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Vol. 15, No. 21 Week of May 23, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Canada offshore in doubt

Blowout stalls Beaufort activities until 2014; Amauligak find being examined

Gary Park

For Petroleum News

Chevron Canada may have slipped under the wire, but others in Canada’s offshore regions are faced with paying a heavy price for events in the Gulf of Mexico.

Along with its partners Royal Dutch Shell (20 percent,) Imperial Oil (15 percent) and ExxonMobil Canada (15 percent,) operator Chevron has started drilling the partnership’s second well in the Orphan Basin, 260 miles northeast of Newfoundland, just as the Macondo explosion and oil spill in the Gulf were washing over what would otherwise have been a little-publicized development.

The Lona O-55 well is drilling in 8,500 feet of water — the deepest water depth yet in Canada, beating the 7,670 feet for the group’s initial well, Great Barasway F-66.

Chevron halts interviews

Suddenly swamped with questions about the safety precautions in place for Lona O-55, Chevron stopped granting interviews.

It made available an e-mail expressing confidence that it has assembled a team with extensive offshore and onshore experience to run the well, put a priority focus on safety and forecasting that the long planning period for Lona O-55 will enable it to complete the undertaking “incident free.”

Chevron also noted that the Canada-Newfoundland and Labrador Offshore Petroleum Board has approved a comprehensive plan for the well covering emergency response, oil spill response and ice management.

In the wake of that venture, a showdown is looming between the petroleum industry and Canada’s energy regulator over moves that could scuttle prospects of a return to the Canadian section of the Beaufort Sea and affect the East Coast offshore.

Comprehensive review, no drilling before 2014

The National Energy Board, responding to the Gulf disaster, has turned what looked like a piecemeal approach to approvals for the Beaufort into a full-scale review of safety procedures, as reported in the May 16 edition of Petroleum News.

NEB chairman Gaetan Caron said in a statement his agency needs to “learn from what happened in the Gulf” to enhance Canada’s “safety and environmental oversight” in its offshore.

He toughened that message May 13 when he told a House of Commons committee that no activity will now occur in the Beaufort before 2014.

The NEB said details of a “public and consultative” process will be announced once the Gulf spill is brought under control and there is a better understanding of what caused the blowout at the BP-operated Macondo well offshore Louisiana.

Broadened scope of June hearing

In ordering the review, the regulator has broadened the scope of a hearing scheduled for June 3-4 into an application by Imperial, which is supported by Chevron, Shell, ConocoPhillips Canada and junior explorer MGM Energy, to relax current regulations requiring a relief well to be drilled in the same season in the Beaufort Sea.

It also coincides with stirrings of renewed interest in options to develop a 1984 discovery in the Beaufort that is the region’s largest find, estimated at between 350- to 380-million-barrels of recoverable oil and 2.3 trillion cubic feet of gas.

Imperial (69.6 percent owned by ExxonMobil) and ExxonMobil have been gearing up to explore one of two leases covering a combined 508,000 acres acquired in 2007 for work commitments of C$585 million. Its Ajurak exploration well lies about 70 miles offshore in 2,100 feet of water.

Imperial, backed by the Canadian Association of Petroleum Producers and the other majors, applied to the NEB this year to change relief well regulations for the Beaufort.

They have made a case to the NEB that same-season relief wells are impossible to complete in a deepwater exploration area where wells take two or three summer seasons to complete.

They also claim that new technologies make drilling so safe that relief wells are not needed.

BP determined to learn from Gulf incident

In suspending its scheduled written submissions and technical conference on the relief well policy, the NEB has opted to conduct a wider review of the entire regulatory approach to the Arctic offshore.

BP, which has made spending commitments of C$1.8 billion for Beaufort leases, entered the debate May 13 when the company’s Canadian president Anne Drinkwater told a House of Commons committee that BP is determined to learn from the Gulf blowout before taking a stand on what regulations are required in the Arctic.

However, in a March submission, BP said the same-season relief well rules “ought to be rescinded and replaced by a series of goal-oriented regulations” covering preventive measures and mitigation efforts that would allow more time to drill a relief well.

Imperial, which estimates it has already spent C$150 million on its Beaufort program, warned the NEB that strict application of the same-season relief well rules “would essentially preclude the drilling of deepwater wells (such as Ajurak,) which require multi-season operations. It, too, urged the NEB to concentrate on preventive measures.

Federal Environment Minister Jim Prentice said the NEB’s job is to ensure that any drilling activity in the Beaufort is conducted as safely as possible.

He said the NEB will not approve any permits until its review of the Gulf incident and its own safety regime has been completed.

Although nothing definite has been announced, the Beaufort review will not have gone unnoticed by partners in the Amauligak find — ConocoPhillips (with a 50.9 percent working interest inherited from its takeover of the original discoverer Gulf Canada Resources,) Chevron and Imperial.

Holding a federal production license that expires in 2014, they have disclosed in regulatory filings that development options are being examined as melting sea ice opens the possibility of tanker traffic in the Beaufort.

However, company officials say no formal project is under way and no funding has been committed to a Beaufort program.

Appearing at the House of Commons committee hearing, David Pryce, vice president of the Canadian Association of Petroleum Producers, said there is a particular challenge in the deepwater North to drill a same-season well.

He said there is no current activity in Canada’s North while companies “try to understand how best to proceed with projects they might want. Companies are saying it is difficult to meet (the same-season relief well) expectation and proceed with a drilling program.”

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