Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 7 - Evidence - May 27, 2010
OTTAWA, Thursday, May 27, 2010
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:10 a.m. to study the current state and future of Canada's energy sector (including alternative energy). (Topic: Canadian offshore oil/gas exploration and drilling: the current status of operations/applicable regulatory rules and regulations.)
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Honourable senators, this is a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is David Angus. I represent the province of Quebec in the Senate, and I chair this committee.
Today, we have with us Senator Grant Mitchell from Alberta, our deputy chair; Sam Banks and Marc LeBlanc, our two researchers from the Library of Parliament; Senator Richard Neufeld, former Minister of Natural Resources for British Columbia; Senator Judith Seidman from Montreal; Senator Bert Brown from Alberta; Senator Daniel Lang from the Yukon; Lynn Gordon, our loyal and efficient clerk; Senator Linda Frum from Toronto; Senator Tommy Banks from Alberta, my predecessor as chair; and Senator Paul Massicotte from Quebec. I believe one or two others will join us.
I am pleased to welcome our witnesses this morning, our viewers on the CPAC network and those sharing this time with us on the World Wide Web. I characterize this as a special meeting of this committee. A poll by the EKOS research group last week indicated that as many as 50 per cent of Canadians are worried by events in the Gulf of Mexico following the explosion of the British Petroleum oil rig. They feel all drilling offshore in Canada should stop immediately. Some Canadians feel offshore drilling should stop only pending a safety review, but others feel we should stop drilling forever. We have seen various pieces in the media in this regard. Our colleagues in the other place are taking a larger view on the whole aspect of offshore drilling.
The view of the committee's steering committee is that there may be misinformation or disinformation amongst the public about offshore drilling occurring in Canada currently and the imminent danger, if any. For example, it seems to us that there cannot be any danger if there is no drilling.
To that end, we decided to conduct a series of hearings to lay out the facts for the public. We hope to inform the public accurately and to allay their fears. We are not judgemental in any way. We have read, heard, seen and talked to officials from government to obtain their reassurances, and we accept that for what it is. We will hear what the witnesses tell us.
No drilling takes place on the West Coast or in the Arctic, but there is substantial activity on the East Coast and has been for some time.
We are pleased that our two witnesses could join us this morning. Mr. Max Ruelokke is the chairman and CEO of the Canada-Newfoundland and Labrador Offshore Petroleum Board. Mr. Ruelokke is a professional engineer with significant work experience in engineering design and construction, offshore support services, offshore fabrication- shipbuilding and public service administration. He held many senior private-sector positions prior to being appointed in 1996 as the deputy minister of the Newfoundland and Labrador Department of Industry, Trade and Technology. He has served in his current position on the offshore petroleum board since October 2006.
Stuart Pinks is the CEO of the Canada-Nova Scotia Offshore Petroleum Board. Mr. Pinks is a senior regulatory and operations executive with a broad range of experience in the petroleum sector in Canada, Venezuela, Malaysia and Thailand. In January 2009, Mr. Pinks was appointed as Chief Executive Officer of the Canada-Nova Scotia Offshore Petroleum Board, prior to which he held the positions of manager of health, safety and environment; and chief safety officer since joining the organization in 2002.
I am sure you will tell us in more detail, but my broad understanding is that drilling on the East Coast of Canada is under the direct jurisdiction and supervision of the provincial regulatory boards, which you two men run, and not the National Energy Board, which has federal jurisdiction. However, I understand the National Energy Board has some involvement in what happens on the East Coast, although I may be wrong about that.
I know you have had your feet in the water at the House of Commons Standing Committee on Natural Resources. We are following their deliberations and have seen your evidence there. Mr. Ruelokke, please proceed with your opening statement.
Max Ruelokke, Chairman and Chief Executive Officer, Canada-Newfoundland and Labrador Offshore Petroleum Board: Thank you, honourable senators. I would like to begin my comments by expressing the heartfelt sympathy of all of us at the Canada-Newfoundland and Labrador Offshore Petroleum Board for the families and friends of those who were killed or injured in the April 20 explosion on the Deepwater Horizon. Our hearts and prayers go out to them and to the victims.
Our board was established in 1985 under the Atlantic Accord to regulate offshore oil and gas activity on behalf of both governments — the Government of Canada and the Government of Newfoundland and Labrador. Our board consists of three members appointed by the Government of Canada, three members appointed by the Government of Newfoundland and Labrador and myself as chairman and CEO appointed by both governments.
We have approximately 69 staff with about 600 years of combined staff experience in offshore oil and gas. Our mandate encompasses four key areas: worker safety, environmental protection, resource management and industrial benefits. The board's mission statement confirms that worker safety and environmental protection will be paramount in all board decisions. The board has no part in the establishment or administration of royalties or taxes for any offshore activity. We do not promote the industry. That is the role of governments. Our role is one of regulatory oversight of operator activity. The term "operator" refers to companies that hold operating permits issued by the board.
The Atlantic accord legislation defines a "chief safety officer" with broad powers and responsibilities for worker safety, as well as a "chief conservation officer" with powers over resource management. The legislation stipulates that an order made by the chief safety officer cannot be overruled by the board, and it prevails over a decision of the chief conservation officer. Therefore, the Atlantic accord legislation already accomplishes what the United States is proposing to do currently with respect to separating some of the responsibility of the Minerals Management Service. In short, our legislation provides that in matters of safety versus resource management and production, safety is paramount.
Drilling for oil and gas in the Newfoundland and Labrador offshore area began nearly 45 years ago in 1966. Since that time, some 355 wells have been drilled, including 144 exploration wells. Fifteen of those wells have been in deepwater, which is considered to be 500 metres or more. Production of oil from our offshore area started in 1997. As of the end of March 2010, 1.1 billion barrels of oil have been produced from three projects: Hibernia, Terra Nova, and White Rose. Since the beginning of production, some 1,100 barrels of crude have been spilled in our offshore area, which is approximately 1 barrel per million produced. There have been no blowouts in our offshore area. Obviously, we would prefer to have no injuries or spills, but we believe that the record for our offshore area is quite respectable.
Currently, one exploration drilling program is taking place in our offshore area. Chevron Canada Limited is drilling the Lona O-55 exploration well nearly 430 kilometres northeast of St. John's in a water depth of approximately 2,600 metres. I will speak to this project in further detail shortly.
The board's mandate is to interpret and apply the provisions of the Canada-Newfoundland Atlantic Accord Implementation Act and regulations to the Newfoundland and Labrador offshore industry. In addition to the legislation, the board provides guidance to industry, which is developed on the basis of experience and expertise in Canada and best practices around the world.
The Gulf of Mexico incident is a reminder that accidents can happen. Regulations and regulators are designed to require that the risk of an offshore incident occurring is reduced to a level that is as low as reasonably practicable. This is a reality that safety regulators deal with as part of our responsibilities. It is precisely for this reason that safety regulators focus on ways to improve safety and prevent accidents from occurring.
Before drilling programs are even contemplated, before relevant licences are issued in a potential area of exploration, the board undertakes a Strategic Environmental Assessment, SEA, of potential operations in that area. This initiative is over and above the requirements of both the Atlantic accord legislation and the current federal environmental assessment legislation. The SEA for the Orphan Basin, where the Lona O-55 well is being drilled, was undertaken in 2003 and included solicitation of public comments on both the scoping document for the SEA at the outset of the process and on a draft of the final report. The final report was posted on the board's website in November 2003 and is still available there today. This assessment, while necessarily more of an overview than subsequent project-specific assessments, included consideration of potential blowout risk and fate.
I would like to describe for you the regulatory approval process for drilling programs.
As part of the planning process for a drilling program, and before any authorization on the program is issued, a specific environmental assessment of the proposed program is conducted. The assessment is conducted under both the federal Canadian Environmental Assessment Act and the Atlantic accord legislation. In the case of the Orphan Basin drilling program, the assessment was concluded in July 2006, prior to authorization of Chevron's first well in the area, the deepwater exploration well Great Barasway F-66. The documentation associated with this assessment, the same as all such board assessments, is publicly available, and the principal documents can still be downloaded from the board's website.
The board's oversight of an offshore drilling program commences at the early planning stages, typically 18 months or more in advance of any proposed program. The operational review and approval of drilling programs is a two-tiered process that requires, first, an operations authorization and, second, an approval to drill a well for each well to be drilled as part of the drilling program.
Prior to receiving the operations authorization, a number of statutory obligations must have been met. The applicant must have completed the environmental assessment process. The operator must have obtained a certificate of fitness from an independent third-party certifying authority, together with a letter of compliance from Transport Canada for the drilling installation; and they must file a safety plan, an environmental protection plan and a contingency plan that includes an oil spill response plan. In addition, they must submit documentation respecting financial responsibility. Finally, they must provide a declaration of fitness, attesting that the equipment and facilities to be used during their program are fit for the purpose, the operating procedures relating to them are appropriate, the personnel employed are qualified and competent and the installation meets all necessary Canadian standards. Only after all of this documentation is presented to and approved by the board may an operator proceed with the application.
Drilling and well control are critical aspects of offshore operations and are addressed extensively in this regulatory framework. This involves a review of the operator's well planning and technical capabilities with respect to well and casing design, well control matters, kick prevention and detection, establishment of severe weather operating limits, a review of emergency disconnect requirements and an assessment of the relief well drilling arrangements. Emphasis is also placed on ensuring that all personnel have the requisite training in well control and blowout prevention. A review is conducted to ensure suitable redundancy of the blowout preventer, BOP, control systems in the event of any situation that could result in a disconnect from the well.
Oversight of these matters is achieved in a systematic manner through the board's safety assessment system, which includes a review of the operator's safety management system and confirmation that the operator has identified the hazards and the measures to be put in place to reduce the risk from those hazards to a level that is as low as reasonably practicable.
Last but not least, the board's safety and environmental professionals review the emergency response plans for the project in the event that an incident occurs despite the preventative measures in place. These plans include an oil spill response plan, which describes in detail the command structure the operator will put in place to respond to a spill event. It also describes the plan's relationship with other operators' and governments' plans and a description of spill response resources available at site in Eastern Newfoundland, nationally and internationally. Locally available resources include large containment and recovery systems — boom-and-skimmer systems — with fluid pumping capacities of over 50,000 barrels per day each.
Detailed modelling of the potential fate of a spill at these locations, using 40 years of weather data, indicates that even if a large spill were to occur in our drilling area, it would be unlikely that that oil would approach the Newfoundland and Labrador shoreline. Thus, scenes such as we see off the coast of Louisiana would not occur here. The impacts of a spill occurring this far from the Canadian coastline nevertheless could be serious and would require immediate response, but it would be a substantially different situation from what we are seeing in the United States today.
The Chair: I apologize for interrupting, but the word "spill" can mean many things. Is it synonymous with blowout? You are talking about the impacts of a spill in the context of Louisiana; do you mean any type of an escape?
Mr. Ruelokke: Yes. A spill can occur from a loading hose, for example, when oil is being transferred from a production facility to a tanker. It can occur from an accident on board the vessel or installation itself; and as we have seen, it can occur from a sub-sea blowout such as we have in the Deepwater Horizon.
The Chair: That is a much more calamitous occurrence, I would imagine.
Mr. Ruelokke: Yes, it is much more difficult to control.
The second tier of the approval process for drilling involves the requirement to obtain an approval to drill a well, or ADW, for each and every well drilled. The ADW must provide detailed information on the drilling program and well design, including the BOP equipment and the casing and cementing program, as well as the geologic prognosis. This application is reviewed by a multidisciplinary team within the board consisting of engineers, technicians, geologists, geophysicists and environmental scientists prior to the issuance of the ADW.
The drilling and production guidelines in place speak to all critical matters in relation to well barriers, blowout prevention and well control, including BOP stacks and casing and cementing matters, as well as detailed requirements and expectations pertaining to the termination of wells. These guidelines reflect high standards and modern thinking with respect to drilling, cementing and well control matters.
Chevron Canada Limited has been issued an ADW for the Lona O-55 well after having met all the regulatory requirements under the drilling and production regulations and associated board guidelines. Chevron's safety plan identifies all hazards, including a blowout, and describes how these hazards will be managed. Their safety plan describes the use of appropriate equipment, proper procedures and competent personnel to undertake safe drilling operations. Chevron is using the Stena Carron drillship to drill this well, which is a state-of-the-art, sixth generation, harsh-environment drillship.
The BOP can be activated from the drill floor using either of two hydraulic control systems. This redundancy helps ensure that the well can be shut in by the drilling crew. The vessel also has three backup systems capable of activating the BOP and shutting in the well should the need arise to do so. It has an acoustic system; a remotely operated vehicle, ROV, intervention capability; and an automode function, AMF, which automatically activates the BOP and shuts in the well when the signal is lost.
Prior to starting operations on the Lona O-55 exploration well, the Stena Carron was contracted out to ConocoPhillips in the Laurentian Basin off the southern coast of Newfoundland and Labrador. The ConocoPhillips' East Wolverine G-37 well was also a deepwater exploration well in just under 1,900 metres of water, which was successfully drilled total depth, TD, logged and then terminated.
The Chair: If I may interrupt, as you get into the description of the operation, could you add a statistic; namely, how far offshore they are, if you can? I know a field is in more than one dotted spot.
Mr. Ruelokke: In the case of the current well, the Lona O-55 well that is being drilled to the northeast of Newfoundland, it is approximately 430 kilometres offshore, northeast of St. John's. The East Wolverine well was about 120 miles from the nearest land, which was the southwestern tip of Placentia Bay. It was south of Newfoundland in the area known as the Laurentian Basin, about 120 miles from the closest land. The current one is almost 300 miles.
The Chair: Are those the two off the coast of Newfoundland that are operational?
Mr. Ruelokke: We have four systems that drill wells offshore in Newfoundland and Labrador. On our fixed- production platform, the Hibernia platform, we have two drill rigs that are contained and used to drill production wells. Only one is currently active, and it is drilling a production well in the AA block of Hibernia.
I am referring in this presentation to the exploration well. That is the only exploration well under way at this point. In addition to the fixed-drilling facilities that we have on the Hibernia platform, we have two mobile offshore drilling units called semi-submersibles, one of which is in the shipyard at Marystown having some special periodic survey work done. The other one, which is a semi-submersible called the GSF Grand Banks, is currently drilling a production well in the North Amethyst field for the White Rose facility.
Finally, the Stena Carron is a drillship drilling the exploration well that I am describing in my presentation.
The Chair: Again, how many kilometres out is that one?
Mr. Ruelokke: It is nearly 400 kilometres northeast of St. John's.
The Lona O-55 well was spudded on May 10, 2010. The blowout preventer was fully pressure- and function-tested, including backup activation systems, and was run in preparation for it to be run on the riser and installed on the wellhead. Chevron continues to conduct drilling operations as per the approved authority to drill the well, and the well should be completed in early September if the schedule is maintained.
Mr. Chair and members of the committee, it is prudent practice for a regulator to conduct an internal review following an incident such as the one in the Gulf of Mexico to determine if more can be done from an oversight perspective to address concerns about the risks of offshore drilling.
In light of the situation unfolding in the Gulf of Mexico and heightened public concern over drilling operations currently under way in the Newfoundland and Labrador offshore area, our board has taken the following measures for overseeing well operations at Chevron's Lona O-55 well. These measures are in addition to the requirements contained in the drilling and production regulations and associated guidelines.
A team has been established within the board to provide regulatory oversight of Chevron's operations. This team is comprised of the chief safety officer, the chief conservation officer, members of the board's management team and selected senior staff with extensive experience in the regulatory oversight of drilling programs. Chevron is expected to ensure the timely posting of daily reports — seven days a week — so that up-to-date information is always available to this team.
Chevron is required to meet with the board's oversight team every two weeks to review everything associated with the well. The board's chief safety officer will chair these meetings.
Chevron is required to provide the board's well operations engineer with copies of the field reports prepared for the following: testing of the blowout preventer stack, function test of the acoustic control system, function test of the remotely operated vehicle, ROV, intervention capability and function test of the automode function system, together with an assessment of the readiness of the ROV system in terms of equipment, procedures and spare parts.
Chevron is also expected to monitor developments at the Deepwater Horizon incident and to provide periodic assessments on the impact of any lessons learned from that situation to operations at Lona O-55; in particular, any lessons learned about well operations, BOP equipment or spill-response readiness.
The frequency of audits and inspections on-board the Stena Carron will be approximately every three to four weeks. Normally, audits and inspections are conducted on offshore operations every three to four months.
This particular well, as all exploration wells, has identified a number of potential targets, areas in the substrata where they may encounter hydrocarbons. Prior to penetrating any of those targets, Chevron must hold an operations time out to review and verify to the satisfaction of the chief safety officer and the chief conservation officer that all appropriate equipment, systems and procedures are in place to allow operations to proceed safely and without polluting the environment.
Prior to penetrating any of the targets, Chevron should assure itself and the board that all personnel and equipment for spill response identified in its oil spill contingency plan are available for rapid deployment.
Chevron must also make arrangements for a representative of the board to be on board the Stena Carron to observe the cementing operations of the last casing string set prior to entering any target zones. The observer will also be present to witness the BOP testing, well control drills and results of the pressure test of the cementing job.
In the case of the BOP testing, a representative of the certifying authority will also be present.
In due course, Chevron must provide, for review and assessment by the board's oversight team, a copy of the proposed well termination program to be issued to field personnel for implementation. Chevron must also make necessary arrangements for a representative of the board to be on board the Stena Carron to observe the well termination program.
In closing, the board is confident that it administers a robust safety and environmental protection regime. Operators here work in a harsh environment, which demands diligence on their part to reduce risks to as low as reasonably practicable. It is our role as the regulator to oversee their program — a role to which all of us at the board are completely dedicated.
The Chair: Thank you, Mr. Ruelokke. I will ask your colleague, Mr. Pinks, to present, and then we will ask questions after you have both been heard.
While your comments are fresh in our minds, I understand your board has a website to which you referred. If we want to know, for example, who the members of the board are, do their names and CVs appear on the website?
Mr. Ruelokke: That is correct, yes.
The Chair: In addition to all that internal administrative data, so we do not need to get into that now.
Mr. Ruelokke: Yes.
The Chair: The only other thing that struck me — and I am sure struck my colleagues — is that you are assuring us that these activities are occurring in a safe and reasonable environment under your jurisdiction, yet you have a page and a half of "Chevron must, Chevron must, Chevron must," which I think are exigencies you put in place, in your words, "in light of the events" in the Deepwater Horizon case. Is that just belt-and-suspenders stuff? I want to understand whether you felt it was equally safe before you did all these extra things, or was this a wake-up call?
Mr. Ruelokke: No. Our normal practices and procedures would provide for and have provided for safe completion of wells. However, a number of unknowns still exist with respect to the Deepwater Horizon incident, and those unknowns will continue until the BOP stack has been recovered and examined.
As always, as a regulator, if unknowns have contributed to an incident in another jurisdiction, we need to look at what we do and how we can ensure that we will be protected against things that could happen here. It is an extra layer of oversight that has been created and will be maintained until this well is successfully completed.
The Chair: Thank you for that. Mr. Pinks from the Nova Scotia board, please proceed.
Stuart Pinks, Chief Executive Officer, Canada-Nova Scotia Offshore Petroleum Board: Thank you for inviting us here.
Before I start, I wanted to pass on the regrets of our chair, Diana Dalton, who would have liked to have been here this morning as well. She had a long-standing commitment for a minor medical test that she had to tend to in Halifax today, so she was not able to appear.
Unlike our counterparts at the Newfoundland and Labrador board, our chair and CEO positions are split at our board. Mr. Ruelokke fills both roles, and I fill one of the two roles.
The Chair: Please convey our best wishes to your chair. We may well invite her to appear if she would like to come, but I am sure you will be able to cover the waterfront, as it were.
Mr. Pinks: I will do my best.
In starting, I want to thank you for the opportunity for us to come and provide information on the state of the emergency response assets that we have available and the adequacy of our current regulations governing this industry as they pertain to offshore Nova Scotia.
I have prepared speaking notes, which have been provided in both English and French. I will go through these, but I might skip through a few sections because our board's mandate and the legislation that we operate under is extremely similar to the mandate and the legislation that the Canada-Newfoundland and Labrador Offshore Petroleum Board works under. Many of the things that Mr. Ruelokke has already portrayed to you in terms of how our whole authorization and oversight processes work are extremely similar. Our two boards work closely together at the senior and working levels to administer a similar set of legislation and regulations in a consistent format to try to make it as seamless as possible between the two jurisdictions.
I will start by providing a brief background of our board and mandate.
We were formed back in 1990. We are an independent joint agency of the federal government and of the provincial government of Nova Scotia. We have two federal board appointees, two provincial board appointees and one jointly appointed chair, who is Diana Dalton. She is appointed by both governments, reporting back to Natural Resources Canada federally and to the Department of Energy provincially. We regulate petroleum activities in the Nova Scotia offshore area, which totals in area some 45.5 million hectares.
Exploration of offshore Nova Scotia started back in the 1950s with some seismic work. The first exploration well was drilled in 1967, and since that time, we now have a total of 207 wells drilled to date in the Nova Scotia offshore area. During this time, there have been two producing projects brought on stream and a third currently under development. At present, we have no drilling activity in the Nova Scotia offshore area.
Drilling in the Nova Scotia offshore area has gone through peaks and valleys. It is at present in one of the valleys, so we do not have any exploration or production drilling currently ongoing.
The Chair: Is Georges Bank, where a moratorium has been declared, within your area?
Mr. Pinks: That would be within our area of jurisdiction, but it has been under moratorium for a number of years, and as such, our board will not issue any calls for bids for lands for exploration in Georges Bank. That has been extended another three years, to 2015, by the recent announcement.
The Chair: Yes. I gather it is the same for the U.S. portion of the Georges Bank.
Mr. Pinks: Yes. That is, of course, outside of our jurisdiction. We have jurisdiction up to the boundary between Canada and the U.S.
The Chair: There is no actual drilling, as you have just said, at the moment.
Mr. Pinks: There is no actual drilling in the Nova Scotia offshore area.
The Chair: I take it that, in the exploration phase, drilling takes place to look for the hydrocarbons.
Mr. Pinks: Right.
The Chair: Then they find the source, and other activity follows later. Is any of that type of activity occurring?
Mr. Pinks: I will get into it a bit more in my talk. If you let me continue, I will explain that as I move forward.
Our regulatory mandate, same as the Newfoundland board, includes the regulation of health and safety of offshore workers, protection of the environment, prevention of the waste of hydrocarbon resources, also the local industrial benefits. We regulate under the federal and provincial accord acts and the regulations that are promulgated thereunder. Our boards have the authority and ability to issue guidance documentation, which provides interpretation and guidance as to how operators should achieve compliance in conducting their offshore activities. We actually have 20 separate guidance documents posted on our website and communicated to industry.
The Cohasset-Panuke Project started back in 1992 and operated until 1999. It was Canada's first offshore oil project. It produced a total of 44.5 million barrels of light oil. When I say "light oil," it is condensate; it is the very light end. It is not the same as crude. It is closer to natural gasoline, if you were to look at its appearance. During the life of the project, over that seven years, we had no significant spills or well control incidents with that project.
The Chair: How far offshore was that?
Mr. Pinks: That was about 250 kilometres southeast of Halifax.
The currently producing project offshore Nova Scotia is the Sable Offshore Energy Project. It involves the production of natural gas from five separate fields in shallow water, water depths ranging from 20 to 75 metres in depth. These fields are about 225 kilometres off the east coast of Nova Scotia. Production began in December of 1999 and is expected to continue well into this decade.
Some smaller past discoveries are being looked at to potentially add to that project, and any new discoveries could potentially extend the project life past the end of the decade. The project is currently producing about 350 million standard cubic feet of natural gas per day. The gas is brought ashore via subsea pipeline to a processing plant in Goldboro. Some of it is used in Atlantic Canada, but the majority is piped through to the U.S. and marketed down in the Boston area.
Now under development is Encana Corporation's Deep Panuke Offshore Gas Development Project. It is a second natural gas project. It involves production of natural gas from an offshore field located about 250 kilometres southeast of Halifax, again in shallow water. This gas will also be transported to shore at Goldboro via a second subsea pipeline. Production is scheduled to begin in 2011, so sometime next year, and it is anticipated that it would continue for a mean production life of about 13 years. Over the life of the project, up to about 900 billion cubic feet of natural gas will likely be produced.
As you will note from my description thus far, Nova Scotia offshore area is really a gas prone region; only small amounts of light oil have been discovered to date. That is not to say that there is not significant quantities of oil offshore Nova Scotia, but certainly to date it has been more natural gas.
The Chair: When you say shallow water, is there a minimum-maximum depth range in that?
Mr. Pinks: The shallow water that we are operating in is less than 100 metres. In the past, we have done some deepwater drilling, in 2,000 to 3,000 metres of water, but currently, as I said, no drilling is taking place in Nova Scotia.
Our regulatory regime is permissive in nature, meaning that any work or activity that is to be conducted in the offshore area must first be authorized by our board. To obtain an authorization to conduct a particular work or activity, we need to have an application from a licence holder. There are a number of attendant elements that Mr. Ruelokke went into in quite a bit more detail, including demonstration of financial responsibility, safety, environmental protection, resource conservation, industrial benefits, certifications, declarations and operating licenses. They must all be considered and evaluated in dealing with an application.
From our board's perspective, the health and safety of offshore workers and the protection of the environment is number one. It is paramount for our board. By regulation, an application for authorization of drilling or production operations must be accompanied by both a safety plan and an environmental protection plan, along with contingency plans and emergency response procedures.
These plans must demonstrate that the operator has in place robust safety and environmental management systems and must clearly demonstrate that the operator has properly identified the health, safety and environmental hazards associated with the proposed work activities and that they have actually assessed those risks and determined how they will mitigate them or manage them appropriately to as low as reasonably practical.
As Mr. Ruelokke has identified, drilling and production activities in the offshore area trigger a requirement to do an environmental assessment under the Canadian Environmental Assessment Act. Our board is a federal authority and actually acts as the lead regulatory agency for undertaking those environmental assessments. We also do those environmental assessments in compliance with the federal Species at Risk Act, which is designed to protect those species that are at risk. The environmental assessments must be completed and a determination made that the project is not likely to cause significant adverse environmental effects before our board would issue an authorization.
Mr. Ruelokke has talked about the certificate of fitness process that we also have, which is the independent body that is actually approved and included in the regulations by government as to who can act in this independent fashion to do their checks in accordance with the scope of work that is approved by our chief safety officer. They will also approve maintenance, inspection and testing programs and operation manuals. We will ensure that that whole certificate of fitness program has been done and completed properly.
The Chair: It is becoming clear from your comments thus far that it is very much a concurrent or joint jurisdiction between you and the federal government in terms of these assessments, for example. Do your two boards interact with each other and with the National Energy Board as well? Is there that same type of synergy and interaction?
Mr. Ruelokke: Yes, we do. The three boards have collectively put in much effort in the past two or three years to the new drilling and production regulations. We also developed and issued joint guidance, particularly on behalf of ourselves and Nova Scotia. Mr. Pinks and I would converse with one another certainly once every couple of weeks, maybe even more. Our staff members are continually in contact with one another, as we are with international regulators. We belong collectively to a group of international regulators that meets informally quite frequently but formally once a year.
The Chair: Is it the group of eight main drilling or offshore operators?
Mr. Ruelokke: Yes.
The Chair: That includes Greenland; is that correct?
Mr. Ruelokke: No, to this point in time, it does not. It includes Norway, the U.S., the U.K., Australia, New Zealand, Brazil, India, Canada and the Netherlands.
Greenland is about to undergo its first offshore drilling program. We have had informal communications with Greenland. I spoke at a conference that was held in Copenhagen about a year and a half ago about how we regulated the industry. We believe they are interested in learning from us, but they have not made any formal approach to us yet.
Mr. Pinks: If I can add, with respect to the National Energy Board, in the Nova Scotia offshore area, we have one pipeline that is currently operating, bringing gas from the Sable project 225 kilometres offshore to land. That is under joint jurisdiction of ourselves and the National Energy Board. The deep Panuke pipeline, which has been installed but is not yet operational and will go into operation next year, is also under joint jurisdiction with the National Energy Board. We have a great deal of interaction with respect to pipelines.
At the federal level, the offshore regulatory regime in place is very complex. Many departments and agencies have an interest in the regime either through regulation or self-interest. We spend a great deal of time coordinating with the Canadian Environmental Assessment Act, Environment Canada, Fisheries and Oceans Canada, Transport Canada and others.
The Chair: Does that include the Coast Guard?
Mr. Pinks: Yes, also the Coast Guard. We try, from a government perspective, to have a coordinated approach to the regulation and oversight of offshore gas and oil activities.
The Chair: That is one area we wanted to focus on because it looks as though it is a maze of conflicting authorities, which is often a recipe for disaster. You are already giving us assurance in this regard, which is good.
Mr. Pinks: I will skip over some of the day-to-day activities we do to provide oversight because it is similar to what Mr. Ruelokke described.
The regulations we enforce are written and promulgated by governments. A key element of the regulatory regime under which we operate is the set of comprehensive guidelines issued by our board and our fellow board in Newfoundland and Labrador to help operators understand and interpret how they may achieve regulatory compliance.
New drilling and production regulations were promulgated in December last year. Working with our counterparts at the other offshore board and the National Energy Board, four comprehensive guidance documents were drafted on drilling and production, safety plan guidance, environmental protection plan guidance and data acquisition guidance. Those four documents are a tremendous supplement to the regulations that demonstrate to operators what they must do to comply with the goals and parameters set forth by regulation.
In terms of emergency response, the board's focus is to ensure that operators have taken the necessary steps to prevent hazardous incidents or spills. Should a major accident, spill or uncontrolled release of hydrocarbons occur during an authorized activity, the board would lead the government response. The exception is in the case of a pipeline rupture, then we and the National Energy Board would jointly lead the government response to coordinate with all other government agencies that would have to respond. However, the operator is fully accountable and responsible for attending to any spill and resulting damages.
Our board and the Newfoundland and Labrador board have a regimented emergency response plan that would be activated during a significant event. Depending on the significance of the spill and the operator's response, our role would range from monitoring the operator's activities to giving direction to the operator, or in the most severe or extreme cases, to managing the spill response.
Our regulatory requirements in place require a high level of training and demonstrated competency for the offshore workforce. A document has been produced by industry, which has been ratified by the two offshore boards, that includes a comprehensive set of requirements for training of the entire offshore workforce. I think we are world-class or better in some of our expectations and standards met. In the unlikely event that relief well operational plans must be executed, the contingency plans we acquired must provide details of how they can secure the necessary equipment to undertake such operations in a timely manner.
Some of the natural gas producing fields offshore Nova Scotia contain light hydrocarbon liquids called condensate. Should a release occur from one of these fields, a plume would be dispersed down current from the source for the duration of the release. However, given the properties of condensate, the resultant surface sheen would have a thickness that would be measured in microns. The condensate would float to the surface and its thickness would be so thin it could not be measured with a ruler. Its overall size would be fairly limited given that it would rapidly dissipate through evaporation or dissolution into the upper water column.
The Chair: Therefore, with that condensate, what does the gas do?
Mr. Pinks: Gas will simply escape into the atmosphere.
The Chair: Is the big threat of thick, black crude not present from the gas wells?
Mr. Pinks: No. All operators have a contract with an environmental response organization such as Eastern Canada Response Corporation Ltd. to provide additional resources and expertise when necessary to respond to a spill. Transport Canada can also provide aerial surveillance services.
The Atlantic Regional Environmental Emergencies Team, REET, is chaired by Environment Canada. REET membership includes Transport Canada, Canadian Coast Guard, Canadian Wildlife Service, Environment Canada and many other departments, provincial governments and Aboriginal groups where appropriate. They can provide a great deal of on-the-ground expertise both to us and the operator if a spill response is necessary.
In closing, our board is of the opinion that the regulatory regime that is in place provides a high level of safety and environmental protection. Our board is vigilant in the administration of its mandate and holds all operators accountable to meet the expected standards. We are, as is everyone currently, keen to learn from the unfortunate accident in the Gulf of Mexico. As more information becomes available, we will learn from that and how we can apply it within our regulatory regime in Nova Scotia in discussion with our counterparts at the Newfoundland and Labrador board and the National Energy Board.
The Chair: Thank you, Mr. Pinks. Those were two very lucid and excellent presentations to start us on this study. I will remind honourable senators that the object is not to try to decide the future but to determine for Canadians what the risks are, if any, and what is actually happening. Canadians can draw their own conclusions.
Senator Mitchell: Your presentations were very interesting and broadly reassuring that there is clearly great competence in the way Canada administers and manages these projects.
One reason we are doing this study as quickly as we are in response to the British Petroleum issue is because we are also doing a significant Canadian energy strategy. This petroleum resource is extremely important in the context of Canadian energy resources for use domestically and for export.
Can you confirm what we have heard, namely, that 12 per cent of Canadian crude production is offshore? What portion of natural gas production is offshore?
Mr. Ruelokke: About 35 per cent of the conventional light crude oil that Canada produces is produced offshore by Newfoundland and Labrador. I am not certain if that is 12 per cent of the total, which would include oil sands production as well. I will let Mr. Pinks respond with respect to natural gas.
Mr. Pinks: Nova Scotia is currently shipping about 350 million cubic feet of natural gas per day. I will have to double-check, but I would say that that is in the 10 per cent to 20 per cent range of overall Canadian production.
Senator Mitchell: It would be appreciated if you could confirm that.
Mr. Pinks: I will confirm that.
Senator Mitchell: I have a more specific technical question. I have read and Mr. Ruelokke confirmed that the Stena Carron doing the drilling has three redundancy systems to deal with any potential blowout, which you itemized in your presentation.
We have redundancy when that ship is drilling. We find the oil; we begin to pump; and the well is 430 kilometres off the coast. What redundancies do we have after drilling stops? How long does it take to get anything else we might need from the coast to a point in the ocean 430 kilometres away?
Mr. Ruelokke: I will talk a little about production wells. An exploration well is capped when it is completed and may or may not be used subsequently as part of a production system.
The basic concept we have as regulators is that there must be two barriers to any release of hydrocarbons in any type of uncontrolled way. In an exploration well, the first barrier is the drilling mud, which is used as part of the drilling process to counterbalance the hydrostatic pressure of the hydrocarbons.
When the well is to be abandoned, that primary barrier is maintained until such time as another primary barrier is installed. It is called a cement plug. It is not really cement, but concrete, but the industry uses the term "cement," so I will go along with that. A liner of concrete is run into the well, which might be 30 or 40 metres high, and that then becomes a primary barrier. If you are about to produce it, you drill that barrier out and insert a subsurface safety valve or control valve that is set probably 30 or 40 or maybe 100 metres below the mud line. On top of that well, you install something called a Christmas tree or production tree, which has safety valves in it as well, so you still have a two- barrier system. Those are different barriers than you would have in an exploration well, but they serve the same purpose.
Senator Mitchell: Have you had experience with those systems ever breaking down and having an oil spill from a production well?
Mr. Ruelokke: We have just under 100 production wells currently in use in Newfoundland today, and the first one came on stream in 1997. We have had no problems with release of pollutants from any of those production wells.
Senator Mitchell: Do you run a pipe out to those wells?
Mr. Ruelokke: No. We are using two different systems offshore. The first facility established was Hibernia, which is a gravity-based structure. It is a big concrete structure with steel topsides that sits on the seabed in about 85 metres of water. The wells are drilled out from inside that facility and the wells come back up to the surface.
When the oil is produced, it is initially stored inside the hollow base of the concrete structure, and then it is transferred. We have two offshore loading pipelines that are about a kilometre long each. A tanker goes out and hooks up to one of those offshore loading systems. The oil is pumped from the gravity-based structure through the offshore loading system into the tanker and taken away to market.
We also have two floating production systems offshore, two shipshape facilities called Terra Nova and the SeaRose. They produce oil from a number of subsea clusters. Excavations in the seabed provide protection from any ice that may enter the region, so the wellheads are below the normal seabed. The oil comes in to the surface at these centres and then runs along a series of flow lines and comes up into the shipshape structure, where again it is stored temporarily. They can each store nearly 1 million barrels of oil.
Every week or so, a shuttle tanker will come out and steam up astern of the floating production facility. A floating transfer hose is then sent back from the production facility. It is picked up by the tanker. The oil is pumped out through that. The tanker is disconnected, the hose reeled up again and the tanker proceeds to market.
We do not have any pipelines — as is quite common in the Gulf of Mexico, the North Sea or other areas — going from a production facility to an onshore facility. All of our oil is transferred onshore by tankers.
Senator Mitchell: Finally, why are you only drilling one well right now? Is it just cost?
Mr. Ruelokke: We issue exploration licences as a result of a call for bids. The bids are awarded on the basis of an exploration expenditure. The company that has otherwise qualified as an operator and then commits to spend the most money exploring that block of land receives the licence, which they can hold for nine years. They have five years to drill a well. If they do not drill a well in five years, they can have that extended for one more year, but otherwise they lose it.
We have had a situation where we have this particular block that is being drilled. Chevron has this licence. They drilled a well there about three years ago, which at the time — and this is not a figure of which we are proud— was probably the most expensive well drilled in the world. It cost over $200 million. They are back a second time to drill a well in that deepwater, probably with about the same expenditure, hopefully with more success than the first one.
It is the operators that make a decision to drill on the basis of the exploration licences we issue. Every year, we award a number of exploration licences. At any one time in any year, we may have anywhere from two to four exploration wells. As it happens right now, we just have one under way.
Senator Banks: Our interest is almost prurient because we are talking about stuff everyone hopes will never happen and we all assume will never happen, but as you said, Mr. Ruelokke, sometimes it does. When it happens, the assurance that risk has been reduced to as low as reasonably practicable does not count anymore.
I presume that in the unfortunate situation in Louisiana, there is probably — at least on paper, if not in fact — a regime similar in some ways to the ones you have described. However, stuff happens.
We have at least a grazing familiarity with the question of insurance, which is what I will ask you about, having to do with the nuclear production of energy because that is a federal responsibility. We have looked at it, and we are about to look at it again.
I would like you to address a question, which I think I understand correctly. The operator you are talking about, if it is Chevron or ConocoPhillips, is not actually the company that is drilling the well. Often a driller is drilling the well under contract to whoever is the operator.
I would like you to talk about the line of responsibility and also the insurance that is there. You talked about the fiscal capacity to respond to these things. I am presuming that in the worst possible circumstance, because we have considered this in the nuclear context, the potential liability might exceed the reasonable capacity of the resources of the operator.
I am assuming that insurance is involved and that you can tell us about the insurance regime — where it is, whether it is laid off, whether it is expensive and whether the companies are self-insuring. How does that work? Are there contingent capacities to respond to the financial undertakings that might result from this that go beyond the resources of the operators?
The Chair: Senator Banks, if you would permit me to add to that, we understand some legislation is in place that has a limit of liability, which is a matter of some discussion on Parliament Hill. You might include a reference to that, if I am right about that.
Mr. Ruelokke: We have a requirement for operators to post instruments to establish financial responsibility. In the event of a spill, if the spill is not caused by anything that is within the operator's control — if it is an act of God or something that they played no part in — their responsibility is capped at $250 million. However, if the operator is at fault or their contractors are at fault, which is normally the case, then there is no limit on the liability.
I cannot tell you for sure what a company such as Chevron does with respect to insurance. They are corporations that have considerable financial capacity. As we have seen, looking at what is happening in the Gulf of Mexico now, we believe British Petroleum has spent probably an amount approaching $1 billion in the last 40 days or so.
If you compare that to their profits in the quarter immediately preceding that, I think their profit in that quarter was about $6.1 billion, so the capacity is considerable. When we are dealing with companies such as Chevron, it is of a similar nature.
You make a good point about the relationship between the actual drilling process and the operator. There are a number of drilling contractors; Transocean Ltd. obviously is the one in the Gulf of Mexico, and they are perhaps the largest drilling contractor in the world. We have two Transocean rigs in our jurisdiction, the two semi-submersibles.
The exploration we have under way now is being drilled by a contractor called Stena, a Swedish contractor. They have been in operation as a drilling contractor for about the last 12 or 13 years. They have a fleet of new vessels aimed at harsh environments. For example, the two rigs that will be drilling off Greenland next month are both Stena rigs.
I do not have any information available at this time on the relationship ConocoPhillips has with Stena by way of insurance. That is information that people such as Mr. Pinks and I can probably provide, given an opportunity to do so, when we get back to our offices.
Senator Banks: I would be grateful if you would because that is the crux of it. I have little doubt that ConocoPhillips or whoever could come up with whatever would be necessary with respect to a contingent liability such as that. I am interested in knowing whether the Swedish drilling company or Transocean has that type of capacity, how they have laid it off and what the nature of the contractual relationship is between the drilling operator and the overall operator to whom you have issued a lease. We need to know that.
We do not need to know it if it is an act of God because then Canada is on the hook, I guess, but we do need to know about it if it is a deficiency or, God forbid, negligence on the part of the person who is actually operating the drill. If you could find that out, we would be grateful.
Mr. Ruelokke: We certainly will do that.
Senator Massicotte: If I understand correctly, your relationship is with ConocoPhillips. Is that correct?
Mr. Ruelokke: That is correct.
Senator Massicotte: Whether they subcontract or are the driller has nothing to do with your contractual relationship. Is that right? Whether it is a contract of limited liability or whatever, it does not matter; ConocoPhillips is responsible to us for the full amount irrespective. Is that right?
Mr. Ruelokke: Yes. That is correct.
Mr. Pinks: Yes. That was the point of clarification I wanted to add. The application that we approve would be for the operator, which would be, in Mr. Ruelokke's case, Chevron. Whatever they do internally is immaterial to us.
Senator Massicotte: Why did you mention acts of God? If lightning hits or something happens, are they off the hook?
Mr. Ruelokke: The cap on their liability is $250 million.
Senator Massicotte: Your contractual relationship with ConocoPhillips is a maximum of $250 million if it is an act of God.
Mr. Ruelokke: That is the legislation and regulation.
Senator Massicotte: Are high winds and icebergs acts of God?
Mr. Ruelokke: We have had both, and the operator is responsible for any damage that has occurred.
Senator Massicotte: Those are not acts of God?
Mr. Ruelokke: I am not a lawyer, so the definition of "acts of God" is probably beyond my engineering skill sets.
The Chair: Is there not a cap of $40 million somewhere as well?
Mr. Ruelokke: There is a $30 million cap captured in legislation, and in regulation and guidance it goes up to $70 million and then up to $250 million.
Mr. Pinks: If you total it up on a drilling well, it is $350 million all together because it is cumulative. In the first $30 million, which is the absolute liability, we would look for something that would give the boards, if necessary, unfettered access to that $30 million if the operator did not step up to the plate immediately and do what they were supposed to do. They then would provide additional levels of financial assurance to us, up to the tune of $350 million, which currently is the amount we are looking for, to demonstrate they have the financial wherewithal to respond to an event. That does not cap their liability, though. If they are at fault, the law is that the polluter pays.
Senator Dickson: I want to follow up on questions by Senator Banks and Senator Massicotte. One of you mentioned that instruments exist to support the balance sheet liabilities of these companies. Could you give us some idea what those instruments are? Are they letters of credit from financial institutions?
Mr. Ruelokke: They are generally letters of credit.
Mr. Pinks: They can be cash. Some companies have actually deposited cash. We have had letters of credit, promissory notes and guarantor's notes. There are different tiers. When we are looking for proof of financial responsibility up to $350 million, in the upper tier, we will look at balance sheets. If you look at the balance sheets of Chevron, Shell and ExxonMobil, they will demonstrate that they can come up with $350 million if they had to.
Senator Dickson: In light of the financial turmoil of the last year to a year and a half, many companies' balance sheets took a sudden slash down.
Do you have an outside consultant, outside of your personnel and the boards? I have great respect for the people on the board; they are competent and do a great job. However, do you engage outside consultants or financial analysts to review these instruments?
Mr. Pinks: We have not. To date, we have been able to get the types of instruments that we feel are appropriate. It tends to be the larger players involved in the offshore, so those numbers are not staggering to that size of company.
Certainly, if we were dealing with a smaller company, we would have to pay more attention and also continue to track during the life of a project for the reasons you pointed out, in case their financial situation should change.
Senator Dickson: In light of the financial turmoil in the past few months and what has happened down in the gulf, will you change your practice and monitor these instruments more closely or engage outside consultants? I am curious, following up on Senator Banks and Senator Massicotte. I am not playing a lawyer here, by the way.
Mr. Pinks: I think it would be fair to say that as a result of the incident in the gulf, when the lessons come out both from a cost and impact perspective, we will look at all aspects of how we regulate and financial responsibility, and proof of financial responsibility would be one of those things. I think we will gather a bit more information before we start to make radical changes.
Senator Dickson: With respect to the experience in the gulf, have the boards of Nova Scotia and Newfoundland put a team together and sent it down to the gulf? What is your strategy? I would think it would be prudent to be on the ground down there.
Mr. Ruelokke: We have not sent a team down. I will speak on behalf of our board.
We have a very good relationship with the Minerals Management Service, which is the regulator down there, because of the International Regulators' Forum, IRF. I have actually communicated with the chief officers, but we have left them alone to get on with the job they have at hand, which is a huge operation.
We will have an opportunity to review with them and with other regulators in detail, to capture the lessons that come from that. For now, we did not want to be seen to be imposing any additional burden on them. We have full visibility of what is happening down there, but we did not want to be on the ground at this point in time.
Senator Banks: To finish up, the chair has characterized our interest in this clearly. If you were to take the example in Louisiana, $350 million — never mind $30 million — will not even come close. Therefore, we would be interested in finding out whether you think those limits are practical in light of events and in light of the situation in which you operate, which you have described as difficult at best.
Second — and I think you have given us this assurance, but I just want to make sure — can we be assured that in terms of recourse, there is no bar in the agreement saving someone harmless that will make things more difficult to attain in terms of access to that money between the operator that you licence and the subcontractor, if I can characterize it that way, that actually does the drilling, that it will impede your access to the money that you might want to be applied to mitigate a circumstance? I do not know if that is clear, but I think you know what I am asking.
The Chair: Danny Williams' hand is on top of it.
Mr. Ruelokke: As Mr. Pinks said, we licence the operator. We talk about our own example in the case of Chevron. If there is an instance on the Stena Carron anywhere close to the nature of what has happened down with the Deepwater Horizon, then we would hold Chevron Canada Limited responsible for that, and, through them, their ultimate parent.
We have already seen some indications in the early days down in the gulf, and President Obama referred to it, of some finger pointing between the operator and some of the contractors. That will get resolved at some point in time in court, but from the American government's perspective, as it would be from ours, it is the operator that has the licence that is responsible and must bear all the costs. The extent they can gather back some of that cost from a contractor who may have contributed is between them and the contractors, and we would have no vision of that.
Senator Banks: You do not examine or look at or concern yourself with the nature of the agreement between the operator and the driller.
Mr. Ruelokke: That is correct.
Senator Lang: For the committee's interest, I read a press release today. The programmed drilling off the Beaufort Sea and other areas of Alaska has been halted by the United States Secretary of the Interior until they resolve the situation in the gulf and learn from what has happened.
As the chair has outlined, we are here to receive some comfort that our regulatory system is working in such a manner that what has happened in the gulf cannot happen here. Mr. Ruelokke, in your testimony a few days ago to the House of Commons Standing Committee on Natural Resources, you indicated:
We've heard some information that has not really been fully substantiated and probably won't be fully substantiated until the actual BOP stack that was at fault in this case is recovered. The understanding that we have is that what occurred is not something that we would have ever been allowed to see happen here in Canada.
Then you go on and refer to the dual barrier system.
Could you explain that in simple terms so that not only we around this table but the viewers can understand what we require is that much different than what they have been requiring down in the Gulf of Mexico?
Mr. Ruelokke: Thank you for that. I will have to state now, as I stated before, that what I am talking about is information that we have received but has not yet been substantiated. However, we have heard it from some very reliable sources.
We believe that Deepwater Horizon operating on the Macondo well was in the process of preparing to terminate the well, to abandon it. When we are in that situation where an operator is preparing to abandon a well, they maintain the drilling mud or the fluid in the well at the same time when they are preparing to make this concrete or cement plug. You never take away that primary barrier of the drilling mud until such a time as the other primary barrier has been run in, allowed to cure and is pressure tested above and below to prove that the well is now secure. At that point in time, then you circulate out the drilling mud and clean it up. You usually circulate it with a heavy saltwater solution called brine, and then go on and terminate the well. What we understand to have happened in the gulf is that they began circulating out the mud prior to having run in the cement plug, so they removed the primary barrier of the mud and did not have another primary barrier in place. That is what we believe.
The blowout preventer is always a second barrier. Unfortunately, in this case, something happened that caused the blowout preventer not to work. We do not think it was a problem with the controls but something internal to the blowout preventer. Again, this is unsubstantiated, and we have not seen that yet, but that is what we understand to have happened. That is not something we would condone.
As I pointed out in my presentation, when those operations are underway on the Stena Carron in the well offshore Newfoundland and Labrador, we will have our own staff there to verify that Chevron is doing the things that need to be done and that are in accordance with our requirements, and of course with their own drilling procedures. They have indicated to us that information that they have coming out of the Gulf of Mexico incident indicates that what happened was not within Chevron's operating procedures. They would not have conducted a similar operation. We cannot comment on whether it was within BP's or not. We do not know that. However, we are quite comfortable that our procedures, when they are adhered to — and they will be adhered to — would not allow that to happen. Having said that, I can never provide assurance that we will not have a blowout. I absolutely cannot.
Senator Lang: In testimony in the Natural Resources Committee in the House of Commons, Mr. Pryce of the Canadian Association of Petroleum Producers gave testimony about four blowouts in the past 30 years, two in the North and two in Atlantic Canada. You had mentioned earlier that you had had no blowouts in your areas of jurisdiction. Perhaps you could explain why he said that there were two in the Atlantic. As well, am I to assume that the fail-safe systems worked, and subsequently it was not a blowout as we see as described in Louisiana?
Mr. Pinks: The two blowouts that Mr. Pryce is referring to in Atlantic Canada were actually offshore Nova Scotia, both of them in the early 1980s. In June of 1984, a blowout occurred on a Shell well, Uniacke G-72. It was a natural gas well. The blowout lasted for about 13 days and released 2 million standard cubic feet of gas and upwards of 4 cubic metres a day of condensate. That is about 33 barrels of condensate a day. As I explained earlier, the condensate will break down quickly. It evaporates or is dissolved in the upper part of the water column. That particular case was on a semi-submersible rig. The blowout preventer did not function. There was a kick. The kick actually damaged some of the controls for the blowout preventer, and there were no secondary types of controls that we would see today. The results of that particular incident led to some technological changes to provide more reliability. The well was successfully killed after about 13 days with very limited environmental damage.
The second blowout occurred in April of 1985 on a Mobil Oil Canada well, West Venture N-91. It was a different type of a blowout. It was what we call a subsurface blowout; the casing down in the hole had failed. Again, it was natural gas. Natural gas from one formation underground was allowed to seep up and go into another formation underground, so it was contained underground. There was no release to the ocean or to the atmosphere. That particular well did require the drilling of a relief well to successfully cap that well. That was not a failure of the blowout preventers; that was a failure of casing downhole.
Those were back in 1984 and 1985, so we are talking 25 years ago, and technology has changed significantly since that point in time.
Senator Lang: This leads me to the crux of another question. For the information of the committee, in 1979, a blowout occurred in the Gulf of Mexico, and it took nine months to cap that well.
My question to both government regulators and those who are in charge of the drilling is how much time, effort and money is required for these organizations to put forward to further research and development in the area of offshore drilling? Obviously, it is tenuous. You said earlier that you cannot give us 100 per cent certainty that something will not happen. How much time and effort is being put into new technology, research and development either by government or government and business? Is that information shared internationally, whether it is from Britain, Norway, the United States, et cetera?
Mr. Ruelokke: I will try to answer that question.
In 2004, the board in Newfoundland and Labrador decided that companies producing oil in our jurisdiction should spend a certain amount of money on research and development, education and training. It did not indicate what they had to spend the money on, only that they had to spend it.
In 2004, the Hibernia field was producing for ExxonMobil Canada, and the Terra Nova field was producing for Petro-Canada. Subsequently, Husky Energy Inc. developed the White Rose project. Husky Energy complied with the new guidelines. Petro-Canada and ExxonMobil did not. They successfully took the board through a number of courts until it finally reached the Supreme Court claiming that these guidelines were an imposition that they should not have had to deal with. Therefore, for that period of time, they were not making their expenditures. A little over a year ago, the Supreme Court of Canada declined to hear their appeal of the lower court decision and ExxonMobil and Petro- Canada have since begun to comply with those guidelines.
The guidelines require, on average, that the companies spend about $25 million to $35 million per year collectively on research and development, education and training in Newfoundland and Labrador — we do not allow them to spend the money elsewhere. They could spend it all on education and training.
As individual operators and collectively, they have been working on a plan to spend some money on research and development within the industry. They have identified a number of areas in an evolving plan that has not yet been finalized. I would be surprised if the plan did not include a significant expenditure going forward on how we can better improve subsea control over wells.
That has not yet been decided, but as the regulator, we certainly want to see them do this. I am certain that as operators, when they see what happened to their sister operator in the Gulf of Mexico, they will want to do that as well. We put the guidelines in place to ensure that they spend the money, and they determine on which aspects of their operation they will spend the money.
Senator Lang: Once a determination is made, may the committee be informed of what is requested of these companies?
Mr. Ruelokke: We certainly can do that.
Mr. Pinks: Again, through our association with the International Regulators' Forum, various jurisdictions around the world involved in offshore oil and gas drilling and, in particular, deepwater drilling, have their own similar programs in place to funnel research dollars into areas of need. For example, the U.S. directs funds toward deepwater technology and its development. The U.K. and Norway spend considerable sums of money to look at all aspects of safety and environmental protection. A good network of sharing of information and technology has developed from these various research initiatives. Canada does not stand alone.
The Chair: I made a reference to the Ocean Ranger, which was in Hibernia. This was not a blowout, but rather a terrible accident.
Mr. Ruelokke: I can speak with some knowledge about that incident. I was a diving contractor, and we lost five of our employees in that accident.
The Chair: I am sorry.
Mr. Ruelokke: I spent considerable time working on the Ocean Ranger. It was a combination, as most catastrophes are, of poor procedures or failure to adhere to procedures, faulty equipment and bad decision making.
The Chair: What was the date?
Mr. Ruelokke: It was the night of February 14-15, 1982. The accident started in a very small way. A loading hose washed away from its normal position and struck a porthole in the ballast control room, which was the area where all valves to control the valve system for the rig were operated. Water on the control panel caused some valves to open and close on their own. It resulted in the rig listing.
However, the list was corrected. Power was shut off to the ballast control system. The valve was operated pneumatically, so they also shut off the operating system for the air control. All was well until about midnight, which was when the shifts changed. We do not know for sure what happened, but we believe the new shift of workers took a decision to reactivate the ballast control system in the panel. The Royal Commission into the Ocean Ranger disaster indicated that if the power to the ballast control system had remained off, they would have survived the storm and no one would have been lost. The decision taken to reactivate the ballast control system ultimately led to the disaster.
The Chair: That was the report produced by former Chief Justice Alex Hickman.
Mr. Ruelokke: Yes.
Senator Neufeld: Senator Lang asked some of the questions I wanted to ask. As both of you said, we will learn from the catastrophe in the Gulf of Mexico and probably readjust our rules and regulations accordingly. Unfortunately, people died.
Offshore drilling procedures around the world are relatively similar because they all learn from one another. I am interested in your responses to Senator Lang. If I remember correctly, you cement off the wells when terminating prior to the removal of the BOPs or operating with the BOPs. Why is that not as common amongst drillers around the world? Is offshore Newfoundland and Labrador — natural gas is totally different — exceptionally different than other places in the world, or did they do something they should not have done in the Gulf of Mexico?
Mr. Ruelokke: I believe it is the latter. Good oil-field practice and regulatory practice would have seen that cement plug installed, cured and pressure-tested prior to circulating out the mud column. That was not done. I am fairly certain that American regulations would have required that.
The Chair: The rumour is, as you say, that a waiver was given.
Senator Neufeld: That is much the same as onshore. It is not much different, especially when you are dealing with high pressure.
My other question is about relief wells. This is hypothetical, but do you foresee that relief wells will have to be drilled prior to wells going into production so that there is an alternative? I understand from the media that that this is what they are now doing in the Gulf of Mexico.
Mr. Ruelokke: They are drilling two relief wells. However, I think the question is whether we would envisage a situation in the future where we would routinely see relief wells drilled as part of the exploration program.
Our regulations do not require that now. It is an interesting balance because a certain amount of risk is associated with drilling any well into a hydrocarbon formation. If you decide to drill twice as many wells as you may need, you effectively double the risk. This is not to say that the regulations cannot change, but a good deal of discussion would take place about whether that is an appropriate step to take.
Senator Neufeld: Who is responsible in Nova Scotia or Newfoundland and Labrador when a well is capped or terminated? Is the oil company responsible forever for that terminated well or does the government accept some responsibility?
Mr. Ruelokke: My understanding is that the operator continues to have responsibility for the well.
Senator Neufeld: That is your understanding, or is that the fact?
Mr. Ruelokke: That is my understanding. We have not had to deal with that very often, so I will need to consult some of my folks in the office before I can give you a definitive answer. However, my understanding is that the operator retains responsibility.
Senator Neufeld: In Nova Scotia, you have a field that is actually capped and not producing. Who is responsible for that field? That is oil, right?
Mr. Pinks: We do have some oil, yes — some condensate oil that is capped. We will double-check that, but my understanding is the same as Mr. Ruelokke's, that the operator retains responsibility for that.
Having said that, there is a fully executed program to abandon a well. It requires a termination approval from the boards, which we review to ensure that they have been properly sealed, properly tested and that we are comfortable that the operators have done all their due diligence to abandon that well.
Senator Neufeld: You will let us know whether that responsibility then transfers to the agency that says that they are satisfied with what the operators have done, or whether even though they are satisfied, the operators will still be responsible. Senator Banks has questions that will follow on from that.
The Chair: Just to be sure, you undertook to give us a chart of the liability regimes.
Mr. Ruelokke: Yes, we did.
Mr. Pinks: We have those three things.
The Chair: Supplemented by Senator Neufeld. Will you make this information available to our clerk, Ms. Gordon, and then we will circulate it to everyone?
Mr. Ruelokke: Certainly.
Senator Banks: I have a short supplementary on that, just to ensure that Senator Neufeld's question is clear, because we have this situation on land when a field of wells has been shut down. On land, as far as we can see, there is a point at which the landowner assumes a certain amount of responsibility. We are asking that question now, and it has not been fully resolved. However, further to what Senator Neufeld asked, what happens if the company goes away? Can you let us know the answer to that question?
Mr. Pinks: We will look at that.
Senator Banks: Some oil companies have just gone away.
Mr. Ruelokke: Absolutely.
Senator Banks: Where does the responsibility lie then? What assurance is given? In the past, there was not any. Is there now assurance given that they have put some money aside to allow that if they go away, they will be able to look after the abandoned well field.
The Chair: Senator Banks, now we all know why you moved away from Alberta down here.
Senator Banks: I would never move away from Alberta, chair.
Senator Massicotte: On that same line of thought, if a layperson is listening to this discussion, I suspect he or she would say that there were good regulations in Louisiana, but someone messed up. I suppose that with every accident, such as some that have occurred in our past, someone messes up. Someone did not follow procedure.
Some would say that accidents happen — in our case, blowouts happen — so you have to contemplate and inspect all the best laid plans and procedures. I am sure that was the case in Louisiana. I am sure if this hearing took place in Louisiana a month before the blowout, BP would have said, "Do not worry, everything is controlled. We have procedures and supervisors. Do not worry, Mr. and Ms. America, we are okay."
If you have to accept that this incident will happen again, what do you say to Canadians? Do you say, "Well, we will have accidents in the future; we will have serious environmental impacts in the future. However, Mr. and Ms. Canada, do not worry; we have a plan, and this is why, for economic or social reasons, we should continue with offshore drilling"? How do you give comfort to Canadians to say that we know things will happen? Accidents happen; people do not purposely cause accidents. It is just human nature. How do you respond to that?
Mr. Ruelokke: I guess the response is about the risk assessment and management. Risks do exist. We try to ensure that the operators reduce them to as low as reasonably practicable. However, "reasonably practicable" means that, at some point in time, they can occur.
Do we have sound plans in place to provide remediation, first, to correct what has gone wrong, and then to protect the environment subsequently from that? We do, but, again, it is not an easy business to do. As long as we continue to produce oil from relatively remote areas in harsh environments, incidents that happen there will be much more difficult to deal with than they would be if they happened somewhere else. Unfortunately, that is where the resource is, and it is a resource that is very valuable to Canada — and to Newfoundland and Labrador in particular, in our case. It is a constant balance.
Senator Massicotte: Some people may listen to your answer and say that you are basically telling us that these things will happen and we might as well accept it, but I suspect that is not totally your answer. I think we should probably concentrate more on mitigation of damages. Accidents will occur, but perhaps we should put more emphasis on how to minimize damages. What are our plans to mitigate those damages?
We are having discussions about secondary wells. It is a good point. You obviously increase the risks, but is there a solution? There could be phenomenal impacts. Look at the Canadian response, and I am sure Americans are saying the same thing; many people are saying that we should not have any more offshore wells. We will just have to pay more for oil and gas. That is a choice of society. How do you respond to that or give comfort there?
Mr. Ruelokke: One of the things that, as regulators, I am sure all of us will be looking at is how the American government deals with what has happened. They are the ones that have suffered the impact. Their citizens have been killed. The oil is now polluting their shorelines. A tremendous economic cost has occurred.
My belief is that they will impose requirements for offshore drilling that are far more significant than the ones we presently have. We believe we have a good regulatory regime and good controls now. However, I think that will be taken a step further by the Americans to try to ensure that accidents happen much less frequently than they perhaps might have happened in the past.
As fellow regulators, we will obviously take similar actions. If we can provide an enhanced level of safety and comfort to people by making some technical or regulatory changes, if we can see evidence as to how that can work, I think collectively we will all do that.
Senator Lang: Is our regulatory system that is presently in place more stringent than that of the Americans, or are we equal as far as stringent regulations are concerned?
Mr. Ruelokke: I would say that we are similar.
Mr. Pinks: It is difficult to compare directly. The system that we have in place puts a great deal of onus on the operator to identify hazards, assess the risk of those hazards and identify how they will deal with those risks — either eliminate them or reduce them as much as reasonably practicable. There is an onus on the regulatory boards to review the plans of and studies done by the operators in that regard to ensure that they are robust and the operators have done everything that could be reasonably expected to reduce the risk to as low as reasonably practicable.
For any major accident that occurs such as this, a tremendous amount of learning will come out of it from equipment, training and regulatory perspectives. You will see changes in all three of those areas, which we will all embrace. The idea will be to try to keep the risks as low as possible.
The other part of the equation, as was raised by Senator Banks, is on the mitigation if something untoward should happen. An equal number of lessons will come out of the response in the gulf to the accident that did occur and the actions that could be taken to control the spill or to stop it sooner. I think we will all learn from that, and we will look, from our emergency response perspective, at what changes we can make.
It is similar to airplanes. We all know that we do not ever want to see another airplane crash, but we all sit in this room knowing that sometime another airplane will come down. We want to ensure that we learn from this very serious event and prevent this type of catastrophe from happening again.
Senator Neufeld: I appreciate that some differences in operations exist; the Gulf of Mexico does not have icebergs, but there are icebergs where you operate, and that would require different rules and regulations. Storms the size of Katrina are probably not as prone on the East Coast of Canada as they are in the Gulf of Mexico, so that would be different as well.
Once you are downhole, all those regulations across the world would be the same. I appreciate that different things happen downhole, but the regulations for downhole work is, I would assume, almost the same regardless of whether you are in the North Sea, the East Coast of Canada or in the Gulf of Mexico. Would I be correct in saying that?
Mr. Ruelokke: Yes, that is a fair assessment.
Senator Banks: A blowout preventer is a blowout preventer is a blowout preventer.
Senator Seidman: Among the many things that we have read about the gulf catastrophe, one is that the reason BP's control systems failed is that the drilling platform tipped over. To what extent do the measures that you have outlined to us here assume that the drilling platform is still in place? Are those safeguards less efficient if the platform sinks or capsizes?
Mr. Ruelokke: I mentioned in my presentation that you have to have the ability in a best-case scenario to be able to have the blowout preventer closed in the event that it loses contact with the drilling platform. On the Stena Carron, we have that. Whatever the reason for the loss of contact, if a storm comes through and blows the vessel off station so that she physically loses the connection with the BOP, for instance, then the BOP would close. It would do so automatically.
Another backup system is to have an acoustic transponder that can be put onto a supply vessel or any other vessel that can communicate with the blowout preventer and cause it to close.
The third backup system, which we have seen much of in the Gulf of Mexico, are the remotely operated vehicles, ROVs. Most drill rigs have ROVs as part of their equipment suite — the Stena Carron certainly does — but they can also be deployed from vessels of opportunity. We have seen that in the gulf. As many as 12 ROVs have been in action at any one time, and some of them have attempted to close the controls on the BOP but have been unable to do so.
In this situation, even though it is speculation at this point in time, it was not a problem with the control system but a problem internal to the BOP itself. It did not sheer.
Senator Seidman: We have talked about risks, mitigation and even about R & D. Senator Lang asked some questions that are very pertinent.
I must say that I found it quite distressing to read an article as recently as Monday when BP was struggling with remedies. The managing director of BP, according to the article, said, "there was 'no certainty' of success at the unprecedented depths at which they were being tried — one mile down in the Gulf of Mexico."
I must admit, I was rather aghast, and I thought, how is that possible? Is their R & D not sufficient enough? Are their protocols not sufficient enough? Do we not have some way to simulate these catastrophic events so that we have some degree of certainty that we can recover, even at these depths? Do you have something to say about that?
Mr. Ruelokke: Thinking back, and again with reference to the incident in the gulf, in the very early days, BP's solution was that a containment dome was fabricated over the course of a couple of weeks at considerable expense. However, it was done so with all the best engineering and technical skills they could deploy on it, I am sure. It failed for a very simple reason when it was put in place: Gas hydrates cause frost or ice crystals, which hydrates are a form of, and they prevented it from working.
A great deal of thought, effort, research and development goes into operational procedures when things are going as they should. However, when something goes wrong, the remedies have not had the same level of exposure to research and development, so it is trial and error for that remedy. As we speak today, top kill is not a new phenomenon, but in those water depths it certainly has not been done before. It is now under way to see if they can staunch the flow from the well that way.
The question is wisely pointing out that there are some real opportunities for research and development to make the industry safer and to be better able to deal with emergencies. Those are the sorts of things we will be talking to the operators about as they make their commitments to spend the research and development monies coming out of our jurisdiction.
Senator Seidman: Thank you. I think we might be relieved to know that maybe some emphasis will be placed on that aspect of things.
Are environmental protection plans and contingency plans available for public review before an authorization to drill is issued?
Mr. Ruelokke: Yes. All of our processes are public. The strategic environmental assessments that we do and the environmental assessments that the operators do are public documents.
Senator Seidman: Are they public before the authorization?
Mr. Ruelokke: Yes.
Mr. Pinks: With respect to the process of the Canadian Environmental Assessment Act, there is a public registry. For the environmental assessments done for a specific project, once the Canadian Environmental Assessment Act is triggered, they all become public documents.
The strategic environmental assessment that Mr. Ruelokke is talking about is something that we similarly do. That is in a new area that has not been subject to environmental assessment before. We will do a strategic environmental assessment ahead of issuing calls for bids in those areas so that we have a better understanding of the environmental parameters. Those documents are public as well.
Senator Frum: Mr. Pinks, in describing the emergency response of your board, you said that in the event of a spill, your response could range from monitoring, giving direction, and in the most severe cases, managing. We see that part of what is happening in Louisiana is the frustration of the public that the federal government has been very clear about not wanting to get involved in managing it, and the public has a strong desire for them to become involved.
Do you have some sense of the threshold or some guidelines about what involvement you would take and at what point?
Mr. Pinks: First, for any activity we authorize, we look to ensure that the operator has a very robust emergency response program in place and have identified the assets that they could deploy if they had to respond to a spill.
Normally our role will be to monitor what the operator is doing. With respect to offshore Nova Scotia, for example, the one producing project right now is ExxonMobil, which has tremendous assets available to itself worldwide. Typically, we would monitor what the operator is doing and ensure that they are taking every precaution and every action that we believe is necessary. If we feel that they are not doing as much as they should, we do have the ability to issue directives. We have a chief conservation officer who can issue directives to direct them, and they must comply by law to do certain things.
The very extreme case is envisioned in the legislation more around if a company was just to pack up and leave, such as if you had a very small company that could not withstand the financial impact. We have not dealt with that to date in our offshore operation, and I do not think Mr. Ruelokke has dealt with that, either.
Mr. Ruelokke: No, I have not.
Mr. Pinks: To drill offshore is a very expensive hobby, so we end up with the much larger companies. It is almost incomprehensible that a company such as an ExxonMobil will walk away, leave the spill unattended and leave it up to the board to manage. Their worldwide reputation would be destroyed. I think the eventuality of us having to manage a spill is very remote.
The Chair: While I think of it, Mr. Pinks, you had attached to your presentation a little map, which is actually very useful for us. Mr. Ruelokke, if you could send us one for your area, that would be helpful.
After looking at the Nova Scotia map, I cannot help but ask this question. You have the little yellow section there that is Saint-Pierre and Miquelon, and it seems to be right in river city between the two of you. Is drilling happening there?
Mr. Ruelokke: There was one well seven or eight years ago. The French delegation from Saint-Pierre and Miquelon came to visit us probably about two years ago and talked about perhaps having an opportunity for us to provide them some benefit from our experience. We agreed to go over that spring to conduct some seminars for them, but, for some reason, it fell through. I do not know if it fell through because they have not had any expressions of interest from operators who would like to have licenses there, but it is been a very quiet area. Just to the east of that is where the Stena Carron drilled the well that I referred to earlier in the Laurentian Basin. It was not in their area, not that close to it, but not very far from it either.
The Chair: It is fairly close to land. It just happened to be on the map. We are to understand no drilling is happening there now.
Mr. Ruelokke: Not at this point in time, no.
The Chair: As far as you fellows know — and you would know.
Mr. Pinks: We would know, yes.
Senator Dickson: I would like to compliment both boards. The personnel they have engaged is very professional and has a tremendous record over the past couple of decades. I hope that that success continues for you. It may be helpful just to make a brief statement for the fellow senators here as to the consultative process that went on in establishing the industry offshore, both with environmental groups and, in particular, the fishery. I believe, Mr. Pinks, a fishery representative is on the board in Nova Scotia, or at least there used to be.
Mr. Pinks: There used to be. We do have a fisheries advisory council that meets on a regular basis.
Senator Dickson: It would be helpful if you provided an organization chart as to the process and the advisory councils involved in both jurisdictions.
I have two questions; one is concerning page 5 of your brief, Mr. Pinks.
The Chair: Which one?
Senator Dickson: The Canada-Nova Scotia board. In the last paragraph, you say, "All operators have a contract with an environmental response organization, such as Eastern Canada Response Corporation." Who is Eastern Canada Response Corporation?
Mr. Pinks: They are a local organization that a number of the operators, I think both in Nova Scotia and Newfoundland, will rely on. They have a large amount of the spill response equipment and assets that would be available to be called upon, along with experts.
Senator Dickson: That is an umbrella corporation composed of several other corporations?
Mr. Pinks: Yes.
Senator Dickson: Once again, to reiterate, as you said before, the head contract is with the producer, not with the operator of the well. You do not have a contract with the operator of the well, or do you?
Mr. Pinks: It is with the person who applies for the authorization, which is the oil company.
Mr. Ruelokke: The oil company, not one of their contractors, no.
Senator Dickson: It may not be with the actual operator of the well. I just want to get that out.
Mr. Pinks: A company is on record as the operator of the well.
Mr. Ruelokke: They are the people who have the licence, so it is the oil company. They could subcontract someone else to actually carry out the work. For example, the Stena Carron normally has a crew of about 150 people. Chevron has the licence, and Chevron's personnel on that will probably be somewhere between seven and 10. Everyone else is a contractor of one form or another. That does not relieve Chevron from their obligation as the operator.
Senator Dickson: Coming back to support services of the government, on page 5, it says, "Transport Canada can also provide aerial surveillance services." Are you satisfied with the level of support that may be available from Transport Canada? Could the government provide more? In other words, what are the weaknesses? If any weaknesses exist in the services of the Government of Canada, please tell us now.
Mr. Ruelokke: For example, there is an international agreement for ice patrols. The ice patrol flights are flown by the United States Coast Guard, the Hercules aircraft, but the Canadian government participates in that. However, that does not provide the level of information the operators need on a day-to-day basis. A private contractor — in this case Provincial Airlines out of Newfoundland and Labrador — flies a daily ice flight over the areas of the production and exploration facilities. It provides forecasts of where ice movements might be in the next 24 to 48 hours. No government service is provided, but sometimes an enhanced level of service is needed, and the operators take it on to themselves to provide that.
Mr. Pinks: From Nova Scotia's perspective, at this point in time, given that it is natural gas that we are producing, we feel the level of support services are adequate because the condensate, if we were to have a spill or a release, does break up very quickly. The Eastern Canada Response Corporation is comprised of a few different agencies. Also Point Tupper Marine Services Company, which is also under contract to ExxonMobil, can provide similar equipment and personnel. In addition, they have two or three different environmental consultants available to them both internationally and nationally to respond to any spill. Condensate, unlike crude, is a much easier animal with which to deal.
Senator Dickson: My last question comes back to remedies and whether or not a strategy is presently being put together by the joint boards on the East Coast as to what remedies may be explored with the main operators on the East Coast in the event of a serious incident. Do you have active teams in place as a result of what happened in the gulf?
Mr. Pinks: Are you talking about financial remedies?
Senator Dickson: No, technical remedies.
Mr. Ruelokke: I mentioned that in my presentation.
The Chair: It was before you came in.
Senator Dickson: I am sorry.
Mr. Ruelokke: We put together, for the first time, a specific management team of board staff, no new staff involved but a different combination, to monitor on a daily basis the well that is being drilled in our area now. That is a direct response to what has happened in the Gulf of Mexico. That is the way we want to ensure that our oversight is totally efficient and successful.
Senator Mitchell: You mentioned that there were caps on the liability. I am wondering when those were established and whether an automatic inflationary increase applies or if there is a point in time at which it becomes reasonable to re-establish those. They go back to 1986, so a $250-million cap in 1986 is not the same as a $250-million cap today. Would it be worthwhile reinventing that cap?
Mr. Ruelokke: I might as well do a little lobbying while I am here. The compensation rates for board members — not for us but for our part-time members — were established in 1986, and, despite my best efforts, they have not been changed since.
Senator Mitchell: Okay, and what is your point?
Mr. Pinks: Just in terms of caps, there is only one cap on liability, and my understanding is that that is $30 million, and that is for absolute liability. That means that if something goes wrong and it comes from your facility, it does not matter why, how, whether you were negligent, at fault or whatever, you have to pay $30 million. That is guaranteed. After that, if you are at fault, so you are negligent in any way, there is no cap on liability. The law is that the polluter pays.
In terms of financial responsibility, when we look at granting an authorization, we want to ensure that the companies that will be either exploring or producing have the financial capability to respond to an event such as a spill, to be able to respond if they do not abandon facilities correctly at the end and to respond if they are not complying with legislation correctly. We want to ensure that the financial wherewithal is there, and we look at various instruments.
When it comes to exploratory drillings, we are looking for proof of financial responsibility of $350 million. The $30 million was put in the legislation as absolute liability back in the 1980s. The $350 million has been around for a while, and was agreed upon between our two boards.
I am presupposing, but one of the things that will come out of the disaster in the U.S. is looking at all of these things. The financial responsibility will be part of that. We will have to ask ourselves if it is sufficient. The message I need to leave you with is that there is no actual cap on liability if they are at fault.
If it was an earthquake that caused the blowout, that cannot be helped.
Senator Mitchell: I do not know whether I heard you properly earlier in your presentation, but you indicated that you receive a letter of credit or actual cash. Is that a deposit against those liabilities, or is that proof of the ability to do whatever it is that they might have to do in the event of a spill?
Mr. Pinks: It is liability for a number of factors. Within my statement — and I did skip through some of this fairly quickly — the basic objectives of financial responsibility include providing financial compensation to any party respecting claims attributable to the work or activity; restoring and preserving the natural environment, including the sea bed, while the worker activity is happening and after it is completed and abandoned; and ensuring that the operator will properly terminate the authorized work or activity, having regard to environmental, safety and other concerns.
We look for that financial wherewithal to cover a variety of liabilities, including a spill or a release.
Senator Mitchell: You mentioned that the condensate evaporates very quickly, but does it do specific environmental damage on its way into the atmosphere?
Mr. Pinks: Not into the atmosphere because you are talking parts per million.
Senator Mitchell: Does it damage the water?
Mr. Pinks: There would be two environmental concerns about the water. One would be if sea birds landed in the vicinity, they could come into contact with condensate. Again, it is different than oil; it is not the thick, gooey stuff. It would be much easier to clean, and these spill-response teams would go out there and look for that and tend to that. The other concern would be if fish were directly in that vicinity, such as being directly underneath the spill, some tainting may occur.
However, the environmental damage will be fairly short-lived in that the condensate will dissolve into the water, into the parts per million, and will evaporate and break up really quite quickly.
Senator Lang: I would like to go back to Senator Neufeld's observations and questions about the regulations around the world when you cap a well and what you do. I just want to have this clarified for the committee. Earlier, you had indicated that your understanding of what happened down in Louisiana would not have happened here because of the system that we have in place for enforcement. In other words, our enforcement is that much more stringent day to day as opposed to down there.
Mr. Ruelokke: No. The Minerals Management Service in the U.S. goes out and does inspections and audits on their drilling and production facilities in the same manner that we do, and probably with similar frequency. I said that, if what I understand to have happened is what happened, then it was outside of our procedures, and it would not have been permitted to happen here.
We physically might not have someone on board at the time. For example, I talked about the approval to drill a well. The approval to drill a well tells them specifically what they must do to maintain the barriers to any release of pollutants. We conduct routine inspections and audits. However, if the question is whether we have someone out there all the time to do that, the answer is "not ordinarily." We will with this particular well, but we have not done that in the past.
Senator Lang: To conclude this, then, we have already changed our procedures because of what has happened, and there can be that much more comfort for Canadians to hear that; is that right?
Mr. Ruelokke: We have certainly imposed an additional layer of oversight that will include on-site inspections at various times during the drilling of this well, in addition to what we normally would have done, yes.
Senator Banks: I have an observation on what we have been talking about. It will do us good to remember that I do not think that you could find, on paper, a regulatory regime anywhere in the world, including in Louisiana, which has holes in it. They are all pretty good, and I say "holes" advisedly.
This question boils down to a matter of inspection and the extent to which there is oversight and the extent to which it is intrusive, and who does it. In Louisiana, if our information is correct, the regulations require that such a well had to have a blowout protector on it, and it did. However, the blowout protector failed. It has a series of mechanisms that come across similar to scissors, which put crimps in the pipe, and that should shut off the flow when it happens.
The Chair: Let the record show that Senator Banks is making funny motions with his hands.
Senator Banks: It did not work. How often will that blowout protector be inspected and by whom, and what is the extent of the intrusiveness, if that is the right word? Does someone go down there and see it go "clang"? That is hard to do when it is a mile below the surface of the ocean.
It is a question of enforcement of the regime. You can have as much a regime as you want on a piece of paper. How and by whom is it enforced?
Mr. Ruelokke: The blowout preventer is function-tested. In other words, you observe the rams closing before it is run down on the riser casing and down onto the well head. However, you cannot physically function-test it then when you are drilling the well because you would shut it off.
Therefore, it is pressure-tested every 14 days to ensure that there is no loss of fluid or leaks in the system and that it has the appropriate pressure and the appropriate control system. That is done every 14 days.
Senator Banks: They might not have done that in Louisiana.
Mr. Ruelokke: They might not have. We have heard some speculation that a week or so prior to the incident of April 20, a ROV did see some loss of fluid from the blowout preventer.
Senator Neufeld: You say that two relief wells are planned in Louisiana now. Did I understand that correctly?
Mr. Ruelokke: Yes, they are drilling two relief wells.
Senator Neufeld: Can you explain the relief well for the public and for me? Is that drilled into the strata to try to take the pressure off in the ground, or are they drilling into the casing that is already set in place in the original well to relieve the pressure there so they can actually redirect the oil? Can you just explain that a little?
Mr. Ruelokke: Their intent is to re-enter the actual physical well bore of the well that is blowing out around the source of the hydrocarbon.
Senator Neufeld: Do you know how deep that well is?
Mr. Ruelokke: I believe the well is 18,000 feet.
Senator Neufeld: It is 18,000 feet, so they would be drilling into the casing somewhere around 18,000 feet; is that correct?
Mr. Ruelokke: That is correct.
Senator Neufeld: It is hard to give a visual.
The Chair: That is not a relief well as it would be here; they would be adjacent.
Mr. Ruelokke: If you had to have a relief well drilled, you would ordinarily use the similar principle. If the oil is being released through this well bore, you would try to re-enter that particular well bore.
Senator Neufeld: That is a relief well.
The Chair: My leniency is being taxed. I will give each of you two gentlemen a few seconds.
Senator Lang: I would like to examine the sense of time. When you drill a relief well, are we looking at a couple months, or three or four months?
Mr. Ruelokke: Yes, three months.
Mr. Pinks: It depends on the depth to which the original well was drilled. If it is a shallow well, it takes less time. The deeper the well, the longer the time.
Mr. Ruelokke: For the Macondo well in the gulf, they are estimating three months to finish the relief wells.
Senator Dickson: Do you have someone physically on the Chevron well in Newfoundland 24 hours a day, 7 days a week?
Mr. Ruelokke: No, we do not.
The Chair: The fees are too low.
Senator Dickson: Well, we can easily handle that.
Mr. Ruelokke: We do routine inspections. We are out there at specific times for specific purposes that are part of the program. We do routine inspections every three to four weeks, and we make visits there. I will spend Saturday and Sunday there to do my own surveillance. However, we do not have someone there 24 hours a day, 7 days a week.
Senator Dickson: Would you give consideration to having someone there 24 hours a day, 7 days a week?
Mr. Ruelokke: We will look at that. If, when we know what happened in the Gulf of Mexico, we learn that the regulator may have helped to prevent the situation, that is something we will consider.
Senator Dickson: Sometimes governments overreact. Having someone out there 24 hours a day, 7 days a week could instil more confidence in the process. This is your chance to lobby for anything. Whatever it is, put it on the table.
Mr. Ruelokke: We want to ensure that the operator is always aware that they are responsible for the safe conduct of their operations. You could fall into a trap if you had someone there 24 hours a day, 7 days a week. You could raise the expectation that as long as the person from the board is okay, everything is fine. That has to be considered as well.
The Chair: We have had a tremendously enlightening session. Thank you, Mr. Pinks and Mr. Ruelokke.
Mr. Pinks: Mr. Chair, you asked me a question at the very beginning about the percentage of production in offshore Nova Scotia. Through the luxury of a BlackBerry, I learned that my answer must be corrected.
When Deep Panuke comes in, it will be closer to 4 per cent or 5 per cent of Canada's overall natural gas production. I was a little overly ambitious as to our contribution.
The Chair: Thank you for that.
(The committee continued in camera.)