevent similar occurrences (to the BP disaster),” he said.

Lorraine Michael, leader of the opposition New Democratic Party in the Newfoundland legislature, is putting constant pressure on Williams to listen to more than the industry when considering how prepared the industry is to handle blowouts and subsequent spills.

Williams said he has met with executives of both Chevron and Husky “cross-examining, for want of a better term (the companies), on what they were doing and what initial procedures were in place I did satisfy myself (that Chevron) was in fact implementing a lot of safeguards even before the Gulf of Mexico” blowout.

He said that drilling a relief well now in the Orphan basin would add dramatically to the cost of the project and could put an end to further exploration in the basin.

Williams said his government will not take the risk of potentially losing billions of dollars from offshore development that it uses to fund social programs.

Chevron: ‘top-to-bottom’ review

Michael MacLeod, Chevron’s Atlantic Canada manager, told a Canadian Senate committee that the Lona O-55 well, which has been drilling for the past month, would not have been started unless his company was confident it could do the work safely.

However, since the BP rig exploded, Chevron has conducted a “top-to-bottom review of what we’re doing. We have modified equipment, we have added equipment to the Stena Carron (drillship), we’ve done additional tests on our casing program, our cementing program.”

“The operation program for the BOP (blowout preventer) has been thoroughly reviewed in light of the April 20 incident in the Gulf of Mexico,” he said.

MacLeod said Chevron has added an extra remotely operated vehicle to the drillship that could be used to activate the BOP in an emergency and shut down the well.

He said that vehicle has been equipped with a larger hydraulic fuel tank allowing it to activate up to four shutdown valves on the BOP.

MacLeod and the Canada-Newfoundland and Labrador Offshore Petroleum Board agree the Lona well has so far been incident free.

MacLeod said Chevron encourages employees to stop any work they consider unsafe and rewards them for doing so.

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Imperial says oil sands impacted

The unfolding catastrophe in the Gulf of Mexico could do more harm than good to Alberta’s oil sands sector, said Imperial Oil Chief Executive Officer Bruce March, countering those who think the vast bitumen resource could gain favor over offshore development.

He suggested that both the oil sands and the offshore will face questions about the future role of oil in both North America’s and the world’s energy security equation.

March said he would not be surprised to see a batch of major new regulations introduced over the next 20 years, just as those that followed the Exxon Valdez disaster in 1989, once stakeholders in the industry and government develop policies and establish a path forward.

He said options being debated, such as the drilling of relief wells in conjunction with an exploration well, could add substantial costs to operations.

Although conceding the world is shifting away from oil to more renewable forms of energy, March said Canada’s oil reserves offer the only safe and most environmentally friendly source of energy to meet demands over the next three decades.

He said the transition to a “more renewable energy base will likely take 30 or more years to develop. In the interim, hydrocarbon fuels are the only way to meet demand in a manner than is reliable and affordable.”

March: oil sands essential

Despite being a target for environmentalists and climate scientists, March said the oil sands are an essential part of Canada’s economic wellbeing, in addition to generating billions of dollars in tax revenues.

He said Imperial is taking steps to reduce the risks of greenhouse gas emissions associated with oil sands development, but noted: “We are not good and I don’t know that anybody is good at quantifying these risks … but we see enough to know that we should be participating in some actions,” including new technologies to reduce energy and water consumption in its operations and reduce its overall environmental footprint.

“Our goal on land is simple. After development is completed, we want no evidence that we were ever there,” March said.

He said Imperial’s new C$8 billion Kearl oil sands project will include cogeneration facilities to produce electricity and steam at the same time, while reducing energy consumption and greenhouse gas emissions.”

David Collyer, president of the Canadian Association of Petroleum Producers, told a Global Petroleum Conference in Calgary that the Gulf events have made it harder for the industry to improve the public’s perception of the use of fossil fuels and could result in “long-term consequences of what clearly in the short-term is tragic event.”

He said industry efforts to be more proactive in changing the public view of the industry are now a tougher sell.

—Gary Park