Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources

Issue 20 - Evidence - Morning

The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 9:04 a.m. to examine such issues as may arise from time to time relating to energy, the environment and natural resources.

Senator Nicholas W. Taylor (Chairman) in the Chair.

[English]

The Chairman: Honourable senators, we continue our across-Canada investigation of Canada`s energy resources, both present and future. Our study will also deal with export markets and environmental considerations. Our committee is most interested in the environmental effects of all of the energy sources we have in this country, including hydrocarbons, wind and nuclear power.

I might mention that, over the last few months, the committee has met in Vancouver, Calgary, Edmonton, Toronto and Montreal to take evidence and to get an idea of what people in the energy industry, regardless of which type of energy, have in mind for the future. We want to know what you would like done and what you think will happen in the future.

Today, we are lucky to have with us the chief executive officer of the Canada - Nova Scotia Offshore Petroleum Board, Mr. Jim Dickey, who informs me that he did some of his initial training in the Calgary area. Mr. Dickey, without further ado, please proceed with your presentation. Perhaps you would take 10 minutes to make your presentation and, following that, senators will have an opportunity to ask questions. Of course, if your assistant has given you a two-hour speech, you will have to do some editing as you go along.

Mr. J. E. Dickey, Chief Executive Officer, Canada-Nova Scotia Offshore Petroleum Board: Welcome, senators, to Halifax and thank you very much for the opportunity to speak to you this morning.

I will briefly review the mandate of the Canada-Nova Scotia Offshore Petroleum Board; talk a little bit about some of the events of the past and how they have affected where we are today; and look forward to the next three or four years.

I will limit my discussion to oil and gas. "Oil and gas" in the offshore Nova Scotia region is defined for us in legislation. There is an ongoing negotiation, shall we say, with respect to the extent of that offshore jurisdiction. I will show you some slides which deal with that.

I will give you a little bit of background on the board itself. Some of you will recall that in the 1980sthere was an ongoing jurisdictional difference of opinion between the Government of Canada and the Province of Nova Scotia. That resulted in a political accord in which the two governments set aside the issue of resource ownership and jurisdiction and concluded that it should be managed jointly by an organization acting on behalf of both governments. That is how the Canada-Nova Scotia Offshore Petroleum Board came into existence.

The first slide shows the areas of jurisdiction. The blue area is the offshore Nova Scotia region. It shows the Saint-Pierre and Miquelon Corridor, the Newfoundland offshore region and the line shown on the slide is under discussion at the moment, with a decision expected by the end of March, 2002.

The Chairman: What is the acreage of that disputed area?

Mr. Dickey: In order to determine that, you have to look at who is claiming what. As a regulator, I do not get involved in that. I do know that the triangular area represents the Newfoundland boundary, but I do not know the acreage. The Newfoundland claim pretty well consumes all of the potential oil and gas resources in that area. Of course, Nova Scotia is arguing the line should be as it is today, which is what they contend was agreed upon in the accord.

Senator Cochrane: In 1986.

The Chairman: Do you deal with offshore New Brunswick, in the Bay of Fundy?

Mr. Dickey: No, we do not have any particular input into that area. I know that the Federal Government is talking to the Province of Quebec, and I know they have had discussions with the Province of New Brunswick, as well as Prince Edward Island.

The Chairman: The Province of New Brunswick extends half-way across the Bay of Fundy towards Nova Scotia.

Mr. Dickey: That is correct.

The Chairman: You have no agreement with the Province of New Brunswick. It is entirely on its own.

Mr. Dickey: Our legislation is specific to Canada and Nova Scotia. The boundary goes down the middle of the Bay of Fundy. I do not know whether the federal government had an arrangement with the Province of New Brunswick when they established that line.

Senator Buchanan might be able to answer some of those questions because, of course, he was very involved at the time.

The Chairman: I would extend my apologies for him. We expected him here this morning but it appears that, instead of turning right, he turned left and ended up in Ottawa.

Mr. Dickey: I am sure he will be quite interested in this. We now have had 12 years of administering legislation into which he had some considerable input. I would be remiss if I did not point out that I am always amazed at the ability of that legislation to respond to some of the technical challenges and some of the policy challenges we face every day.

Of course, there are some wrinkles in the legislation. Nothing is perfect, but to think that it was put together in the late 1970s, early 1980s, and that it can respond to many of the needs in today's society is, I think, quite a feather in the hat of those who worked on that legislation. I know that governments do not often get pats on the back, but this, in my view, is a remarkable piece of legislation that has served Nova Scotians and Canadians well.

Prior to the accord, nothing was being done. The accord had to be proclaimed very quickly because, in 1990, a project was proposed for offshore Nova Scotia. The legislation was proclaimed in January of 1990. It mirrors the political accord. It establishes the board to act on behalf of both governments. It sets up a five-member board: two members being appointed by the province; two by the federal government; and the chair is jointly appointed.

Although the board deals with the day-to-day operations, the accord allows the policymakers or the elected representatives of the people to shape public policy through reviews of fundamental decisions and by way of joint directives.

It is a novel piece of legislation. I have discussed it at meetings with government representatives from Vietnam, Tzakistan, the Falkland Islands, and a few other areas where there are differences of opinion about how to go forward with joint input.

The mandate of the board is: health and safety; protection of the environment; management of the resources; industrial benefits and employment programs; the issuance of licences; maintaining the drill cuttings; and dealing with fluid samples and all the well information. Our organization deals with industrial benefits, rights issuance, health, safety, environment operations and administration.

In applying for a licence, before anything can be done, an operator must submit a work application and receive authorization from the board. This includes diving, seismic, exploration and development work. It is important to remember that because some people overlook those requirements and think that the issuance of a licence somehow gives some particular rights to a company. It does not. There are all kinds of caveats and conditions that must be met before approval and the issuance of a licence. The operators proceed on a risk basis.

I am sure that will be a subject of discussion before your committee, particularly as it relates to environmental considerations. There is notion out there that licences are issued before public consultation. However, I would point out that there are three or four opportunities for public consultation prior to any kind of activity being undertaken.

Under a work authorization, every operator must submit a Canada-Nova Scotia Benefits Plan, a scope-of-work outline, a safety plan, and an environmental assessment. The offshore board is a federal authority under the CEAA Program. Offshore work is subject to the same CEAA screening as would apply to work done in any other part of Canada. Currently, an offshore development is subject to the CEAA process. There are discussions ongoing as to whether other aspects, such as drilling, may be included in that. An environmental impact statement and financial responsibility or financial security is posted.

With regard to benefits plan, we receive a description of the work, schedule and cost information, and a forecast of personnel and services.

With regard to commitment, there must be a commitment to full and fair opportunity and first consideration on a competitive basis. It is important to understand what "industrial benefits" means. There is a special provision in the legislation which is intended to encourage the use of and participation of local people as well as other Canadians. A lot of thought went into this at the time the legislation was drafted. International operators find it strange that they cannot come into the market and go with their intuition in the way they like to do business. There are quite a few hurdles for them to overcome, and they must satisfy the board before they can proceed.

For example, they must file reportings of all their undertakings; have a local office; tell us what they will in education and employment training and R & D; and, of course, both governments have the ability to give the board joint directives with respect to any benefits plans or requirements.

The first consideration is the special concept that was put into the accord that allows Nova Scotians to be given preference, all things being equal. If everything in terms of quality, price and delivery is equal, then there is a statutory requirement to give the contract to local people. Of course, this is grandfathered against the NAFTA and other free trade agreements. It was in place prior to those agreements.

Currently, approximately 1,000 people are employed with the Sable Offshore Energy Project; approximately 200 others work directly for PanCanadian; and another 500 work on the rig across the harbour. A further 100 people work for other operators doing seismic work or drilling. About 10 per cent of the supply company personnel are from the region. The total direct employment is around 5,000 to 5,800 people. This number fluctuates a bit, but it is certainly 5,000 plus.

The Sable Offshore Energy Project is the only producing project at the moment. It is a gas project. Since construction started in 1998, $870 million has been put into Nova Scotia, with another $402 million being put into the rest of Canada, for a total of $1.3 billion, which is 50 per cent of its cost to this point.

The next slide shows the expenditures for the year 2000 from all operators. Last year another $260 million was spent in Nova Scotia and $403 million in Canada, which represents 60 per cent of the total expenditures.

Outside of the project, $1.5 billion has been committed to exploration over the next five years. This is a commitment made by the oil companies that, when they get their licences, they will undertake certain types of work over the next five years, including the drilling of a well. This is offshore Nova Scotia.

We just had a licence issue, and we had bids in the range of $590 million for work commitments over the next five years. Some of them are very aggressive. The whole program is designed to encourage exploration in the offshore region. However, you must make an assessment of the possibilities before you think about developing the potential that is there.

On the environmental side there are what are known as "nominated parcels." Companies nominate lands they are interested in bidding on. If company A is interested in a certain portion in the offshore, it would advise the board that it would like that parcel put up for bids. That is what they call a "fundamental decision" under the accord. The board makes a decision about whether that parcel will go up for bids, and then the governments review it. This gives the governments the hammer in determining the rate at which land is put up for bids and the rate at which exploration is undertaken.

There is a strategic environmental assessment in respect of all calls. Exploration agreements are required for all work authorizations. The board established a Fisheries and Environmental Advisory Committee to give us feedback on those sensitive areas. Of course, a CEAA process for development applications is in place, the same as it is in any other area of Canada.

The board is a federal authority under the Canadian Environmental Assessment Act. What will trigger an environmental assessment is identified under the law. Under the CEAA, there must be screening, comprehensive studies and panel reviews. Public reviews are not automatic under CEAA as they are not in any other area of Canada. That is something that is determined at the time.

No petroleum industry representatives are on our Fisheries and Environmental Advisory Committee. It meets regularly and is briefed on activity, provides advice to the board, it may request consultations with the fishery and the environmental community, and of course the members represent a wide range of interested groups.

I believe you will be haring from representatives of the Ecology Action Centre this morning. They were on that committee but they publicly withdrew from it because the agenda of the Offshore Petroleum Board and the governments conflicts with their agenda. They do not believe that it is necessary to undertake any hydrocarbon development. They felt they were compromising their principles to be on our committee and advised us accordingly. We respect that decision, but the offer is always open to them to come back and participate.

The next slide is a map showing the licences that are outstanding now and the depth of the water to which they apply. As you can see, there are quite a few. At this moment we have 50 exploration licences, with another nine scheduled to be issued, but those are subject to the 30-day termination under the "fundamental decision." That time expires today, I believe, so, if we do not get a veto on that decision, another nine will be added to that list.

The Chairman: You point out three areas: Sable, Panuke, and the Banquereau.

Mr. Dickey: All the blue around Sable is the Sable Project's land. There is the Gully, which is a deep water canyon that is off limits for exploration. The red-coloured areas are the new parcels that will come up for bids. There is one down by Georges Bank.

In all, nine new parcels were nominated and the board put a call out for bids. We received bids on those parcels of about $590 million. We made a decision to issue licences on each one of them. That decision went forward to the federal and provincial governments. Under the accord, they have the ability to jointly veto that decision or to approve it.

The Chairman: Does the public know to whom those licences will go?

Mr. Dickey: Yes, the public knows. When we received the bids, we made a public announcement about the amount of the bid and whom we were proposing should get a licence.

The Chairman: Where is Panuke and Banquereau?

Mr. Dickey: Cohasset-Panuke is shown on the slide, as is Banquereau. They are all in the Sable Basin. In December, a well will be started in the offshore deep water. The licences up around Cape Breton are under public review at the moment. Those three licences will come onshore. You can see the boundary and Georges Bank and, of course, you can see the line going through the Bay of Fundy.

Senator Cochrane: I would go back to the nine new licences that your board has approved and which are now before the federal and provincial governments. Did you say that they will be finalized today?

Mr. Dickey: Under the legislation, the two governments have 30 days to respond to our decision. They either make a decision to let it go. They can jointly veto the decision and make that public.

Senator Cochrane: Will they drill immediately if they get the go-ahead?

Mr. Dickey: No, they must apply to us for a work authorization to do the exploratory work. Normally the work starts with a seismic program to find out what the potential is and what specific area should be targeted. They have to make an application, as I had indicated earlier, and provide all the back-up information such as environmental assessments and so on.

Then the board will look at those and decide whether to authorize it, on what conditions they will authorize it. There may be geographic conditions; there may be certain times of the year when there are restrictions; or they may not get an approval at all.

When they make a commitment to spend $200 million dollars on a licence, they post 25 per cent security. They work off their commitment. They get part of their security back on a pro-rated basis. At the end of the day, if they spend $200 million, they get the total amount of the security back. As I said, the idea is to encourage activity.

Senator Sibbeston: Would you point out on the map, Mr. Dickey, the location of the pipelines?

Mr. Dickey: This map does not show the pipeline. You can, however, see Goldboro. The pipeline goes through this region. You can see Sable Island and the Thibault facility. Onshore, of course, a gas line goes up to the Canso region.

If discoveries are made in the deep water, there is talk of some companies proposing another pipeline, possibly down to the southwest region of the province. When the pipeline us on shore, it will follow this route through northern Nova Scotia, down into New Brunswick, and then down into the U.S.

We have what we call "significant discovery" licences. Those are ones in which there are "significant discoveries," which is a technical term. That acreage is 9.9 million hectares in total.

There are exploration permits at Georges Bank where there is a moratorium until 2012, so nothing can be done with those.

There are also exploration permits for the Laurentian Channel, the area under dispute. Until that is resolved, nothing can be done with those. However, when that dispute is resolved, those exploration permits will be converted to exploration licences through negotiation with the rights holders.

The next slide is a summary of the call for bids, and how we arrive at our $1.56 billion commitment. In 1995 we used to have two calls a year. We are now down to one. The last one shows an area of 1,579 hectares and $527 million work expenditures. The total is $1.56 million, so there is a lot of activity facing us. By those bids you can guess what you will see in terms of exploration work. It does not include development, of course.

The next slide is a graph showing the work expenditure history.

On the net work expenditure graph you will see the one to nine parcels I just mentioned. Marathon Canada Limited had a bid of $193 million on parcel six, and $176 million on parcel five. Clearly, Marathon has some interest in those deep-water licences. Prior to those bids, I do not believe we had a bid over $95 million. The average bid is $26 million. That is the average amount companies say they will spend.

The Chairman: We constantly hear about gas companies going bankrupt all across Houston and in Canada. I hope Marathon will not be one of those.

Mr. Dickey: You must remember that the infrastructure is in place now. Sable got up and running and did it on time and on budget. Geographically, offshore Nova Scotia is well positioned. It is very close to the northeast US.

Geologically, these parcels have a lot of potential. They have to be drilled to determine what is there but that is what is driving it. Of course, over the last couple of year, companies have had great cash flows from their other operations which they use in their exploration programs.

These are long-term commitments, so we do not expect to see too much of this not spent. Some of the smaller companies might change in a hurry, but these are big companies with long-term planning.

The next chart shows the various operators in our offshore region. It ranges from the ones who bid the most to the ones who bid the least. You see Marathon, Shell, PanCanadian, ExxonMobil, Imperial, Murphy, Chevron, Canadian Superior, and Kerr-McGee, who are all big players. Norsk Hydro is coming in now.

We are in the beginning stages of this industry in offshore Nova Scotia. To put it into perspective, just consider what is happening in the Gulf of Mexico. Exploratory wells are shown in the slide in yellow. In 1996, 400 to 450 wells were drilled. In some years 500 wells were drilled. We are talking about three or four wells being drilled, so we are still a long way from the situation there.

To give you some historical perspective, on this slide the exploratory wells are shown in pink. Starting in 1967, we had three runs, three spikes, in offshore Nova Scotia. The first one, from 1967 to 1977, was in the days when price of oil went up and people were predicting it would go to $100 a barrel. Companies came in and took on a lot of exploration work. That died down in 1979. Then, of course, in 1981 we had the National Energy Program and that was a government-stimulated effort. You then see another upward spike in exploratory drilling.

We are into an era that is totally industry driven. There is no government money in any of the efforts that are ongoing now. The yellow colouring indicates development. That refers to Cohasset-Panuke and then, more recently, Sable Island. There was very little exploration drilling up until 2001.

The next slide deals with industry activities in 2001. SOEI Production, averaged 510 million cubic feet a day. SOEI has drilled two development wells; PanCanadian, three exploration wells; and Marathon has a deep-water well starting in December. Shell has just started an exploration well. Canadian Superior is going to probably start this one early next year. We also have the Deep Panuke Development Plan application, so we have another development plan on the way - at least we have been advised of that. We have not received the application but we expect it before year-end.

Looking forward for the next three years, our board anticipates approximately 10 seismic programs a year; 33 exploration wells; SOEI Tier II development, that is three more fields to be brought on; and the Deep Panuke development. That is a tremendous amount of activity for us.

The next chart breaks it down year by year. Next year we are expecting nine exploration wells. Typically if we have had one or two exploration wells, that has been busy.

There is some material here on resource assessment, potential and things of that nature, but I think I have taken enough of your time. Unless somebody wants to me to talk about any of these other slides, I would now be pleased to answer any questions you may have.

Senator Sibbeston: I would like to hear about the experience on the East Coast with respect to skills and the technology that was needed when all of the oil and gas exploration work was beginning. I am sure this area would have had few people with any experience in this field, so there would have been a period of time when many of your skilled workers would have come from other parts of Canada or the States. I am sure that also applies to the technological support needed for the oil and gas exploration activity. Can you please comment on that and give us an idea, a picture of where you are now in developing and using your own skilled personnel in Nova Scotia?

Mr. Dickey: Certainly. You are right; in the beginning, when the Cohasset-Panuke Project started, very few people in the region were trained and skilled to undertake many of these jobs. A lot of them did come from other areas. However, to a large extent, they were Nova Scotians, who had gone out to Alberta or other parts of Canada, who wanted to return home. They had the experience and certainly the desire to work in Nova Scotia, and they were offered employment in the drilling end of the business.

When considering opportunities, you have to be very clear: Are we talking about exploration, or are we talking about development?

Exploration does not give the opportunities that development will, simply because you do not have the long-term opportunities to plan. Development could last 10 to 20 years; exploration could last only 30 to 90 or 120 days.

Nova Scotians and other Canadians have done very well in these projects. About 34 per cent of the expenditures of SOEI have been committed to Nova Scotians and about another 16 per cent to other Canadians. They meet the 50 per cent requirement for Canadian content for expenditures.

For employment, it is much higher. Typically, an exploration rig will have over 90 people; and 90 per cent of those people will be Nova Scotians.

There has been a need for training, and there continues to be. Much more emphasis is now being placed on research and development, education and training, working with the universities and the technical institutions. Some of the trade schools are involved. Some of the operators say that, if we get what we think we are going to get in the terms of exploration work, the success ratio, we will not have enough trained people in this region.

We have a policy for full and fair opportunity on a competitive basis. If people can compete, and this applies to all Canadians, they are welcome here. Our rule is, if they stay six months, if they pay taxes, and if they are able to vote in this province, whether they are from Alberta, Quebec or any other province, they become a Nova Scotian, for terms of our calculation, after six months. We think that is an appropriate policy. They are here, they are spending their money, they are driving the economy. This, of course, does not apply to foreign people. It applies only if you have landed immigrant status or you are a Canadian.

Over time, we will see a higher and higher local content in these projects because operators are committed to training local people so they can move into the development operations. It makes good business sense. They do not want to go outside the region to bring people in to work. The gas plants and the development projects are highly staffed with local people.

Currently, a lot of work is going on in the background in training.

Senator Sibbeston: My other question relates to the offshore pipeline from Sable Island. I am interested to know the technical difficulties that were faced and how companies overcame them. In the Northwest Territories that is an issue because there is talk of a pipeline being built from Alaska to the Beaufort area, offshore. There is a great deal of interest in knowing whether it is technically possible. It seems that you, in this area, have done that. Would the conditions be anywhere similar, or would this area be very different from that part of our country?

Mr. Dickey: The area you are talking about would be entirely different. As a matter of fact, the laying of the pipeline from Sable to onshore was relatively easy. A pipeline barge was brought in. It was laying down six to seven kilometres a day, right out the back. It is like a factory ship. Once the corridor was chosen and established, there was a sort of buy-in. There was consultation with the fishing industry and the environmental groups, and a corridor was selected. It was not a difficult process at all to put that pipeline in place.

In some areas it is buried; in some areas it is covered with mats. We wanted to ensure there would be no difficulties with fishing over the pipeline, snagging nets and things like that. There is no problem related to icebergs. I know that, in the beginning, there were some problems with the gas developing plugs in the line, but that was a technical hitch that was overcome fairly quickly.

To answer your question, once the route was selected and we made sure we were are steering around any potential hazards like old World War II ammunitions dumps and things like that, which is always something you have to think about, it was relatively a straightforward task.

Senator Sibbeston: In what depth of water would the pipeline have been built?

Mr. Dickey: The water is about 200 feet offshore. Even when it came onshore, there were no major difficulties. Of course, it was buried as it moved to the onshore portion. That was one of the areas that worked out fairly well. Our board worked in conjunction with the National Energy Board on the terms of the regulatory approval for that line.

The Chairman: Where does your board fit into the selection process of deciding where new pipelines will go? We have read that recent discoveries could lead to the development of a pipeline under the ocean straight to Boston. Other reports have indicated that a pipeline would go all the way to Quebec City. What input do you have into the decision as to where a pipeline will go? Is your role strictly to provide technical backup?

Mr. Dickey: We work very closely with the National Energy Board. In the beginning, the National Energy Board will do the engineering work and review the design. We then help them with the construction details and the operations. One of our staff members is also a member of the NEB.

We have very little input into the application itself. We do, however, reiterate the governments' views - particularly the provincial government's views - that no pipeline would go from the offshore to the US without hitting landfall. That is a policy decision that the provincial government has made.

The Chairman: You look after where the pipeline touches down in Nova Scotia, but New Brunswick and Quebec better look after themselves. Is that what you are saying?

Mr. Dickey: Yes. We do not have much to say about that part of it, Mr. Chairman, because any development plan that the board may approve is subject to a provincial veto; not a joint veto. If the provincial government of the day is not satisfied with the level of benefits they are acquiring from a development or the structure of it, they have the ability to hold up that project. It is in our best interests as a regulator to understand what both government policy objectives are. To that extent, we do convey policy messages.

However, we are a regulatory body, and when somebody files an application, we deal with it.

Senator Adams: How many kilometres is the Sable Island pipeline?

Mr. Dickey: That pipeline is approximately 200 kilometres.

Senator Adams: What size of pipe has been used?

Mr. Dickey: Sir, you have me at a loss here. However, I believe about it is a 30-inch pipe.

Senator Adams: How long is it anticipated that the gas that is on line now will last?

Mr. Dickey: The project was originally costed out at, I believe, 20 years. Of course every time additional reserves are found, it adds to the length of the possible use of that line. For instance, in the case of Deep Panuke, which is a new discovery, PanCanadian has signed an arrangement with the builders of that pipeline to take their gas. I cannot tell you how that will affect how long the gas will last, but it will certainly lengthen the time, because another estimated 1 Tcf of production will go through that pipeline, when it was originally designed to accept two-and-a-half.

The Chairman: Is all the Panuke production destined to come through the updated Sable Island existing line?

Mr. Dickey: At this time that is the proposal. We have not received a development plan, but we expect to get it before the end of the year. Our advice is that right now there is something like 600 million going through a day from Sable, and Deep Panuke is expected to come in around 400 million, so they are projecting a Bcf a day. There will be some upgrading, but not on the offshore line because it will accommodate that.

I believe PanCanadian is proposing two lines from the offshore to the Goldboro gas plant. It was not my intention to confuse you by talking about the offshore line. It is the onshore line that will be coming into the gas plant and they will utilize that line for exports to the US. In terms of the offshore, the proposal is they will have a gas line and a liquids line.

Senator Adams: You say that nine exploration licences have been granted. Is every development required to build its own pipeline from the shore to the offshore pipeline, or how does that work?

Mr. Dickey: Currently, they are in the exploratory mode. However, that will be something they will have to deal with if they make a discovery of some size. They will have to decide how they are going to handle their distribution. At the moment, they do not know whether they will hit gas, oil or nothing.

As I indicated in my presentation, some pipeline companies have been anticipating certain procedures and preparing themselves. El Paso has made a public announcement that they are investing something like $20 to $30 million dollars in up-front preparation work. In the event that there is a major gas discovery in some of those deep-water licences, then they will be looking at proposals for another pipeline.

That is something that will have to be handled at the time. They just want to be prepared and have a bit of a jump on the competition, I guess.

Senator Adams: In any application for a licence, am I correct that an environmental assessment must be done, particularly if it involves a pipeline?

Mr. Dickey: Environmental work must be done before approvals are given in respect of drilling or, of course, in respect of any pipeline work. The pipeline work would only come about if a development plan were filed after a discovery is made. In the case of Deep Panuke, we will know a lot more about their pipeline plans and their production plans once we receive their development application. Then there will be a public review, and the environmental, CEAA, work will be done.

Senator Adams: You talked about issuing licences before exploration starts. Is it the provincial or the federal government that makes decisions as to who will get a licence? Who gives the final approval of a licence?

Mr. Dickey: Any company can nominate the lands. The board considers the nominations and consults with both governments. We ask for their opinion of the nominations and we get feedback from the governments on those. The governments may say that they do not want those out there and that, if we put them out, they will veto our call. They could do that. We work with the governments because they establish the policy.

Once the decision is made, though, and they think it is appropriate, then we put the call out and we receive the bids. Under our policy, the highest bidder gets the licence. There is nothing more to it than that - so long as the minimum bid is a million dollars.

The Chairman: It is a work bid, with 25 per cent to be deposited for security.

Mr. Dickey: That is correct, and they can earn that back. They can get their deposit back by working off their commitment.

Senator Adams: Is it a federal minister or a provincial minister who has the final word?

Mr. Dickey: The board makes a decision and then advises the governments, and they have 30 days to veto it. In effect, both governments, together, have the final decision on whether it is going to go out or not.

Senator Cochrane: Thank you for your most informative presentation.

Am I correct in saying that you have the legislative authority for safety?

Mr. Dickey: Yes, that is correct.

Senator Cochrane: Can you briefly tell me the number of inspectors that you have going out to these areas? I am talking about remote areas like Sable Island. Do you let the rigs know that your safety inspectors will be going out there, or do they arrive without warning?

Mr. Dickey: That is a very good question and it involves a complicated answer. Our organization is a combination of what they call "regulation by prescription" and "regulation by performance," that is, performance based. Some organizations work on a prescriptive basis, in other words, you must meet the regulations or you are in violation and you can be fined. That is where the organization gets its authority. In the offshore and in a lot of other industries, there is a trend away from that. The trend is to put the responsibility on the operator to a large extent for safety.

This is done in a number of ways in the offshore. We are a small board, but within our board we have four groups that have been approved by the government. They are called "certifying authorities" and they are like Lloyds of London. The operator can select one of those four to be its certifying authority. The certifying authority's job is to review every aspect of the design, construction and installation, and advise the board on its acceptability from a technical and a safety perspective.

Senator Cochrane: Who selects this person?

Mr. Dickey: The governments select the four that are potential candidates for the owner to pick from. When they are put on the approved list, the have been selected as competent organizations to do this job. The operators will choose a certifying authority and that certifying authority will make reports to the board.

The board writes the scope of work for the certifying authority. We tell the certifying authority what we want them to do in terms of the approval process. The operator must furnish us with a certificate of fitness. The operator must also file a declaration with us that makes the operator 100 per cent responsible for that equipment.

In addition to that, we have our own people who do audits and inspections on an informal basis of that type of work. If we see something that we are not happy with, we can look into it. We can refer it to the certifying authority. We can tell the operator that we want certain things done. In fact, we do that on a daily basis. We have one chief safety officer and four safety officers who work pursuant to the accord legislation. They have the ability at any time to issue safety orders to stop any part of the production if there is a safety problem.

It is much more complicated than that. Operators can request regulatory changes, if they believe there is a better way to do things than the regulations require. The regulations are a baseline. Safety can be enhanced if there is a better way of doing something. The regulations cannot keep up with the day-to-day improvements in technology and ways of doing business.

We are trying to put that responsibility back on to these operators. We want them to take full responsibility, which they do, in their safety management systems. These are very complex safety management systems. We then we audit that work.

We do not have lots of inspectors running around and checking railings to see if they meet, say, a certain colour requirement, but we have people who are involved, on a daily basis, in reviewing the operator's management systems and concept plans, and they undertake audits from time to time.

We do not do surprise inspections in the sense we arrive suddenly on a rig and catch them doing something. Obviously that would be impossible, because, first of all, we travel on their helicopters. They will know when we are coming in. In our view, it will do no good to land on the rig, catch a few violations, take off and have them go back to the same old way they are doing business. The Ocean Ranger hearing dealt with a lot of this thinking, as did the Piper Alpha inquiry in Great Britain. It was concluded that the best way to enhance safety and improve safety on a daily basis was to give the responsibility to the companies and put the regulator in a position to audit and inspect, as well as to have the certifying authority involved.

I said that it would be a little bit of a complicated answer but it is something that has worked extremely well if you look into the safety record of the offshore since 1990. It has been exemplary.

Senator Cochrane: Have you had any specific problems you want to tell us about?

Mr. Dickey: We have had no problems, and I will tell you why. We do not lay a charge and ask for a $50,000 fine because it might take us nine months to get the evidence together and provide it to the prosecutor's office. We simply withdraw the authorization for operations and that costs the operator $550,000 a day. We have done that. We have all the powers to do that.

To follow up on that, a problem was identified. It was recognized that the Occupational Health and Safety Act under the accord needed some fixing. I did mention that the accord had a few wrinkles. One wrinkle is that there is a grey area with regard to which government's health legislation should apply. That has now been addressed by both governments and amendments are going through on the accord to make it crystal clear that the health regulatory component now falls under the accord legislation.

In addition to our abilities to withhold authorization permits, and authorizations to conduct activity, we will now have another arrow in our quiver and that is the Occupational Health and Safety Act and the laying of charges for more minor violations. I think we have and will have all the powers that are necessary to enforce safety. Our primary goal is to get companies and operators to buy into the concept of safety as a number-one priority at all costs. Safety is first.

Senator Cochrane: What royalties is the Province of Nova Scotia getting from Sable?

Mr. Dickey: I cannot speak royalties because the board does not negotiate the royalty arrangement. Under the accord, the board is the regulator and we look after the administration of the activities. The Province of Nova Scotia negotiates the royalty system. I probably would not be the best person to answer that.

Senator Cochrane: On page 10 of your slide presentation you deal with the Fisheries and Environmental Advisory Committee. Who is on that committee and can you give an example of how you have consulted with them?

Mr. Dickey: I do not have the list of committee members. I believe that about 25 different organizations are represented. Representatives of fisheries associations are members. Ecology Action was represented on it as were a number of other environmental groups. I believe the Sierra Club has been invited and may be on it. I could get you that list.

Senator Cochrane: How do you consult with these people?

Mr. Dickey: We have regular meetings with this group.

Senator Cochrane: Is that monthly?

Mr. Dickey: I believe it is monthly or every second month. Our environment manager looks after that.

We give them a forecast of our activities and what drilling is proposed once the licence is issued. We give them an overview of everything we are working on. We try to find out if they have any sensitivities with respect to the activity. They want to have observers in certain situations, or we may be told that, at a particular time of the year, a certain fish habitat may be sensitive, things of that nature. We can use that information when we are structuring our approval on an activity application, and we can then provide some protection in respect of those types of activities.

The committee cannot just tell us that they have a problem and say that we cannot do something. The board has the final decision on this. However, it is a consultative process. We try to be inclusive in this process and to understand the concerns.

The committee has been in place for at least five or six years, and it certainly has affected our decision making when it comes to activity authorizations. It has had some impact in dealing with a situation after a licence is issued as well as in dealing with activities that are planned. We have also considered the views of that committee about potential problems.

One of the difficulties is that you cannot address environmental concerns unless you know the nature of the activity that is planned. When a licence is issued, you cannot have a full-blown environmental review because you do not know what activity is planned. You must wait until you receive the application which will describe, say, a seismic run of a certain length and duration. Then you have something to sink your teeth into in terms of environmental concerns. That information would be shared with the committee. We would make it public and we would ask them to express any concerns they may have. Then we would deal with those. Dealing with situations in the abstract is very difficult.

Senator Cochrane: On page 8 of your slide presentation you deal with expenditures for 2000. Are these funds committed to exploration only?

Mr. Dickey: Are you looking at the monies for 2000?

Senator Cochrane: I am referring to the $260.3 million spent in Nova Scotia. Another $142.6 million was spent in the rest of Canada. My question relates to the $1.5 billion committed in the next five years.

Mr. Dickey: That is for exploration only.

Senator Cochrane: Where might some of these committed funds be going?

Mr. Dickey: That $1.5 billion is committed to specific licences. Each licence has a particular number assigned to it. That is the expenditure the company is committed to making over that period of five years. Then you can tell exactly where the monies are going to be spent, on what licence. They are not going to give you a bid of $100 million and then spend it on someone else's licence. It will be spent on their licence. A well costs approximately $30 to $50 million dollars. If you have a bid of $150 million, there are no guarantees. They do not tell us what they are going to do when they make their work expenditure bid. They just say that they will spend a certain amount of money. $150 million is a big bid. You could get two wells out of that and some seismic work, or you could get a lot of seismic and one well, or you could get three wells. We would not know until we get an application.

The commitment is that they must spout a well before the end of the fifth year. If they do not, they post additional security and get one more year. If they do not do it by that time, they forfeit it to the Crown. It goes back into the pool and the process starts again. It is open for nomination again.

From a policy prospective, you sometimes get to the point where you stop doing work expenditures and you go into bonus bidding, for instance. You would not do that unless your industry was at a fairly mature stage and the risk was much lower because what we have now is a very risky offshore situation with lots of potential. Eventually, that potential will be known and the risk will diminish. Then, we may do what Alberta does, which is have some land sales every few months and the money goes directly to the coffers of the government.

The Chairman: It stays there.

Do you have any surveys or analyses to show what the offshore exploration has done to the different types of fisheries, ground fish and so on? Has it improved, or is it too early to say?

Mr. Dickey: I do not have any specific information but our environmental people probably do. I do not want to say something that would be incorrect. I know the area of controversy around Cape Breton has certainly been very visible. The interesting thing is that a lot of seismic has been done in that region, a lot more than was ever planned under the licences that are out there now. I cannot tell you whether anyone has gone in there and done scientific measurements, but I am told that the fishing is very good there. If you ask the fishermen themselves I think that they will tell you it is very good there. Certainly the past has not appeared to have had an effect on the fishing in the area. DFO could probably give you a more precise answer to that question.

The Chairman: Does DFO do their own studies?

Mr. Dickey: Yes.

The Chairman: Is there any evidence that your offshore platforms have become artificial reefs or encouraged ocean habitat?

Mr. Dickey: I cannot speak from a scientific perspective, but I am told that, when the rigs are put in there on a long-term basis they create the best fishing around. Of course, there is an exclusion zone around the production facilities and the only way you can fish is off the rig, over the rail with a line. Apparently the fish congregate there.

The Chairman: Boats patrol the rigs in the North Sea because fisherman get so close to the rigs that they occasionally collide with the it and cause themselves and the rig some damage.

You talked the money that is committed for the auditing for exploration expenses. Do you set aside a certain amount for overhead? If I commit $50 million can I allocate $40 million so that I can hire my brother-in-law and $10 million for drilling?

Mr. Dickey: No, no. There is a formula set out of what we call "allowables." Some of it is arbitrary. We worked together with industry and the governments on this. There is a series of activities that are called allowables. You are given so much per day for running seismic operations, and so much per day for drilling, or whatever the activity may be. Who may be hired to do that work is not defined, but if the operator want to get some of the security back, we want to know that he has done a task that will advance the development.

The Chairman: What is the deepest water for which you have issued a permit?

Mr. Dickey: The one that is being drilled in December is in 6,500 feet of water. The technology exists to go down to 9, 000 to 10,000 feet at the outer limit.

The Chairman: Shell is drilling in 10,000 to 11,000 feet, but that is in quieter water.

Mr. Dickey: The Marathon well will be starting in December. They will bring in the West Navion drill ship, which is a highly sophisticated, modern vessel that can work year round in our waters. In 1990, when we first started, we would shut everything down in the wintertime. Nowadays, we work on lots of things, such as environmental assessments, year round. We have waste treatment guidelines. We work on all kinds of things with groups who are interested in protecting the environment.

The board and both governments are of the view that, in most cases, if the industry is properly regulated and everything is done properly, the oil and gas industry can co-exist with other users of the resources in the offshore. We invite everybody to participate in this process so that we can get it right. We are not saying that everything should be available to the oil and gas industry, but we must find mechanisms which will give us, as the regulator, the proper information and advice with respect to those areas and what should or should not be available.

At the moment Georges Bank has a moratorium on it. Our board has a self-imposed moratorium on the Gully until more work is done on that area. We are aware of sensitive areas, but we get no real direction from the resource owners themselves, or from the two governments, in this regard. There is an expectation that the board will make the determination of whether an area is sensitive.

As the resource owners, we are governed by legislation that specifies that, apart from these two areas, everything else is open for oil and gas exploration, subject to good regulatory practice. We work on that basis. At the same time we hear what other groups are saying and we respect what they have to say. We try to make good decisions as we go along. This is something that will take some time.

The Chairman: Thank you for an excellent presentation, Mr. Dickey.

We will now hear from Mr. Paul McEachern who is the managing director of the Offshore/Onshore Technologies Association of Nova Scotia. Welcome to our committee, Mr. McEachern.

Mr. Paul McEachern, Managing Director, Offshore/Onshore Technologies Association of Nova Scotia: We represent about 478 supply and service companies in the area across Nova Scotia. Some of our members are in Newfoundland, some are in Europe and the United States, but the majority are small supply and service industries in Nova Scotia. We represent everything from engineering firms, procurement suppliers, supply boat providers, the people who built the drill rigs and those who supply the materials to run those drill rigs.

The size of our membership is a good economic barometer of the growth of the industry here. Five years ago, there were 115 companies operating in the province in this capacity. Today, as I mentioned, there are about 475. Our organization is about 20 years old.

Tomorrow in St. John's you will hear from an organization similar organization to ourselves, Newfoundland Ocean Industries Association.

I shall talk to you about where we are economically, where we hope to go and what the industry itself, the suppliers, are doing to help facilitate that, as well as give you some suggestions for a continued role that the Government of Canada can play.

Mr. Dickey has already welcomed you to Halifax, but I want to welcome you as well.

We consider this a very important forum of debate as to the continued development of an energy policy for the country. Today, Nova Scotia is the focus of a large wave of activity and interest. Geology, geography, the unfortunate circumstances of the past couple of months as well as economics have all collided to offer the province probably its best economic opportunity since Confederation.

The news, as you heard this morning, is full of promising developments. Phrase one of Sable is operating. The second stage of Sable will probably be given approval by its owners later this year. PanCanadian wants to develop Deep Panuke, and asMr. Dickey mentioned, $5 billion in exploration permits is outstanding right now in the region.

Before we get ahead of ourselves here, we are a project-driven sector currently. We are still evolving into an industry here. As you know, particularly, Senator Taylor, considering where you come from, the number of wells drilled here is rather small. When I was in Calgary a couple of weeks ago, I was told that somewhere between 15,000 and 17,000 wells have been drilled there. There have been 150 wells drilled here in the last 20 years, or one about every 500 square miles, so we are very much an undeveloped area.

One measure of success is number of companies, both large and small, that are moving into Nova Scotia and those that are being developed by Nova Scotians themselves to participate in the industry. Another indication of the growing importance of this region is the blue chip portfolio companies that have moved in, companies such as Marathon and Kerr-McGee. ExxonMobil and Shell have been here for 30 years. ChevronTexaco has just recently returned, and there are many others, as you saw in the slide from Mr. Dickey.

Optimism does not always translate into reality, so making the most of the unprecedented opportunity now facing this province and indeed the entire region is not a forgone conclusion. We can all do a better job of working together to achieve the objective of seeing Nova Scotia go from a project-driven start-up oil and gas sector into a sustainable world-class oil and gas driven economy.

Recent moves by the provincial government are a recognition of the work left to be done in this regard. The Government of Nova Scotia is working very closely with industry and the general public to develop an energy strategy for the province. This strategy will encompass aspects of oil and gas development as well as other aspects of the energy picture, including electricity and how that will be generated in years to come.

Premier Hamm has introduced the campaign of fairness. I do not intend to dwell on this, but for the record his campaign of fairness has the strong support of the business community in this province as well as my particular board and its membership. I am not here to discuss fiscal federalism, honourable senators; I know my limitations. However, I am sure that there are those who can give you a better briefing, and tomorrow you may hear more of that in St. John's. Premier Grimes is also a supporter of the campaign for fairness.

I should like you to take back the message to Ottawa that federal reaction to this has bordered on the dismissive, and we think that it should be given more consideration than it appears to be getting in Ottawa.

My reason for being here is to talk about economic benefits and spin-offs, so I will get straight to that. It is a given that all of us want to see more activity and more jobs created here. As I have already said, OTAN's members have a considerable resume of accomplishment in supplying goods, services and expertise. We are now working on developing that expertise for the export market. The Sable project, in particular, provided a lot of local companies with a resume of accomplishment that some of them are now using on the international stage.

As Mr. Dickey said, the employment numbers are starting to rise, and rising rapidly, but we are still in the exploration stage. Development, of course, is where the real jobs are to be garnered.

One of the problems in this region is that because the industry is new there is a lack of substantive economic information as to just how well we are doing and where our weaknesses are. The Government of Nova Scotia, for example, has been working on economic models of what they can expect in each stage from exploration, discovery, development and operations.

The industry associations in Newfoundland, Nova Scotia, Prince Edward Island and New Brunswick came together in 1999 to produce a report called "Harnessing the Potential - Atlantic Canada's Oil and Gas Industry." It was basically a snapshot of where we were at that moment.

About two weeks ago, myself and Miss Galway, who you will hear from tomorrow in St. John's, presented this report to Natural Resources Canada and to Industry Canada at a conference both of those departments staged in Charlottetown to discuss innovation in the East Coast as far as oil and gas is concerned. I have submitted a copy to your clerk. Essentially, the message of both of these studies, and particularly the new one, is that we do have a substantive technological base here.

The second report, dated September 2001, was put together by PriceWaterhouseCoopers. That report concludes that we do have capability here, but there is always a reason to expect more from the supply and services community. For example, PriceWaterhouseCoopers, from their petroleum desk in Calgary, concluded that there are about 3,000 Atlantic Canada corporations of various sizes, from the very big to the very small, that exist to meet the demands in about 400 categories of the oil and gas value chain.

Another conclusion of this report is that if the region is to take full advantage of the opportunity that is now before us, there has to be a concerted effort to get more front-end engineering done in the region. Local design has proven in other areas around the world to be the catalyst that enhances local procurement. We have had some advances in that. The decision of the Sable partners to do much of their engineering for the second stage of their project here in Halifax is a hopeful sign. It is a proven model for growth particularly in Western Canada, and it has been a proven model elsewhere in the world, including the North Sea, which has a lot of similarities to what's happening in Atlantic Canada today.

Another strength of the eastern Canadian oil and gas industry is its embrace of technology transfer. We realize that we are very new to this and we have to expect that larger players are going to come in with Atlantic Canadian companies as their junior partners in order to advance our knowledge and expertise. Tech transfer, as far as we are concerned, involves an Atlantic Canadian company importing knowledge, skills, techniques, or even equipment that is new to the region, applying it to the eastern Canadian oil and gas fields and improving it so that it is worthwhile of export consideration.

Now a little realism, of course, is essential in all this debate. It is naive to assume that any company is going to provide a junior partner, for no consideration, with the means to become its competition. So expectations of these relationships, we have learned, have to be clearly defined and both parties have to bring something very worthwhile to the table.

I should like to look ahead for a few moments here. As I mentioned to you, we have some capabilities here and they are increasing. Capability does not necessarily mean that you will capture the market. It is the mandate of business associations such as the one I represent to help our members participate more and more in the oil and gas industry and to promote the capture of oil and gas opportunities by our supply and services sector.

We realize that we are very small. We have a good working relationship with our business association in Newfoundland, for example. We believe in achieving a common purpose, and in order to do that we have to work together from a common approach.

In that regard, the business associations believe that we have to continue to review the status and prospects of the petroleum industry here. They believe that we have to set realistic goals and develop a vision and strategy for maximizing business opportunities here in the region. In that way, the oil and gas industry here will benefit the people who actually own the resource, which are the people of the region.

We work very closely with the Governments of Canada and Nova Scotia, the Offshore Petroleum Board and the Canadian Association of Petroleum Producers. One of the critical suggestions that came out of this report was to establish a coordinating body to collect, audit and disseminate information throughout the region. In that way, stakeholders in all the region's jurisdictions can work from a common base of knowledge. That would be a significant step in planning both for the public and private sector. We need standard measurements of just how well we are doing because everybody is measuring to a different equation.

To enhance the industry from within, it is essential to promote locations of petroleum-based engineering. You will hear that a lot over the next couple of days. We believe that we should also develop indigenous skills here over the next five to eight years, in order to provide a succession management plan for the industry.

We understand that when, say, an American company is committing hundreds of millions of dollars they have the right to have their lead management come from their head office. These people would have considerable experience. Nevertheless, we are very interested in seeing succession management plans put in place - some have been - to make sure that, to borrow a phrase from years gone by, there is a "Canadianization" of the upper levels of the management spectrum.

Before we go to questions, I would like to talk a bit about the federal government role in all of this. The Government of Canada plays an essential role in all of this, obviously. Fortunately, we are not here today to ask you to play the role you played in years gone - for example, the National Energy Program and the Petroleum Incentives Program. Those programs generated a lot of exploration here, but when the program ended the rigs sailed elsewhere. However, it must be stated, for the record, that the exploration done under that program 20 years ago led to the development of the region's potential today, such as Sable.

Today, the Government of Canada still plays a vital role in the development of the industry in this region. The federal government is very much interested in exporting Canadian oil and natural gas to the U.S. market. If something were to happen to that market, the rigs would go away from here, the valves would be turned off and the lights would go out on an industry that promises to be probably the single most important economic catalyst in this region in at least the first half of this new century.

I do not mean to sound provincial, but the federal government has to pay more than perfunctory attention to this region and this industry. It is very new and we need help, especially when it consults on energy export and development issues. It is true that Alberta remains the undisputed leader when it comes to petroleum production, and we do not anticipate that changing. However, Alberta is not the only player in the game.

Last week, the Prime Minister led a major trade delegation to Dallas, Texas, to talk about energy. Neither Premier Hamm nor Premier Grimes was part of that delegation. In our opinion, that was an oversight, one that needs to be corrected in the future. Eastern Canadian business leaders were not invited until the organizers of the Team Canada mission realized they were not getting the interest and the pick up in Western Canada that they had expected. We like to participate. We want to be invited at the same time as everyone else.

I want to talk a bit about promotion. We heard from Mr. Dickey who is the regulator - and his job precludes him, obviously, from promoting development or investment in the region. His job is to manage. There is a relatively modest commitment on the part of the Government of Canada to help promote the East in particular, but it could possibly be highlighted as an area worthy of investment consideration when it comes to petroleum.

In a previous life, I worked in government; I was involved in economic development and promotion.

A print promotional campaign launched by Industry Canada to promote development and investment in this region had many of its facts wrong. For example, the pictures were inaccurate. I have no idea what part of Eastern Canada they photographed, but one of the pictures showed a surfer on a palm tree-covered beach with a nodding horse on a dock. My Newfoundland compatriots figure that it was Yarmouth. The provincial government officials from both provinces demanded that the print material be withdrawn and demanded that if anything were to be done in the future that the federal government must get input from the provinces.

Industry Canada has a campaign underway that is promoting a brand image of Canada. It is a modest beginning, and we are hopeful. They have recognized that there is a need to attract investment into this region, particular into oil and gas.

We are not here to ask for money. What we are asking for is assistance from the Government of Canada, to promote Canada on the world stage, to let international investors know that there are many opportunities here. Our industry is very competitive for investment dollars. We are up against some very big competition. The United Kingdom is a big player; Australia is a big player. We are all chasing the same dollars, which come out of the boardrooms of Houston and London.

It is important that Ottawa knows just how important this industry is becoming to the region. I think Mr. Dickey mentioned it, but last year gas exports from this province alone were worth $1 billion.

As one of the two governments responsible for the management of this resource, the Government of Canada should have people here on the ground. Natural Resources Canada is the department charged by the government under the Canada-Nova Scotia Accord to manage the interests of the Government of Canada on the accord. It does not have a single civil servant of decision-making capability on the ground here in Halifax, and I daresay that is probably the case in St. John's as well. We think that it is important.

It is important for a couple of reasons. Geographic closeness would probably help improve communications, not only with the industry but between the two governments as well. I am not here to ask for a decentralization of EnerCan. What I am here to ask that consideration be given to having the people who are making the decisions be little closer to the action than they are today.

Mr. Dickey mentioned the makeup of the Canada-Nova Scotia Offshore Petroleum Board. The Government of Canada has a right to appoint a number of members to that board, but it has failed to exercise that right for four years. It has had an opening on the board for four years. That is not a very encouraging sign as to the interest of the Government of Canada in the development of the region.

We are hoping that the Government of Canada will fill that appointment quickly. We hope that the person who is appointed will not only be someone who has extensive experience in the development of the petroleum industry, in regulating it, but also be someone who has an appreciation for the Atlantic Canada point of view as well.

Senators, I do not want to leave you with the impression that I am here to pick at the Government of Canada. It plays an important role in many areas here. Many agencies in Atlantic Canada have helped to put people to work here and to develop this industry. The Atlantic Canada Opportunities Agency, in particular, has a very good track record at supporting, not just financially but with brain power and business advice as well, the small companies here in the region that are growing and are now developing a resume of accomplishment domestically that they can use to help increase our exports abroad.

Just recently, there has been recognition on the part of the Government of Canada, and that is very encouraging. The minister responsible for ACOA, Mr. Thibault, convened a meeting of all senior federal officials here in Halifax to focus for a day on what the Government of Canada can do in order to help grow this industry. They spent an entire day, and it was most encouraging. Mr. Dickey and myself, as well as people from the producer side, were invited to participate in these discussions. We thought that it was a very encouraging sign.

We have seen the dream of an oil and gas industry ebb and flow over many years. One of your members was the premier of this province for a many years, when hope was high, but then it disappeared.

This time, hope is here for real. This time it is being funded by private-sector dollars. There is an opportunity to make a significant permanent change, not only in the economic outlook for this area but in its emotional outlook as well. This region is beginning to realize that it has an opportunity to become a full participant, a full contributor to Confederation and the economic well-being of the entire country, in a way that it has not in many decades.

I am hoping that with your report and with your support, we will not let this opportunity slip through our fingers. Thank you, honourable senators.

The Chairman: Do the members of your association view themselves as being involved strictly in offshore oil technology?

Mr. McEachern: We focus on the development of the oil and gas industry. However, some of the members of the association are involved in alternative energy sources, including wind farms. Nova Scotia Power, which is the largest electrical utility here, is very interested in wind farms. I think Nova Scotia Power is looking at some wind farms. They were looking at some in northern Cape Breton. They are looking at some, as well, I think on the Tantramar Marshes, which is the boundary between New Brunswick and Nova Scotia.

Senator Cochrane: Mr. McEachern, how many members in your organization? What sorts of activities have you been involved with? Are you active on the local, the national and the international scene?

Mr. McEachern: The association is currently made up of 475 companies of various sizes. Our companies have a payroll probably in the range of close to 50,000 within the province. That is not to say, however, that 50,000 people are working directly in the supply and service capabilities of the offshore. We have some large employers, such as Nova Scotia Power, the J.D. Irving Group, which has a great number of activities involved with the offshore.

The association's mandate over the last 20 years has been to help companies in the province make the best of the opportunity that is provided by the development of the hydrocarbon resources off our coast.

We are primarily involved on the provincial scene. We work very closely, as I mentioned, with the Government of Nova Scotia. We are called upon sometimes to provide advice on matters concerning business. We work closely with the Newfoundland Ocean Industries Association and the Governments of Newfoundland and Nova Scotia on trade initiatives.

For example, the provincial government started to divest itself of some of the business of organizing trade missions a number of years ago. Hence, we focus on the oil and gas trade market, particularly in Houston, northern Europe, Norway and the United Kingdom, for example.

We also provide a conduit for the producers to communicate with their subcontractors. For example, when producers are about to let contracts go out for bidding, they communicate that information to us and ask us to disseminate it to our members so that they know what opportunities are coming down the pike.

Senator Cochrane: Are your members satisfied with the degree to which Nova Scotians have been able to gain access to this industrial market?

Mr. McEachern: Well, we are businesses. You always want more, and then you want it all, and then you want more tomorrow.

Senator Cochrane: On the average?

Mr. McEachern: On the average. Senator, we have one producing gas field here; we do not have an industry, per se, yet. We are on the precipice of becoming one. With each level of activity, there is normally a large degree of local participation and local economic activity. The smallest is probably on the exploration stage. I will give you an example.

One of the exploration companies has just awarded 47 contracts. I think 42 or 43 of them were awarded to Nova Scotia firms. Two were let to foreign operations - the drill ship and some other activities - because we cannot provide those here. So while we have the majority of contracts, the majority of money went to the outside firms. That is understandable.

The economic benefits increase once the discoveries are made and development begins. For example, during the first stage of Sable, close to 5,000 people in this province were involved, between the offshore platform construction and development and the laying of pipelines, both onshore and offshore. We expect that we will see more and more benefits, as we get into more production. Discoveries are absolutely essential. In order to build something, first you have to find it. So we understand that in the exploration stage the level of benefits is not what we would generally like to have.

Senator Cochrane: How many of these companies you referred to are new companies, ones that have been brought in, not Nova Scotia companies, as a result of this offshore petroleum activity?

Mr. McEachern: With respect to the exploration companies, there is one local company; it is called Corridor Resources. Corridor Resources is hoping to do some exploration in the Cape Breton region. However, the rest of the companies, the integrated ones, such as ExxonMobil, Marathon, Kerr-McGee, are all primarily based in the United States. There is a large inflow of companies here, Schlumberger, for example, and Baker Hughes, two of the largest major subcontracting companies in the world of the oil and gas community have established bases here. They also generate a lot of activity because they subcontract out activity as well. They have a similar base in Mount Pearl, Newfoundland. So there has been a considerable inflow here.

There has also been a considerable inflow of former Maritimers. Earlier I mentioned management succession programs. In the early 1980s, a lot of Maritimers went West. Twenty years later, they have reached middle management positions in some of these companies, and a lot of them are now returning as middle management or upper middle management of these producing offices.

Each exploration company that is here, as part of its benefits plan with the CNSOPB, has to have a physical presence here and decision-making capability of some degree has to be made here. That requires senior management. Hence, we are seeing some inflow here. The real estate market, in particular, in the City of Halifax, is a good testament to that.

Senator Cochrane: You talked about a lack of skills within the area. Do you communicate with the colleges and the technical schools to address this problem or this shortfall?

Mr. McEachern: PanCanadian, for one, is concerned about the potential of a skills shortage here. A lot of work is being done, particularly with the Nova Scotia community college system, to head that off. There has been work done.

There has been work done with the trade unions as well. Sometimes what is required is simply to improve the skills of people who are already tradesmen. For example, welders needed additional training in order to work on the Maritimes & Northeast Pipeline project. They need to be trained in a specialized type of down-hand welding. The Government of Nova Scotia and I believe the Government of Canada through the offshore fund were involved, as well as the unions, in providing the funds and the training needed so that these welders would get jobs with Maritimes & Northeast Pipeline. There is a great deal of work being done on that.

Obviously it would benefit the producers to have more local procurement and local employment. In the first place, it would save them money.

Senator Adams: You talked about the National Energy Board. What concern were you expressing?

Mr. McEachern: The NEB has an important role to play, obviously. It is the determiner of where pipelines go. There is always concern in the business community about regulatory overlap, but there has been a concerted effort made by the regulatory agencies involved to help streamline things. The business community and proponents in the exploration companies want the regulations streamlined.

Mr. Dickey referred to a pipeline that crosses the Strait of Canso. There are two pipelines in the same trench. One was inspected and approved by a provincial agency, the other was approved and inspected by the NEB. We think that there is a need to possibly look at continually streamlining the regulations. I see an effort on the part of the regulatory agencies to do that, to not in get one another's way. It is a constant progression.

I am holding here a regulatory roadmap book; it is the Coles Notes of regulations in the province. While Mr. Dickey was making his presentation, I was looking at this book. There are somewhere around 16 different agencies responsible for various aspects of regulating the offshore or the onshore here in Nova Scotia. The CNSOPB plays a large leadership role, and relationships between the business community and the CNSOPB are generally good. We understand the need for public scrutiny of the development of a public resource.

Senator Adams: I understand that the National Energy Board will be making a decision today regarding offshore pipelines. Will that decision impact on pipelines on the East Coast?

Mr. McEachern: It is my understanding, and I am not a regulatory expert by any means, that the NEB is the lead agency in dealing with any pipeline that would be built underwater to the northeast of the United States. The NEB has complete control over the Maritimes & Northeast Pipeline. The Government of Nova Scotia has made it clear that it would like - and I think it a veto over this - any pipeline which is extracting gas or oil from the Nova Scotia offshore to land in Nova Scotia so that there is a possibility in the future of using that for midstream considerations, such as petrochemical plants.

The Chairman: Has your organization made a presentation to the NEB about the regulatory framework?

Mr. McEachern: No.

The Chairman: Can you or should you?

Mr. McEachern: Yes, we can. The association is in the process of developing a comprehensive benefits policy and we are doing some work on the regulatory aspects. Once the internal work is done they will probably make that known to the National Energy Board.

Senator Adams: Does the NEB make the decision about the price of any gas that is transmitted to, say, Boston or New York?

Mr. McEachern: I am not competent to speak on the tolling. However, I know is that there is a built-in advantage with the Sable project in that, in the Guysborough area, you can avoid the tolls by tapping right into the gas pipeline. That is considered by Guysborough County to be a great economic advantage. There is a lot of interest being expressed regarding electrical generation facilities or co-gen facilities in that area. That would be a real bonus for that area. It is cheaper than generating.

Senator Adams: You mentioned the Prime Minister's visit to Texas to discuss energy production. As I understand it, the United States produces over 6 million barrels a year whereas Saudi Arabia's production is less than that at 5 billion barrels a year. Of course, Canada's production is much lower than both of those. The Prime Minister did suggest that, if Canada's energy resources had more media coverage and if we encouraged investment, we could be the biggest producer in the world.

Mr. McEachern: We are in a very competitive market. We must compete for investment dollars. For example, if a local office of, say, the XYZ Corporation thinks that it has a great project for its company, it still has to compete with other proponents from all over the world. The prestige of the Office of the Prime Minister certainly attracts the right attention. We would generally welcome any assistance from a Team Canada mission. I think this is an oversight that they now recognize after that particular mission.

We are junior partners. We have no illusions about that. We are very new. Premier Klein, in particular, has been a substantive help, not only to the Government of Nova Scotia, but also the business community here. He has spoken a number of times about how to crack the market. Alberta is obviously the undisputed leader of the energy industry, and we do not expect that to change. However, we would like to see a couple of new members on the team.

Senator Adams: Does your association keep up to date with all the new technologies that are available for exploration and drilling?

Mr. McEachern: This is a very harsh environment. Often a proven technology, such as a remote control robot, will come in from the North Sea operations. Sometimes an established multi-national corporation will come in and partner with a local firm and their type of ROV mechanisms, perhaps, may be improved so that there is less downtime in harsh environments. The North Sea is harsh but it is my understanding - and I have to take it from those who do this work - that the North Atlantic is harsher. You often see incremental improvements in technology, particularly as it relates to diving.

Newfoundland uses an incredible technological development. The Terra Nova FPSO, which you will probably hear much more about tomorrow, is a tanker. They have a unique problem in Newfoundland that we do not have here in the sunny south. They have icebergs. A lot of work has been done on improving iceberg detection and the like. I was on an FPSO in the UK this summer. I believe they can detach in 24 hours. In fact, if there were an emergency, in 15 minutes it can be detached and moved out without the spillage of oil. That technologically was not heard of five years ago. A lot of attention is being paid to that. Terra Nova is a Petro-Canada led project.

Senator Adams: I come from the Arctic where there is a lot of natural gas to be tapped. However, there is no way to ship south. Do we think that, in the future, there will be a pipeline to the North to transport that natural gas?

Mr. McEachern: I am not an engineer, but from a business point of view I would say that, if there is a need for the gas and there is a market for it, they will find a way to transport it.

I first came into this business about five years ago. A company called Kerr-McGee, which was not very well known then, developed the technology to drill for gas offshore. That only came about in the late 1940s. The rate of technological advances in this industry, especially in the offshore, is accelerating all the time. What 40 years ago was considered impossible is now considered, as Mr. Dickey told you, standard operating practice. There is reason to hope.

Senator Buchanan: I think your appointment, Paul, as managing director was a good decision. You are doing a great job as managing director. I say that because I opened the first OTANS conference in Halifax in a big exhibition with my dear friend, the late Harry How. Why he was there I just do not know, but he was there back in 1982 or 1983.

On the subject of icebergs, we passed legislation in Nova Scotia in the 1980s to deal with icebergs and to prevent them from moving south of Cape Breton Island.

Having, over a period of 12 years negotiated most of the offshore and onshore agreements, particularly the 1982 and the 1986 agreements with Canada and also passing the Canada/Nova Scotia Offshore Petroleum Board legislation in 1989 or early 1990, how would you say is it all working?

Mr. McEachern: As I mentioned in my statement earlier, the business relationship with the CNSOPB is working fairly well. Ours is a new industry here, although we tend to think that it is not new because we anticipated it for 30 years. Growth here has been substantive. The more discoveries are made, the faster the acceleration will be.

The level of local economic benefits is a question that will be with us for some time. We heard about this industry for so long that people tended to be sceptical as to whether it would actually ever take place. We are starting to see a different mindset in the population, and that is important. It is important from a business perspective and there are more companies coming forward. Approximately 475 companies in this province, in some way, increase their bottom line from this industry. As we move from the exploration stage to the next discovery I think you will start to see an acceleration.

The development of Sable gave an economic boost and an intellectual boost to the province. There is a great deal of responsible optimism now that this is here to stay. As you know, it is 175 miles out to sea and there was a great deal of scepticism when Sable was being developed that it would ever actually be done. The mindset started to change when the first large, heavy-lift vessels and parts of the platform were floating into Halifax Harbour, or floating out of Halifax Harbour because some of them were made here. People began to understand that this was a real part of our economy and that it could be for the next 30 to 50 years.

Senator Eyton: I was intrigued by your report that Premier Hamm was not invited on the recent trade mission to Houston. I had not heard that from any other source.

Mr. McEachern: I should not speak so definitively, but it is my understanding that representatives of Eastern Canada were not invited.

Senator Eyton: I find that remarkable. Following up on Senator Cochrane's comments, I would like to learn more about your association. I recognize there is a kind of dichotomy in the oil and gas industry in Canada. It certainly exists in Calgary and there are offshoots here. Does your association embrace the big guys such as Mobile, Exxon, Marathon and PanCanadian? Are they members of your association?

Mr. McEachern: Most of the producers are members. They normally communicate on issues with the general public and with government on issues through the Canadian Association of Petroleum Producers or CAPP. Most of the producers join our association in order to network with the local supply and service community so they have an idea of who is involved here. I would say that they are interested participants. However, they do not usually get involved in deliberations on policy per se. They usually do that through CAPP.

Senator Eyton: Within your association, are they helpful in promoting the Nova Scotia based oil and gas industry?

Mr. McEachern: Yes. Like any other corporation that is investing that kind of money, they tend to stay with those that they know. The longer they are here and the more comfortable they become with the capabilities of corporations here, the more they will be willing to commit in contracts. However, it is a slow process. As I said before, we would like to see it accelerated. Their role is to maximize value for their shareholders. When you are talking about a $1.5 billion or a $2.5 billion project, you do not want to take risks.

They are beginning to recognize that there is a role for the local supply and service industry. About 34 per cent of the expenditures of the Sable project, were local content. That set a benchmark against which everything else is measured. They have a commitment to the extent of 50 per cent over the life of the project. However, 34 per cent on the construction side so far, involves a big chunk of cash.

Senator Eyton: I was more thinking of the public and the political profile of the industry here in Nova Scotia. Nobody can do more to advance that and, for example, to make our mandarins and the federal government aware than the senior players in the industry.

Mr. McEachern: The senior players in the industry are in close consultation with the government, in particular with the development of the energy strategy, which I think will be released sometime in the next month or so. They have been working on it for close to a year. There has been a lot of consultation, not only with people such as myself and the companies that I represent, but also with the integrateds as to how to move the projects along.

Senator Eyton: You mentioned that there was good cooperation, at least in some areas, with your Newfoundland counterparts.

Mr. McEachern: Yes.

Senator Eyton: Is that across the board? I know there has been an ongoing dispute between Newfoundland and Nova Scotia relative to offshore boundaries. It seems to me the area needs to come together and assert itself as an area where oil and gas are important, as opposed to having the Nova Scotia industry and Newfoundland industry.

Mr. McEachern: To paraphrase a former politician, we are so much in favour of a Maritime union we have been talking about it for 40 years. Yes, there is a recognition of that, particularly on the business side. There has been more and more cooperation. Obviously, there are divergent interests. Newfoundland is primarily an oil-based development at this time. Because of technological limitations, in particular as they relate to the ice, they do not have any gas production. We ceased producing oil when PanCanadian closed their Cohasset-Panuke field. However, between the two business associations, there is an incremental increase in cooperation.

For example, these reports do not gather dust. We did this for a reason. We went into it with the objective of trying to find out how a business community can make a contribution to advances rather than relying on others. NOIA, which you will hear from tomorrow, works very closely with us. We work very closely on promoting the region externally. When we go on trade missions, we go together.

We went to Houston together. That was a major trade mission. We worked together on that for close to a year ahead. It is an annual event. The Newfoundland and Nova Scotia business associations work very closely on this to ensure that the right business people from both of our areas connect with the right decision makers in Houston. There is cooperation on that side. I would estimate that one third of my membership is also a member of the Newfoundland association in that they have operations in both Halifax and St. John's.

Senator Eyton: In general, within your association, what is the split between onshore and offshore? I would have thought it would be largely focused on offshore.

Mr. McEachern: It is primarily offshore. The onshore is very new here. A number of licences have been awarded for exploration on mainland Nova Scotia and parts of Cape Breton Island and some small exploration programs have been done by Hunt and Northstar. However, it is very new. The capability study we released recognizes that we have a long way to go to service the onshore. We are very focused on what happens on the water.

Interest in the onshore started with the construction of the Maritimes & Northeast Pipeline. If they did find some gas, that would be a way of delivering it to market. It is very new. New Brunswick is currently having more success at producing onshore than we are. They have a number of small fields.

Senator Eyton: What is the single best thing that Ottawa can do for the industry? I look at it as an Atlantic Provinces industry? I recognize that we talked about involvement, about participation. I find it strange that there has been a vacancy in the Ottawa appointment for three or four years.

Mr. McEachern: It is four years.

Senator Eyton: I find that very strange. I think those are minor details. What is the single best thing that Ottawa can do?

Mr. McEachern: The Government of Canada has a very important role to play in helping to develop this. It has not only the financial but also the intellectual capability within its many departments to work more closely together to do one thing. We need Exxon, Shell and the large companies to explore. Perhaps Ottawa could focus its efforts on developing and backing the local capability, and help those people grow. They could do that through either helping them promote themselves externally or grow to a point where they would be real competitors on the local scene. That is where the permanent jobs are and that is where the non-transient jobs are. Perhaps they should focus on the economic development of the supply and service industry - and I am not asking for subsidies. You have a great deal of intellectual capability within such places as ACOA, and ACOA has begun to recognize that this is a real growth area. That would be the single most important thing they could do.

Mr. John Chisholm, Expert on Coal, Nova Construction Ltd. I have been mistakenly identified as an engineer by Shell, and I have also been called an "expert." I am not sure if either description is correct. I started working when I was 17 years old, so I was not old enough to be an engineer. Senator Buchanan was Premier of Nova Scotia when I started in the coal business in 1980. I have been in the coal-related business ever since. Our company also does other things such as earth moving and highway construction.

I sometimes feel like a dinosaur when I talk about coal, and that was particularly so when I heard what Paul had to say. I notice, however, that your committee deals with energy, the environment and natural resources, of which coal is one. The President of the United States, Mr. Bush, appears to be taking the position that he likes coal, although the media are suggesting that he is anti-environment. I do not necessarily agree with that.

As I understand it, if the U.S. continues to use coal at the rate they are using it today they will have something like a 250-year supply. I do not know what the figure for Canada is, but I expect that it would be at least that much.

It is easy to say it is dirty, it is a pollutant and to dismiss it, but it is a bit expensive to dismiss coal out of hand by saying that it is a pollutant and we should not go in that direction. All kinds of technology is available to clean up the power plants. Then we would have a large resource in Canada and, indeed, in the whole of North America.

You have to think of coal in light of the events that are happening in the world today. We have a lot of energy in North America but we depend on Saudi Arabia and other places for our energy. That may be why President Bush is so interested in energy sources. Perhaps he thinks he should get as much as he can from his neighbour to the North rather than depending on these volatile areas.

There are ways to clean up the process of burning of coal. We seem to come up with technology for just about everything, so there is no reason we cannot do it for coal as well.

Nova Construction has never been involved in underground mining projects. We have always done open pit or surface mining. However, a couple of years ago we took a fairly bold step by building a machine that will go underground without people going underground. It is remote controlled. We have applied for a patent. Currently, it is the only machine of its type in the world. The Australians and the Americans have expressed a good deal of interest in the machine. However, we are still in a learning curve and we have not decided whether to build another one and sell it or whatever. The machine is adaptable in that it can go from an open pit operation to an underground operation. This is the second year we have been using it. We are still learning how to make it work, but it works fairly well. This technology is brand new to coal mining.

With new technology, there could be a long future for coal. Some of that technology is available today and there is room for further development. I believe that is where President Bush headed. He is suggesting that the federal government in the U.S spend some money on this technology rather than dismissing this vast amount of energy reserves. I believe that Canada could do the same.

I brought a video of the machine we built, but I am told that a VCR is not available.

The coal industry should have a long future. In Nova Scotia it has had a rough past, but that was because we were doing a lot of things the old fashioned way.

The Chairman: How many miners would this machine replace?

Mr. Chisholm: It is not a good employment generator.

The Chairman: I was thinking it might be a "degenerator."

Mr. Chisholm: In direct jobs it takes about five people to operate it. The back-up staff would be another five people.

The Chairman: Does it save you hiring 30 or 40 miners?

Mr. Chisholm: Yes. It would cut the labour force in about half.

Senator Sibbeston: Mr. Chisholm for those of us who are not from the area and who do not know the situation very well, I would be interested to know from you what the situation is with respect to coal in the province.

Mr. Chisholm: Today is after Devco. They shut the last mine down a couple of weeks ago. As you know, the federal government was involved in that for the past 33 years, Coal mining has not been the most efficient business in the world. However, it did employ a lot of people over those years. In my 20 or 21 years involved in the coal business, the only market in Nova Scotia was the Power Corporation, and that was for about 3 million tonnes of coal. That is what they burned per year. Their usage has gone down since they got natural gas in the power plant across the harbour. Even last year when the price of gas was so high, they were selling the gas and still burning high sulphur oil. It was a clean energy but economics took over. They felt they could make more money selling the gas than they could selling the power. However, they probably still burn something in the range of 2.5 million tonnes. At one point Devco supplied all of it. After they lost the Phalen mine I think they produced something under 1 million tonnes a year. The Power Corporation was importing probably 1.5 million tonnes a year. Today that figure is probably closer to 2 million tonnes. Most of that comes from Columbia and it is today horrendously expensive. The majority of the coal coming into Nova Scotia today comes from Columbia.

The Chairman: Are you talking about the country of Columbia, in South America?

Mr. Chisholm: Yes.

The Chairman: That is a long way for it to come.

Mr. Chisholm: The cost is very high. Over the years they complained that they were paying too much for Cape Breton coal, but in today's dollars it would be a bargain. We are a fairly small player in this whole thing, but there is still a lot of coal in Nova Scotia and I do not believe there is a need to be importing the vast quantities that we do. They are probably paying $200 million a year to Columbia. It does not make a lot of sense.

The Chairman: That is a rather astounding statement. Who is buying the coal? Is it not the Nova Scotia Government that owns that power company?

Mr. Chisholm: No.

Senator Buchanan: No, it is private.

The Chairman: Are the same people who own the power company the same people who own the Columbian coal mine?

Mr. Chisholm: I do not think so. It is a public company.

The Chairman: Has nobody asked them why they buy it from Columbia? They must have a reason. Perhaps we should leave that for another day.

Senator Sibbeston: I do not know a great deal about the situation in Nova Scotia. Mr. Chisholm, what is the future of coal mining as an industry in terms of providing energy to the province or any others parts of the country?

Would the development of the machine you told us about help the coal industry here in the province or elsewhere in the world?

Mr. Chisholm: When you talk about burning coal or fossil fuels,everyone thinks of the environment, and rightly so. However, I believe that can be handled. There is technology available to clean it up.

The machine we have is an advancement in technology. It is a lot safer than underground mining. When we think of open-pit mining we think of a horrendous scar on the landscape. We went into an old mine site in 1984. It was a 150-year-old mine site that looks like something out of the Charles Dickens era. Twelve years later we landscaped and rehabilitated the area. It is now productive land again. For about 100 years the sinkholes from the pit were located right in a town. It would have cost the province a lot of money to clean that up or to hire somebody to clean it up. We went in, took the remaining coal pillars, filled in all the sinkholes, and tore down all the old ugly buildings, and 12 years later we were making hay on it. It had a bad reputation in the Pennsylvania area in the 1950s. It has come a long way since then.

Senator Eyton: Mr. Chisholm is Nova Construction Limited, the company you represent, exclusively a kind of open-pit coal contractor, or does it do something beyond that?

Mr. Chisholm: We started in 1963 in the Munro Building and in 1967 we moved to Newfoundland, We operated in Nova Scotia and Newfoundland through the late 1960s, the 1970s and into the 1980s. Then we built dams and wharves, and did marine jobs. In 1980 we got into the coal business and we have been there ever since.

Senator Eyton: Are you in the coal business now?

Mr. Chisholm: Yes.

Senator Eyton: With Devco?

Mr. Chisholm: No.

Senator Eyton: I thought that Devco was the sole coal mine or significant coal mine in Nova Scotia.

Mr. Chisholm: They definitely were up until a couple of weeks ago. We went around and bought up old derelict mine sites. They were abandoned and they were pretty rough looking properties. We took the top off them and took the pillars. Back 100 years ago the rule of thumb was that about half of the coal was to be removed. The other half was left to hold the roof up. We went in and took the top off and took the pillars out so, theoretically, we recovered the other half. In doing that, we cleaned up the old derelict sites.

It is interesting to note that many of the towns in Cape Breton, Pictou County and Cumberland County, were there because of the coal mining. Many are undermined. There are a lot of sinkholes, and over the years there has been subsidence. Some of them were very dangerous. The surface mining that we do is a plus and we can only go to what we call an economic limit.

Senator Eyton: How many sites do you mine now?

Mr. Chisholm: We have two on the go right now. One of the Cape Breton sites has been mothballed because of high sulphur.

Senator Eyton: One is operating now and one is mothballed; is that correct?

Mr. Chisholm: Yes.

Senator Eyton: Who did you sell that production to?

Mr. Chisholm: We sold it to the local power company. That is the only market we have.

Senator Eyton: Is it fair to say that in Nova Scotia coal, generally - I mean the target, of course - is always clean, readily mined, and transported at the best price? Is there Nova Scotia coal that would fit that description?

Mr. Chisholm: Yes. I have to be fair about this. The last operator did not do so well. You paid a lot of taxpayer's money to keep that going. For whatever reason, Senator Buchanan knows, that was a tough deal over the years. A lot of people tried it and for whatever reason it just did not work.

Senator Eyton: Are you saying that, given the standard I just tried to describe, the Nova Scotia coal industry, properly managed, could be competitive and a true energy alternative?

Mr. Chisholm: Over 21 years, I think we have shown that, yes.

The Chairman: Could you undercut your Columbian imports?

Mr. Chisholm: We are selling at about half the price they are charging.

Senator Eyton: The energy source of choice, although it may be some years away but it is coming along, is fuel cell technology. For a variety of reasons, I am persuaded that is so. They refer to that technology as it is the underlying basis or source for fuel energy, at least in the primary stage. It is some oil-based methanol or some other oil-based product. I have never heard of coal mentioned in that discussion. Is there any prospect that coal may be used as part of the new fuel cell technology?

Mr. Chisholm: I do not know about the fuel cell side of it, but Canada has one of the best agencies in the world, the National Research Council, and they have done a lot of work on clean coal technology. It is there.

Senator Eyton: I had never heard of coal used in connection with that new technology.

The Chairman: As you know, when we impose sanctions on South Africa, they had to make their gasoline out of coal - coal to gas, and coal to liquids. Have you looked into that at all? If you have a liquid it can be used in a fuel cell.

Mr. Chisholm: I think Mr. Gillespie spend a lot of effort on that.

The Chairman: Yes. I forgot about that.

Mr. Chisholm: He was maybe ahead of his time on that one.

Senator Cochrane: Mr. Chisholm, did you receive funding from ACOA to begin this operation and to continue this operation?

Mr. Chisholm: No, we did not apply.

Senator Cochrane: You are doing this on your own. Do you know it is a feasible operation?

Mr. Chisholm: Yes.

Senator Cochrane: How many years do you think the coal will last?

Mr. Chisholm: Fifteen years.

The Chairman: When he finishes here he can reclaim the old towns in the Prairies.

Senator Buchanan: John Chisholm is extremely well known all over Nova Scotia. His mother, who is also well known, has, unfortunately not been well for the last little while. She is chairman of an organization called the Scottish Travel Bursary Fund in Antigonish at St. F.X. University. Senator Allan J. MacEachen and I are the honorary co-chairmen of the fund. We meet with his mother once a month at St. F.X., who I hope will be up and around very soon. I thought you would be interested in knowing that because you all know Allan J. very well.

I will say something that I have said before. I think that what has happened to the coal industry of Nova Scotia is a real tragedy. I am not blaming the federal government, regardless of political stripe. We probably came to a time when the federal government had to get out of the coal mining industry. There has been a lot of criticism about Devco over the years, some right, some wrong.

I wish I were a younger man starting out in this business, as I did many years ago. I am convinced that there is a bright future for coal mining in Nova Scotia, particularly in Cape Breton. As John Chisholm knows, people in this province, who are very knowledgeable in the coal mining industry, agree with that. In that regard, I think of Bill Shaw, in Antigonish, Steve Farrell, and many others in Cape Breton. They are competent, qualified mining engineers and geologists. As John knows, we have, in one block in Cape Breton, in the Sydney coal fields, 600 million tonnes of very good coal in the Donkin seam. There is no doubt that new mine will go ahead. There may be no government involvement, but it will go ahead with private enterprise. I think the co-op group and Donkin Resources are getting together.

Some of you here and others think of coal as being a terrible pollutant. Well, it is not the pollutant people think it is. In Cape Breton we have the only fluidized bed plant in Canada. It is a 150-megawatt plant in Cape Breton that burns coal. There are absolutely no SO2 emissions. The coal fluidized technology is excellent. I have never seen black sooty smoke coming out of that plant. I have seen white effluent coming out of it and that is all. Coal is not the pollutant. It can be chemically washed, as John knows it is.

Do you agree or disagree with what I have said, John?

Mr. Chisholm: Of course, I agree.

Senator Buchanan: I have always been a supporter of any kind of coal mining operations in Cape Breton and in Pictou County. The unfortunate one that I guess we should not talk too much about, of course, would be the mine in Pictou County that closed down. However, surface mining operations and the "resurrection," so-called, of old abandoned pits has worked very well. I have been to John Chisholm's operations in Cape Breton. Before those operations were completed some of those areas were very unsightly. Now, some of them are recreation fields.

Would you agree, John, that this province burns 2.5 million tonnes of coal? Across the harbour they are starting to use natural gas, but formerly they used oil. We have seven generating plants in this province, all coal burning plants.

If you go to the international piers in Sydney you will see the big, Canadian Steamship Lines ships coming in loaded with coal from Columbia. You see the same thing in the Strait of Canso. It is no wonder that the miners who have been laid off and who lost their jobs are talking about how ridiculous that is. We are carrying coals to Newcastle, so-to-speak. We have literally hundreds of millions of tonnes of coal in the Sydney coalfields and we are bringing coal in from Columbia and from parts of the United States, and paying, as John Chisholm said, more for it. We are paying in U.S. dollars. You ask why. The Power Corporation must have coal. Do you agree with that, John?

Mr. Chisholm: Today, in Canadian dollars, it is about double.

Senator Adams: Is the power operator who is spending that extra $200 million a year outside Canada, Nova Scotia Power, or is it another company? Is it a private company from the United States? Who is running it?

Mr. Chisholm: It is Nova Scotia Power. However it is a little more complicated than it appears. As Senator Buchanan would know, there was a saying in the province - they talked about "the politics of coal." It became very complicated over the years. That is probably why the federal government became involved. The federal government controlled most of the coal leases. As I understand it, sometime in the near future they will be returned to the province.

I would expect that the province will ask for proposals to develop some of these sites. However, I do not think the government should be in business. I think that is part of the problem. In the not too distant future you may see some private development. Senator Buchanan did it as premier on a smaller scale through Novaco. That is where we started. One of the first bids for a proposal was put out in 1980 by Senator Buchanan's government. We put a proposal in for that five-year project. We have been in the business ever since.

The federal agency, Devco, was the real coal miner in the province. We were a very small player.

Senator Adams: Can your company sell at a competitive price? How much can you ask Power Corporation to pay for a tonne of coal?

Mr. Chisholm: We have always been, and we are today, very competitive on our price. That is why we have been selling it for 21 years. Our one problem is that we only have one customer.

Senator Adams: You say you have been selling coal for 15 years. Will your market for that coal continue for another five years? Will your customer continue to buy your coal?

Mr. Chisholm: As I mentioned, there is an economic limit. We can only move so many yards of earth to produce a tonne of coal. This new technology extends that time because this machine is mining coal that normally would not be mined. If we said we had 10 years of reserves left at the rate we are going, then this machine may double that.

You asked how many jobs this machine would replace. I want to say that this machine is mining coal that would not be mined ordinarily. However, it is not doing it all. It is only a part of the operation.

The Chairman: I am glad to know that you are doing well without some bureaucrat looking over your shoulder. It sounds as if you are making a success of this.

My first degree was as a mining engineer. I worked in the coal mines in Alberta I quite agree with you that there are many uses for coal. It is carbon. If it becomes hard enough, it becomes diamonds. It is also a source of energy. Thank you for appearing before our committee.

The committee adjourned.