Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 10 - Evidence - July 8, 2010
OTTAWA, Thursday, July 8, 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 and gas exploration and drilling: the current status of operations and applicable regulatory rules and regulations).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good morning, ladies and gentlemen. Before I call on our witnesses, I have agreed to give Senator Banks time to place on the record information that is relevant to our work. As well, I ask all members of the committee to remain for 10 minutes after we have heard from the witnesses so that we might discuss important matters in camera.
With your permission, I ask Senator Banks to take the floor.
Senator Banks: Thank you, Mr Chair. Members of the committee will recall that in our energy study we heard from Dave Core, Director and Board Chairman of the Canadian Association of Energy Pipeline Landowner Associations. He made the point that the landowners, over whose land the pipelines for energy distribution run, are not always happy with what happens once the pipeline is removed and with who is responsible for dealing with the residual problems.
Subsequently, we heard from Gaétan Caron, Chair and CEO of the National Energy Board, who disagreed with some of those contentions and that the National Energy Board is completely neutral in its regulatory role. Mr. Core and his organization told us at the time that in 2007, they made a request to the National Energy Board through Access to Information. I will quote from that request. The association asked that they provide a
. . . record of all regulatory and legislative changes since September of 1985 in relation, in particular, to the issues of pipeline abandonment and negative salvage value, and . . . .
. . . all other regulatory and legislative change since September of 1985 in relation to pipelines that fall under the NEB Act.
I asked Mr. Core to let me know when he received a response to his request. I have a copy of the response before me and will table it because members may find it interesting reading. The cover letter is from the National Energy Board.
The Chair: Is it from Mr. Caron?
Senator Banks: It is from Claudine Dutil-Berry, the Access to Information and Privacy Coordinator at the National Energy Board.
The Chair: What is the date on the letter?
Senator Banks: The date is March 11, 2008. It says:
. . . we had identified records which may be relevant to your request. As these records contained information which originated with another government department, government policy required that we consult with them. Those consultations are now complete.
Attached, please find copies of the records you requested.
Further down, the letter states:
This is the final disclosure package with respect to your request.
I think members may find this package interesting. A cover letter is from the National Energy Board. It is a copy of a letter addressed to the General Counsel of the Privy Council Office Section. It is dated February 25, 1986, because that was part of the request, and you can see that it is redacted, and it looks like heavy reading here.
The Chair: Some wag said one disagrees with Mr. Caron at their own risk and peril.
Senator Banks: These are the pages after the cover letter. They are entirely redacted; 300-and-some-odd empty, blank pages. That is the response of the NEB to this request for information from the Canadian Association of Energy and Pipeline Landowner Associations. I will give it to the clerk so we have it as part of our record, chair. I thank you for your indulgence, colleagues.
The Chair: This information will be filed with our clerk, Lynn Gordon, and will form part of the record of our general study. I think members may want to have a look at it and we may want to question even you perhaps, Senator Banks. In any event, we reserve all rights because we have not seen the document. You and I have a good understanding of trying to make this study a good study.
Senator Massicotte wanted to say a word.
Senator Massicotte: I want to make sure what you are saying is that the pages are blank, so no information was given, contrary to the request. Was it perhaps a clerical error?
Senator Banks: I cannot say the pages are blank because the page numbers are there and there is a code of some kind on each page, which I assume refers to a section of the Privacy Act. I do not know what the code means. It probably means that they cannot tell us this. The pages are empty, in respect of the information that they contain.
Senator Massicotte: You do not know if the blank pages are a technical error; someone may have pressed the wrong button on the computer and the pages came up like that?
Senator Banks: No; if you look at them, you will see those pages, or what were intended to be sent.
The Chair: We will have a look at the information. We thank you for your excellent detective work.
We now continue and hopefully conclude our study today on the status of Canada's offshore oil and gas exploration and development industry, in particular with regard to the Pacific coast, the Arctic and the Atlantic coast. We have heard numerous witnesses and have determined that the only action that is presently taking place in the Canadian offshore appears to be in the Atlantic. It has been pointed out to us, however, that there are different jurisdictions regarding licensing and the various regulatory rules and things that apply. In regard to, I think, it is north of 60 degrees lattitude, there is jurisdiction of Canada's Department of Indian and Northern Affairs.
This morning it was the feeling of the steering committee and all of us when I consulted with you that we should hear from these gentlemen from Indian and Northern Affairs Canada, to close the circle. I welcome, on your behalf, Patrick Borbey, Assistant Deputy Minister, Northern Affairs; Michel Chenier, Director, Policy and Coordination, Northern Affairs; and Kerry Newkirk, Director, Oil and Gas Management, Northern Affairs.
I believe that Mr. Borbey will make an introductory statement and then all three of you are ready to try to answer our questions.
I believe you have been following our proceedings and have a general idea of where we are, but I will say for the record and for the people joining us via the CPAC network and also on the World Wide Web that this special study was a response to public information in the way of a poll that suggested that, following the Deepwater Horizon disaster in the Gulf of Mexico on April 20, all Canadian offshore activity should cease and desist. For the people responding, some wanted this activity stopped for a temporary period and others permanently.
Inasmuch as the economies in the Atlantic provinces depend on this industry to a large extent, we were concerned about the potential for an overreaction, or maybe throwing the baby out with the bathwater. We thought it was fair that the Senate engage in fact-finding to inform Canadians about the real state of play, if there is anything to be worried about or what the situation is at present.
We have been told there is no drilling or related activity taking place in the North, although we understand there are plans afoot, licences or other permissions granted and a review of applicable regulations under way. To complete the picture, we thought it would be a good thing to hear from these individuals, as I said a minute ago.
So you know who you are interacting with this morning, I am Senator David Angus. I am from Montreal, Quebec, and I am chair of this committee. We have our deputy chair from Alberta, Senator Grant Mitchell, and our two support staff from the Library of Parliament of Canada, Marc Leblanc and Sam Banks.
We have another Banks in the room, and that is Senator Tommy Banks from Alberta, my predecessor as chair of this committee. From the Yukon Territory is Senator Hector Daniel Lang. Our clerk is Lynn Gordon. We also have Senator Richard Neufeld — prominent in the news this morning — former minister of matters such as natural resources in British Columbia; Senator Paul Massicotte from Quebec; Senator Linda Frum from Toronto, Ontario; and Senator Bert Brown from Alberta.
We are anxious to hear from you, gentlemen. Mr. Borbey, you have the floor.
[Translation]
Patrick Borbey, Assistant Deputy Minister, Northern Affairs, Indian and Northern Affairs Canada: It is my pleasure to be here, Mr. Chair.
[English]
The Chair: We have your statement, in both official languages.
[Translation]
Mr. Borbey: I am Patrick Borbey, Assistant Deputy Minister, Northern Affairs Organization, Indian and Northern Affairs Canada.
[English]
I am responsible for the Northern Oil and Gas Management Program in the department.
It is my pleasure to appear this morning. I am accompanied by Kerry Newkirk, Director, Oil and Gas Management, Northern Affairs, and Michel Chenier, Director, Policy and Coordination, Northern Affairs.
This morning, I will provide an opening statement describing INAC's northern oil and gas responsibilities, and then we will be glad to respond to questions.
Before I begin, I note that you have heard from a number of my colleagues from federal departments, including Natural Resources Canada and Canada's offshore energy regulators. We have carefully reviewed the proceedings of those meetings. They yielded very useful information to assist in understanding Canada's offshore oil and gas regimes, as well as the implications of the recent tragic incident in the Gulf of Mexico on Canada's offshore oil and gas operations.
[Translation]
This incident and the ecological disaster it has caused are raising many questions about the policies and procedures applied by our department in managing northern oil and gas. Since April 20, we have been working tirelessly on informing the public about the practices and policies involved in managing Canada's natural resources.
[English]
Managing the exploration and development of Canada's oil and gas resources on federal lands in the Northwest Territories, Nunavut and northern offshore is a federal responsibility assigned by federal legislation to the Minister of Indian Affairs and Northern Development Canada.
INAC, our department, works in partnership with northern and Aboriginal governments and organizations to govern the allocation of Crown lands to the private sector for oil and gas exploration, develop the regulatory environment, set and collect royalties, coordinate relevant science initiatives and approve benefit plans before activities actually take place.
These functions are managed by a group of approximately 30 professionals located here in the nation's capital, as well as in Yellowknife.
[Translation]
The issuance of oil and gas licences is market-based. The private sector explores and develops Crown lands. In return, the State collects fair royalty fees on the profits yielded by this development.
The investment that the industry provides is a source of economic opportunities for communities, and of direct or indirect benefits for the northern and Canadian economies.
[English]
INAC is also involved actively in the mandated Environmental Studies Research Fund that finances, through levies to licence holders, environmental and social studies pertaining to oil and gas exploration, development and production activities on Canada's frontier lands. We are also involved in shaping research conducted through Natural Resources Canada's program of energy research and development and, specifically, its frontier oil and gas portfolio.
[Translation]
Internationally, the department advocates for oil and gas issues through the Arctic Council, a high-level intergovernmental forum, which provides a mechanism for settling common problems that Arctic governments and communities have to deal with. The council's main roles are protecting the Arctic environment and promoting sustainable development for the economic, social and cultural well-being of the North.
[English]
Petroleum resource management on Canada's federal lands north of 60 degrees is exercised under the two federal statutes: The Canada Petroleum Resources Act, CPRA, and the Canada Oil and Gas Operations Act, COGOA.
Management responsibilities pursuant to the Canada Petroleum Resources Act rest with the Minister of Indian Affairs and Northern Development Canada along with the Minister of Natural Resources Canada. Our minister reports to Parliament on the administration of oil and gas lands in the Northwest Territories, Nunavut and the northern offshore on a yearly basis.
[Translation]
The National Energy Board administers the Canada Oil and Gas Operations Act, the technical regulations made under the act and other similar aspects, such as the Canada Petroleum Resources Act. This way, roles can be divided, with our department handling policies, property management and licence fees, and the National Energy Board managing the technical, regulatory and consulting aspects. This governance structure is nothing new, as it has been in place since the early 1990s.
[English]
Other acts concerning land use and environmental protection are fundamental to the sustainable development of oil and gas resources in the North. These aspects are managed through co-management boards set up pursuant to the land claim agreements in the North and by INAC.
Specifically, in the Inuvialuit settlement region, projects are subject to screenings by the Environmental Impact Screening Committee and, potentially, to more intensive environmental review. The Canadian Environmental Assessment Act also applies in this region. An environmental assessment under this act is triggered when an application is made to the National Energy Board, as federal regulator, to undertake an offshore project.
[Translation]
The issuance of oil and gas exploration licences comes under the Canada Petroleum Resources Act. The process consists of four steps. First, preliminary consultations are held with the governments, the aboriginal organizations and communities, territorial governments and expert panels in order to assess the level of support for granting licences in a specific region, to determine exclusion zones and to confirm the conditions of the licences.
[English]
Second, there is a call for nominations, which allows industry to specify lands of interest for inclusion in a subsequent call for bids. The third step is the actual call for bids, which is open for a statutory minimum of 120 days. Finally, the last step is the issuance by the minister of an exploration licence, following acceptance of a winning bid.
In the North, rights issuance cycles have been established as annual initiatives in three regions: the Mackenzie Delta-Beaufort Sea, Central Mackenzie Valley and the Arctic Islands of Nunavut. This process depends on critical input from the communities and stakeholders. For the Beaufort Sea, INAC has been working with the Inuvialuit institutions and communities since 1984, following the signing of the Inuvialuit Final Agreement. Calls for bids have been held annually in the Beaufort-Mackenzie region since 1989 with this support and informed by Inuvialuit concerns.
Exploration rights are issued using an open, competitive bidding process. The planned work expenditure for the licence, or "work expenditure bid," is used to determine the successful bidder who is issued an Exploration Licence of up to nine years. The licence confers an exclusive right to drill for oil and gas and to apply for a production licence to produce discovered resources. Approval of activities such as drilling is managed by the NEB and includes a project-specific environmental assessment pursuant to the Canadian Environmental Assessment Act, as mentioned earlier.
The successful bidder is expected to spend the dollar value of the proposed work during the term of the licence, and is required to drill one well. The work expenditure approach differs from mature oil and gas regions, such as Alberta, where a "cash bonus" land allocation is the norm. The Northern system is designed for frontier regions where exploration potential is poorly known and where there may be a lengthy delay between exploration and realizing profits from production. Work expenditure bids are also used in offshore Eastern Canada.
[Translation]
Before issuing licences in the northern offshore areas, our department's officials ensure the participation of northern aboriginal communities. During the decision process, emphasis is placed on the protection of environmentally or culturally sensitive areas. To do this, Indian and Northern Affairs Canada relies on scientific and traditional knowledge to make informed decisions when issuing licences.
[English]
The Beaufort ecosystem is well studied; it has been subject to multiple studies under the Environmental Studies Research Fund and the federal Program on Energy Research and Development, as well as recent programs under ArcticNet and the International Polar Year program. These research initiatives, combined with information generated through industry activities over the decades, provide an extensive scientific basis available to INAC, other government departments, companies planning operations and regulators.
Furthermore, information is assessed with the aid of the Petroleum and Environmental Management Tool. This web-based tool integrates key information on environmental and socio-economic factors. The northern oil and gas branch uses the tool to engage with stakeholders and inform decisions regarding oil and gas rights issuance. For example, areas identified as having particularly high environmental or cultural sensitivity are identified on maps within the tool.
[Translation]
We use consultations and panels of experts to determine these values. One of the effects was that large regions of the Beaufort Sea were kept off the market, including all areas currently suggested as marine protected areas and the coastal waters along the Yukon shoreline.
[English]
In 2007-08, the Minister of Indian Affairs and Northern Development issued rights extending to the deeper water areas of the Beaufort Sea, which were not previously explored. A total of six parcels are currently subject to a total work commitment of close to $2 billion.
[Translation]
To date, deep-water activities have been focussing on seismic exploration and on the planning of a potential drilling program that would take place within a nine-year period, which is the licence length under the legislation. It is understood that this drilling will not be undertaken before 2014, based on the approval of the National Energy Board.
[English]
The minister is considering a decision to issue an additional licence in the Beaufort Sea as a result of a call for bids that closed earlier this week. The results of the process will be announced shortly.
[Translation]
In closing, I would like to point out that our department works in close collaboration with its partners on management decisions regarding northern oil and gas and, it uses the latest scientific knowledge to do so.
[English]
INAC will continue to work hand in hand with Natural Resources Canada and the National Energy Board as well as other organizations to incorporate all the information and knowledge that will emerge from the investigations and reviews, both in Canada and the United States.
Mr. Newkirk, Mr. Chenier and I will be pleased to respond to your questions. Thank you.
[Translation]
The Chair: Thank you, Mr. Borbey. First of all, I would like to congratulate you on your excellent grasp of the two languages.
[English]
It was an impressive and helpful presentation.
Before I go to my colleagues for questions, I will ask you one myself. I do not know whether it is a function of the current discussions on Bill C-9 or my overload on all these different cross statutes, but listening to your discussion of the applicable legislative framework, there are a number of acts in play. I want to have your comments as to whether the legislation works smoothly, or whether there is a risk that everyone else thinks the players are on first base when they are elsewhere — a sort of a falling between the chairs, if I can use that expression.
Can you comment on that situation? The legislation seems to be a maze. I think Senator Banks likes using the expression, "pot of spaghetti," and I agree with him. Sometimes for senators to find our way to the final decision maker is not easy. In this regard, and given the sensitive area you are responsible for, I want to hear you comments.
Mr. Borbey: Our minister has commented on, and has taken action with respect to looking at, streamlining the regulatory system in the North. In the case of oil and gas management, we find that the regime is fairly straightforward and well understood by industry and other stakeholders; it works well as far as we are concerned. Again, my colleagues may have comments about specific elements of the acts or the regulations and how they work.
Michel Chenier, Director, Policy and Coordination, Northern Affairs, Indian and Northern Affairs Canada: As far as our jurisdiction is concerned in the North, we do have two main sectors of regulators, if I can refer to them as that. We have the National Energy Board, together with an overlay of regimes that fall out of land claims. The two work well together in a coordinated fashion and we are satisfied that they yield the best result.
The Chair: I comment in passing that in the early days when we seemed to wake up to the need to protect these pristine waters and this sensitive ecology in the North, the Arctic Waters Pollution Prevention Act, AWPPA, and companion legislation were brought in to our books. At that time, I was an active practitioner in the area and it seemed to me that Transport Canada and the Canadian Coast Guard had supervisory oversight. I do not see these two bodies appearing too much anymore in these laws. Do they have a role still and is there any risk of cross-confusion?
Mr. Borbey: There is a role for the Canadian Coast Guard. If you want to talk about emergency preparedness and responding to spills, the Coast Guard has a role to play. Under the AWPPA, which has been expanded to the 200-mile limit by the government, there are also provisions that kick in, or come into effect, whenever there is oil exploration and development activity, including with respect to liabilities and bonds. That is also an area we can open up, if you wish.
The Chair: That is fine. Those are good comments. Colleagues, I will go to questions, beginning with Senator Mitchell.
Senator Mitchell: Thank you very much. We have been spending a great deal of time in the Standing Senate Committee on National Finance, reviewing Bill C-9. The chair referred to that bill. Bill C-9 has provisions that some of us believe will profoundly weaken the Environmental Assessment Regulations as they stand now.
Mr. Borbey referred to the Canadian Environmental Assessment Act in his presentation. Have you looked at these new Bill C-9 provisions and considered the scoping provisions within them that potentially will allow the minister to limit significantly the scope of a review of a project? Do you think that provision might affect how projects in the North are reviewed?
Mr. Chenier: As far as the projects in the offshore area are concerned, the Bill C-9 components do not change the current regime. The offshore has always been an area that has been fairly clearly defined as far as what is part of the scope is concerned. We are talking about projects that are, in the case specifically of the Beaufort Sea, far offshore. The scope and the matters assessed have always been extensive and we expect them to continue to be extensive as we move on.
Senator Mitchell: We had testimony from a company — I think it was Chevron — that said they anticipate having a relief well drilling ship to their area off Newfoundland and Labrador within 11 days. That equipment will not be the case probably in the North, in Arctic waters. Are there specific provisions that need to be undertaken and required of companies for offshore drilling in the Arctic area that are different than those for offshore on the East Coast? One idea that has been kicked around is drilling a relief well at the same time that they drill the regular well. Have you given consideration to that idea?
I think we all know the Arctic is a much harsher environment than the East Coast. It is colder; the water makes it more difficult to clean up and it is difficult to bring equipment there to clean up. Have you given thought to that idea?
Mr. Borbey: Yes; this matter is under the jurisdiction of the NEB, but I can comment. First, there has been drilling in the Arctic in the past. There has not been drilling in the recent past, but there has been drilling, and the provisions for relief wells have been respected. The approvals were granted by NEB, contingent on having that capacity to be able to drill a relief well.
The NEB has stated that nothing has changed. Whatever plans a company may come forward with in the future for drilling in the Arctic will have to be consistent with the current policy and the current requirements for a relief well. How a relief well can be drilled technically, whether it is drilled concurrently, is a matter for people who have that expertise to decide. It also is something that industry has to take into consideration when it plans its activities and its expenditures, including the procurement of whatever platforms it will need to drill eventually.
Senator Neufeld: For clarification on one point, at the bottom of page 2 in your presentation, it says that "Management responsibilities pursuant to the Canada Petroleum Resources Act rest with the Minister of Indian Affairs and Northern Development Canada, along with Natural Resources Canada." Then the next paragraph says "The National Energy Board administers. . . ."
Do you mean that "management" is "developing" a regulatory framework? To me, management is managing the regulations, so I want to make sure that there is a division between developing and administering. Am I correct in that interpretation?
Mr. Chenier: That is a correct interpretation. The clarification I offer is that although the National Energy Board is responsible for COGOA, our minister has the legislative responsibility as it relates to any changes to regulations in bringing those forward and any changes to the act itself. There is a clear separation, as I think you have heard from Mr. Caron in the past, between CPRA — which is basically what Mr. Borbey referred to earlier in his opening statement and what you heard from Mr. Caron in the past.
Senator Neufeld: Second, regarding "set and collect royalties," does INAC keep the royalties? When you say "collect," does that mean they go directly to finance?
Mr. Borbey: They go directly to the Consolidated Revenue Fund.
Senator Neufeld: I did not hear much about spill response and how a spill is handled. You said the Canadian Coast Guard will handle it. We have had testimony from the Canadian Coast Guard in relationship to offshore and to the Beaufort, but maybe you can explain to me how that response takes place. Who is in charge? Who makes the decision? How do you decide who makes the decisions? We have INAC, Natural Resources Canada, the NEB, a couple of other jurisdictions, and the Canadian Coast Guard. What I can see with respect to the gulf is that everyone says: Yes, I am in charge but when it comes to separating everything, everyone is in charge and no one is in charge.
I want to hear from you: Who is in charge?
Mr. Borbey: We will provide you with a detailed answer to that question. It is a complex issue, but it is fairly clear in terms of the responsibilities. When I was talking about Coast Guard, I said they have a role to play in certain circumstances. They do not have the lead in terms of dealing with a spill. That lead is generated through oil and gas exploration. Mr. Newkirk can explain the details.
Kerry Newkirk, Director, Oil and Gas Management, Northern Affairs, Indian and Northern Affairs Canada: No drilling is occurring right now, so a lot of what we are doing is preparing for the eventual development and drilling in the area.
As part of the environmental assessment process that the NEB conducts, companies are required to submit their plans for an emergency, or emergency response. Similar to other regimes and similar to the Gulf of Mexico incident, the first line of defence is the response of the company itself.
There is a 24-hour spill response line in the North wherein that spill is reported, and if it is known to be from a drilling rig or drilling activities, the lead agency is the National Energy Board. Clearly, they step in. They have the engineers, they have the experts, and they will monitor the spill at that point. If they are dissatisfied with the response, they can bring additional resources from the area or from other operators, and the cost will be recovered from the company.
As a third tier, if the NEB is completely dissatisfied with the response, the NEB can take complete control of the situation, and that was contemplated in the Gulf of Mexico at one point during the crisis there.
With respect to planning and getting ready for any eventualities, INAC chairs a Beaufort Sea emergency preparedness working group. This group meets in the North twice a year to discuss exactly these types of scenarios. For example, Imperial Oil presented a preliminary response plan to that group, and the plan was discussed at that point. We understand that industry is keen to involve itself in this group, and to participate in the planning and organization of emergency response.
I mentioned earlier there is no drilling now. We have experience in the past with drilling, and those activities come with the resources to plan, and have those contingencies installed, in advance of a spill or an incident like the one in the Gulf of Mexico.
Senator Neufeld: We generally hear that everything is well in hand. I am not sure I am comfortable with what I heard because, initially, the company is responsible. Then, if the National Energy Board does not think the company is doing the right thing, the NEB can come in, review the situation and say that something else should be done. If oil is still spewing some place, after a while the NEB can come in and say it will take over totally.
One thing that has been demonstrated in the Gulf of Mexico, at least to me, is that everyone wants to be the chief and no one wants to get the work done, and I have had some experience with federal government agencies on land that have not been all that successful. There is a need to review closely how that chain of command happens. I fully believe the company should be fully on the hook for everything, but someone has to be the chief. Someone has to make the decisions. I am still not sure that the process you described makes me feel good.
The Chair: You have given us an objective comment, which is insightful, but I hope these people have a chance to comment on it, at least, if they want to.
Mr. Borbey: We will learn a tremendous amount through the recent incident, and it will probably reveal weaknesses in regimes across North America. The NEB has launched this review, and these matters will be included in that review, and we will learn and adjust as required.
We can also table with the committee a description of the working group we have talked about in terms of planning for an emergency. We have that description available if you want further information.
The Chair: Can you give us that information through the clerk, please?
Senator Neufeld: The last question I have is on page 4. You say "The minister is considering a decision to issue an additional licence in the Beaufort Sea as a result of a call for bids that closed earlier this week." When was that bid called?
Mr. Borbey: I described the process earlier. We held all the consultation. The first step was the consultation, and it received support from industry, from the Inuvialuit and other stakeholders. Then we went to the call for nominations with industry, which identified the parcels they were interested in. Then there was a 120-day process. That bid was called significantly before the incident in the gulf.
We are following the same process we followed since 1989. Basically, this bid is the conclusion of a predictable annual process for industry and stakeholders.
Senator Neufeld: Can you give me the date it was called?
Mr. Newkirk: Perhaps it was February. We can provide the committee with the exact date.
Senator Lang: I want to follow up on the last question of Senator Neufeld and the question of the bids and the interest in the Beaufort. You say bids have closed. Can you tell us whether any bids have been submitted?
Mr. Borbey: I cannot share that information at this point. It is advice to the minister, and the minister will have to consider the information based on what industry has bid and then make a decision.
Senator Lang: With respect to the new parcels that may be, or even have already been, allocated we are finding out that there is a big difference between deep-water drilling versus shallow-water drilling. It is my understanding that the majority, if not all, of the wells in the Beaufort are shallow-water drilling wells. When we talk about deep-water drilling in the Beaufort, how deep are we talking about for depth? Are we talking 2,000 feet? Are we talking 2,500 feet?
Mr. Newkirk: It depends on where you define shallow and deep. In the gulf, they consider anything less than 350 metres to be shallow water.
In the Beaufort, there are a number of gradients, and you are right that most of the drilling has been shallow water around the range of 200 metres or less. The deep-water parcels are the continental shelf break, so there a gradation underneath those parcels ranging from 200 to 1,000 metres in water depth.
Senator Lang: Can you say those numbers again, please?
Mr. Newkirk: What we call the deep-water leases go over the continental shelf break, and the water depth there is at or about 200 metres down to about 1,000 metres, within the bounds of the licences.
Senator Lang: From a deep-water point of view, it is not deep, compared to the gulf or other areas?
Mr. Newkirk: For example, the Deepwater Horizon water depth was 1,500 metres.
Senator Lang: Our concern is something happening that is sometimes referred to as an incident and sometimes as a disaster, depending on the scope of the situation and if it develops. Going back to the question of the spill and our ability to cope with a spill in the Arctic, can you elaborate on the tier-three situation? If it occurs, from your point of view, are you well equipped to handle it? The concern, from our point of view, and I think I can speak for all senators, is time. If we have a blowout, what is our ability to cope with that blowout? Every day that goes by, a blowout is that much more of a concern to all of us and that much more of an effect on the environment.
With your terms and conditions, when you issue a permit, is there a time period, such as a three-day time period, where, if a relief well is required, they have to order that relief well right away? In other words, the company cannot wait two weeks and then order the ship in, or whatever has to be brought in because of the distance and whatever. Perhaps you can tell us a little more about that, how we differ in the Arctic versus, say, the Eastern seaboard.
Mr. Borbey: I will start and turn to Mr. Newkirk for comparisons with the seaboard. As a reminder, the licence conferred through our rights issuance process does not automatically give the company the authorization to drill. The licence allows the company to go forward to the NEB with a proposal, and the process is normally a two-step one.
First, seismic and other scientific work is done, so that work has to be approved, the terms and conditions there. It can be subject to environmental screening. Then after that, at some point, an application for drilling will be filed with the NEB, and then the NEB decides whether the necessary safety measures are in place, and the capacity of that company to be able to deal with whatever incident may happen, a blowout or anything that may happen. That licence will not be issued by the NEB unless it is satisfied that the company is prepared and capable of responding to whatever may happen.
Mr. Newkirk: With respect to the historical implementation of the same-season relief well, it has not been a question of ordering it from another theatre. The same-season relief has meant, because of the distances involved, that a second drilling rig was available within the Beaufort Sea, for example. It is not a question of bringing it from the gulf or further south, historically. Again, all of these measures are currently under the NEB review.
Senator Lang: That is some comfort, that it has been a requirement in the past and obviously will be in the future.
[Translation]
Senator Massicotte: In your statement, you talked a lot about ecosystems, including the Beaufort system, which has been extensively studied, as well as about environmental management tools. You are reputed to have a solid knowledge of the Northern ecosystems and to take appropriate measures for protecting this environment.
We do not possess your knowledge about crisis management in the case of an accident or about the potential consequences. Could you tell us about what kind of consequences could arise if there was an accident and about how they would be managed? Since the cold traps oil under ice, we would require other ways to take action than what is currently being done in Louisiana. Would oil recovery be possible?
Mr. Borbey: We cannot generalize because of the variety of accidents that could occur. For instance, an accident could result in an oil or gas spill that would not reach the surface. There are many possibilities. The depth at which an accident occurs could dictate what kind of action is taken.
Senator Massicotte: Let us use the example of a major accident, like the one BP is involved in. How would that be managed?
Mr. Borbey: If they are unable to manage the problem with all the resources currently available in the Gulf of Mexico, we can imagine that in the Arctic the challenge would be that much bigger. The first priority is to ensure that preventive measures are taken to avoid this kind of accident. Does the risk of an oil spill at sea exist? Yes. Would we be able to take action? Yes, but the conditions would be more difficult than those in the Gulf of Mexico.
Senator Massicotte: We are well-informed on what is going on in the Gulf thanks to television reports. About 30,000 people are working every day on repairing the damage with all kinds of absorbents for soaking up the oil, but what would we do in ice? What kind of technology would allow us to manage that?
[English]
Mr. Newkirk: Mr. Chenier can give more information in terms of specific studies funded through the Environmental Studies Research Fund as well as a program for energy research and development.
I am not an expert in these areas. It is the domain of the NEB to determine what is safe and what is not in terms of specific activities, but a considerable amount of research is taking place. We understand that ice, depending on the type of spill, can help the process by corralling oil and keeping it contained within an area. There have been examples of moderate spills where the oil has been frozen in the ice, allowing burning in the spring, for example.
The research is continuing in this area. We have faith that the research will support an NEB decision with respect to the safety of operations in the Beaufort, in and around ice, but I am not the expert on oil interactions with ice. We rely on the NEB for that kind of counsel.
[Translation]
Senator Massicotte: What your presentation led me to believe is that you are not sure, that it is not your responsibility; but at the same time, you appear to be very concerned about the environment and very knowledgeable about ecosystems in the Beaufort region. On the one hand, you tell us to trust you and, on the other hand, you do not really provide many answers. Even witnesses have told us that technology for capturing oil is currently not available. Some reports on the Exxon Valdez spill say that, 20 and even 30 years down the line, consequences are and will be felt. We need to find a way to reassure Canadians by letting them know that there is certainly a risk of accident involved, since telling them the opposite would be unrealistic. However, we also need to assure them that we know how to manage the consequences by providing them with a great deal of information and by being very transparent.
Mr. Borbey: I certainly agree with you. The Gulf of Mexico incident was unimaginable a few months ago. It has completely changed our perspectives. The National Energy Board's review, which will be completed in the coming months, could certainly provide us with guidance in this area. This is an area where we still have much to learn. We are confident that we have time to adjust because, based on the licenses already issued, there is currently no plan to drill in the Arctic before 2014.
Senator Massicotte: Time goes by quickly, and four years is not very long. My understanding is that if ever there is an accident, the oil company would be responsible for paying the costs and damages up to a limit of $40 million, if it is proved that no negligence is involved. If it is shown that all reasonable measures were taken, and there was no negligence, the liability is limited to $40 million. Is this correct?
Mr. Borbey: We can go into detail on the liability issue.
Senator Massicotte: Is it $30 or $40 million?
Mr. Chenier: Yes, for the Arctic, the exact amount of financial liability, when there is no fault, is $40 million.
This being said, the promoter or the operator is always considered accountable for operations and all the costs involved. In addition, some measures included in the Inuvialuit land claim agreement are somewhat different and add another system of responsibility, which was specifically implemented to ensure that cultural or hunting practices important to the Inuvialuit do not suffer.
Senator Massicotte: We often see in court that liability is very difficult to prove because competence or negligence must be shown.
We know that all companies are responsible and have a moral conscience. However, an oil company performing the drilling is liable for up to $40 million. Considering the fact that, in the Gulf of Mexico, they are talking about $100 million a day, some might say that $40 million is low. As Exxon profits are $50 billion per year, the company probably thinks it is worthwhile to move forward, since the public assumes the risk, while the company pockets any profits.
Does this not encourage a less responsible or even somewhat negligent attitude? They get the profits, but they do not have to deal with the consequences of their mistakes.
Mr. Chenier: In the north, we deal with companies that operate throughout the world and are considered to be responsible and conscious of the impact their operations have on the environment and on the way of life of people in the North and elsewhere.
To get back to the issue of financial liability, we have also noticed some interest in the specific issue of the $40 million and whether or not this amount is appropriate. This will be covered in the comprehensive review the energy board is to conduct. In the Department of Indian Affairs and Northern Development, we will find out what will come of this review.
Mr. Borbey: I would like to add something. When the National Energy Board issues a drilling permit, it also sets a financial liability. When the last hole was drilled in the Arctic, in 2005, an amount of $500 million was set as the company's financial liability. We are not just considering the $40-million amount.
Senator Massicotte: I have trouble understanding our legislation on this issue. Could you provide us with a summary? Many people believe that, if negligence is not involved, the amount is $40 million. Now you are telling us that it is actually $500 million. And even $500 million is nothing compared to the $100 million a day.
Are there any documents, a summary, you could provide us with regarding companies' legal and financial responsibilities?
Mr. Chenier: We would be glad to provide you with a summary, which will clearly explain all the components of the system of responsibility.
The Chair: That would be very useful. Then we would be able to compare your document with the other summaries we have on systems of responsibility.
[English]
I will introduce the most recent senator to arrive, who is covering for the departed Senator Neufeld, Senator Stephen Greene, also from Halifax, Nova Scotia. We are well covered by the Maritimes here this morning.
Senator Banks: I will re-plow some of the ground that Senator Lang, Senator Neufeld and Senator Massicotte have already asked you because I think it is important — as the chair has been careful to make clear — that Canadians who are, like us, basically uninformed on these things, are given some comfort. I will ask the naive question that would be asked by the person going home on the five o'clock bus. The context in which I am asking it — and I have said this before, the liability question is important — is that we understand that the liability is infinite. It has no end. It does not stop. Whoever is drilling the well is responsible.
As I have said before, using the gulf as the hideous and fortunately unique example so far of spills like that, the people affected by the spill do not care who is responsible. It does not make any difference where the money comes from. The problem is the problem is the problem is the problem.
We have learned from you today one thing different from what we have heard before with respect to the pending drilling in the North, because we have heard before — I cannot remember from whom, it might have been the National Energy Board — that the successful bidder was expected, in fact, required, to spend a certain dollar value by the end of the time of their lease, but not necessarily to drill a well. You have told us this morning that they are required to drill a well, and that information is new and different. Is that the case? Does the lease require that the company drill, in your words, one well?
Mr. Newkirk: I can respond to that question. If you assume from the front end that the purpose is to gain a significant discovery licence so they have the right to develop that resource, the only way to obtain a significant discovery licence is to drill a well and prove the area. The exploratory licence itself does not require them to drill a well, only if they wish to maintain tenure on that land. The licence itself does not say for example, "You must drill a well or be taken before a court." They can receive an exploratory licence, not drill a well, but then they will forfeit their deposit. The licence itself does not specifically say they must if they want to proceed.
Senator Banks: I was quoting from what Mr. Borbey said. The Government of Canada does not require the licensee to drill a well. They can walk away from it. Is that right?
Mr. Newkirk: Absolutely.
Mr. Borbey: They lose their right and their deposit.
Senator Banks: That is fair.
The Chair: Use it or lose it.
Senator Banks: We use that principle in all sorts of land sales; here is a good deal but you must develop it. Homesteads were built on that basis. That is okay.
The question of when and where to licence, and who can do what in different circumstances, comes down to a balance between the value that we derive from development and exploration, and exploitation of our resources. This country needs those things. Finding the balance is the trick between the risks that present themselves on the one hand and the benefits that we derive on the other. There is a precautionary principle that ought to be, in the view of many Canadians, in place with respect to this balance.
You have said you have some confidence that technology will be developed probably before the wells are drilled in 2014 at the earliest, you said. Is that putting the fulcrum of cost-risk-benefit analysis, in the right place?
To go back to a question that has already been raised, in applying precaution — a lot of Canadians want precaution to be applied — if we have a well in the North that is operated from a floating drilling rig — not an island that is built as in shallow drilling — it is, as we have seen, susceptible to bad things. We have to hope for the best and prepare for the worst. However, there is a resistance to the idea of requiring companies to drill a relief well at the same time as they drill the main well because that requirement doubles the cost, for all intents and purposes, and that cost might drive development away.
I want you to help give Canadians some comfort, because Canadians may be watching this meeting. Assume that in the dead of winter in the Beaufort Sea there is considerable ice coverage. As I said, we have to prepare for the worst. Senator Massicotte mentioned this point. If the worst happens, I do not care where the drilling rig is that will come and drill the relief well; it cannot reach the site because it cannot plow through ice. If the rig is 10 miles away, the rig cannot reach the site.
In light of that situation, and in light of the fact that, in the worst possible scenario, oil will come up from the seabed under the ice, which we cannot get at and for which no technology yet exists such that we can do much about it, until that happens and unless there is a simultaneously drilled relief well, is it prudent, in your view, to issue a licence to permit the drilling of a deepwater, under-ice well in the Beaufort Sea?
Mr. Borbey: Again, I reiterate that the issuance of a licence does not guarantee that a permit will be given to drill.
Senator Banks: No, but if I spend a couple of million dollars, I will follow up.
Mr. Borbey: Then they need to have confidence, as a company, that they have the technology, the means and the financial resources to be able to back up their plans when they go to the NEB to apply for a licence to drill. That is the way the system works. The NEB must have the confidence that they have the right information and understanding to be able to issue that licence with the right conditions that will minimize the risk of an incident happening, and that will give the NEB the comfort that the company has the capacity to respond to whatever incident may take place.
Again, all of this process will be subject to this review, and I am sure we will see changes. It is not necessarily only technology that may change over the next little while but also the conditions under which that existing technology is used. It may well be that the technology drives up costs for companies that are interested in drilling, and that they will then have to make an economic decision as to whether they want to continue to explore and develop in the North or whether it is not economical. That will be a business decision.
Senator Banks: I understand that. I do not want to talk about the NEB; I want to talk about you, because you issue the lease, not the NEB. Do I have that wrong? You issue the lease; is that right?
Mr. Borbey: Yes.
Senator Banks: It is that lease that requires and permits exploration and development. You issue that lease.
With respect to "that is how the system works," we know how the system works and we know that BP is on the hook for whatever happens in the Gulf of Mexico. I am sorry, but that does not help.
My question is: Is it prudent for you to issue leases on selected areas of the Beaufort Sea in the present circumstance, and given the wake-up call that we have, and given the existing technology that will allow or permit drilling to take place there in the winter of 2014? Are we exercising the right precautions in that respect?
Mr. Borbey: I have to say yes, we feel that it is prudent and that there are sufficient safeguards and processes following our decision that will allow us to ensure that the activity takes place in a way that is safe. Again, we cannot guarantee that there will never be an accident. That is the precautionary principle. However, we can take measures that will minimize the risk of the accident and ensure that we are prepared and that we learn from the experience of others to be able to prepare appropriately for whatever may happen.
Senator Banks: Final question: Do you agree with those who say that the requirement in the Beaufort Sea to drill a relief well simultaneously will be such an impediment to development and to capital that it will obviate the development of that resource?
Mr. Borbey: That is a technical question and I am not really an expert to be able to answer whether there is more risk associated with drilling in parallel two wells at the same time. Those are matters that we need engineers and others who are experts in these areas to judge.
The Chair: Thank you. That was not a high-speed plow, but it was an effective plow.
Senator Frum: My question was partially addressed by Senator Banks. It is my understanding from your testimony that the licences are dependent on drilling a well, and now you say, not necessarily.
Are you able to project, in terms of the volume, what we can expect to see starting in 2014? Of the wells that you know will be drilled, do you know how many so far are a definite confirmed number?
Mr. Borbey: We have a number of parcels that have been issued over the last number of years, as I explained in my opening remarks. At some point, those parcels, again if the exploration and the seismic and scientific work reveals there is potential, could lead to a drilling application.
There are a number of different companies, which means different assets will be deployed during the same season, which is also an advantage. Rather than having a single operator in that kind of an area, having a number of operators allows that backup capacity if there is an emergency. In fact, some of the companies are talking about sharing platforms and collaboration to reduce the costs.
Mr. Newkirk, do you want to specify the numbers we can expect?
Mr. Newkirk: If we are talking about deepwater parcels, there are essentially three main parcels out there. It is possible there may be more than one well drilled per parcel. At this point, it is less than five or six, but that is a guess. It is not in the range of dozens and dozens at this point.
Senator Frum: You said that there was a recent bidding process and more licences. Does that projection include those licences?
Mr. Newkirk: Should there be a bid accepted on that parcel, that would bring the number of deepwater parcels to three. If each of those were to proceed to a significant discovery licence, there would have to be at least three wells drilled, possibly more.
Senator Lang: To follow up on that point, what is happening with shallow-water wells? Are there some planned?
Mr. Newkirk: I will provide the clerk with a map showing the exact dispositions we have out there right now, which will show the extent of exploratory licences as well as significant discovery licences. I estimate it is in the range of ten, plus or minus five, in terms of the shallow-water licences. I will provide you with the specifics.
Senator Frum: This question might be unfair, but you said at the beginning of your remarks that you followed the testimony here and you found some useful information. Is it fair to ask you, thinking towards our report, what information was useful and what, if anything, you did not know before?
Mr. Borbey: Maybe I will ask my colleagues to comment. I have to admit that I did not read every single line, but I have been working closely with my colleagues Mr. Caron, Mr. Corey, and our director general, who is not here today. Mimi Fortier has also appeared before the House of Commons committee.
Since April 20, there has been a huge amount of attention to this issue. At the officials' level, we have done a lot of policy work in looking at all the issues and comparing. We also learned a lot about how the various offshore boards work, and made comparisons with the NEB, the regime we manage in the Arctic and the regime in the Atlantic: how they differ and where there are commonalities, and also how and where we can perhaps collaborate and provide whatever technical support to NEB in its review. Those are some of the areas we have learned about.
We have also learned a fair amount about what is taking place in other jurisdictions, such as Greenland, and also what certain companies are planning and how they themselves are reacting to the incident, such as Chevron, ensuring that what they are doing off the East Coast is safe. There has been a huge learning experience.
Mr. Chenier: I will point to one specific example. Since we are more on the management side of the industry, we found useful the technical information that was provided around the various capacities of the instruments and equipment that is deployed on the East Coast to respond to various tiers of incidents. I noted the volume capacities and whatnot. From our perspective, since we are more on the CPRA side and less on the technical side, we found that information to be useful. For me, it was a question of finding in one place a lot of specific information that we can take back and use within our own organization.
Mr. Newkirk: I did read every line. I think one of my favourite lines was Mark Corey saying something to the effect that nothing focuses the mind like appearing before the Senate as a witness. Having been in this job only for a few years, and having previously worked for Fisheries and Oceans Canada and Environment Canada, I have enjoyed the challenge function that the Senate has provided through the question and answer of witnesses. It has steepened my learning curve considerably. Speaking from a personal perspective, as I move forward, I feel stronger in my background of what I should know to do my job well. I look forward to the NEB reviews and the additional information that will come from those reviews.
Senator Frum: Needless to say, we like that answer.
Senator Massicotte: I am trying to understand your response to the questions. You said, yes, we are comfortable issuing those permits and licences in spite of everything we have learned. Yet, in your testimony, you also said, we have lots to learn from the accidents. NEB has to study this situation. We have to study this situation. We may want to change things.
You also said in answer to my question, we hope the technology within three or four years will allow us to manage the risks. In other words, you are waiting for a future event.
You say you are comfortable issuing permits today, and that we as a country and government should assume those risks, and yet you say, we have a lot to learn and we hope that technology will be there when we face those risks. How do you tie those things together?
Mr. Borbey: I repeat that the licence is a licence to explore and eventually drill. There are incentives to drill, but it is not mandatory.
The more we invest in exploration and scientific research in the Arctic and the Beaufort, the more we will know and the better we will be prepared for whatever may happen in the future. The early part of the licence process is all about investment in science and seismic activity, for example; increasing our knowledge base. For example, right now, ArcticNet is engaged in research work. It started last year and continues this year. ArcticNet is a consortium of universities funded through Natural Sciences and Engineering Research Council of Canada, NSERC, but they also have the research ship and icebreaker, the Amundsen, which will be in the Beaufort again this summer conducting more research. That research is funded by industry through their work bid commitments as part of their licence. We will gain more knowledge over the next several years.
Is it prudent to issue licences? Yes, it is, because more activity, exploration and scientific work will be undertaken in the next few years. Also, we know there are safeguards — that is, the NEB permitting process — before any drilling takes place. If the NEB is not satisfied the work can be done safely, it will not be done.
Senator Massicotte: Is it a licence to drill or a licence to engage in research and development?
Mr. Borbey: It is both. It is a licence to explore and determine whether there is a resource, and then apply for a significant discovery and eventual production. Over a nine-year period, the company is expected to conduct the research, to drill a well if the company wants to maintain its rights, and then after that, apply for a significant discovery.
Senator Massicotte: I presume that when a company receives their licence and spends millions of dollars for research, they already have a right to drill.
Mr. Newkirk: No.
Senator Massicotte: It does not? It is a licence to do a study?
Mr. Borbey: Yes; it is speculative, of course. If the resources are not there or drilling is not feasible, there is a loss of investment.
Senator Massicotte: If it is feasible, do they have a right to drill?
Mr. Borbey: If it is feasible, they can apply to the NEB and seek a permit. They go through the environmental assessment and the process that is needed before that permit is issued.
Senator Banks: For the record, the drilling of a well under a lease does not need to be a production well. It can be an exploratory well. Is that correct?
Mr. Borbey: That is right.
Senator Dickson: Thank you, gentlemen, for your good presentation. My concern is exactly the same as that of the other senators that have spoken this morning: the risk balance issue. As I understand it now, the NEB has a review process. They are beginning a review process. Can either of you give me an answer quickly as to the interface between all the organizations that are involved in the North? There seems to be a proliferation of organizations, particularly your own, in that review process. You may want to reply to this question by memorandum, but I am also interested in the extent to which there will be external consultants besides government consultants presenting before the NEB. Will there be any third party review of the risks of the work being done by the oil companies up there?
To put it succinctly, CNN is everything, and the last thing the Senate committee wants is to see is a Louisiana disaster in the North. We want to see, after the review process is complete, that we can demonstrate to people watching today that, if not the best system, we have a good system and the risks are minimal.
Mr. Borbey: Again, I have to be careful. NEB is leading this process, and I believe the terms of the process were tabled with this committee, or they are public. There are very specific terms, in terms of the scope of what would be included.
Senator Dickson: Are you satisfied with the scope? Should it be larger?
Mr. Borbey: Based on what we have seen, yes, we are satisfied. There is a period of until sometime late next week where interveners can identify themselves in the process.
Mr. Newkirk: It is July 16.
Mr. Borbey: As regulator, not as a policy organization, we will see how we will intervene in that process as well. The NEB is in the driver's seat on this process.
Yes, we are confident that we will learn, and we will have a regime coming out of that review. We already think we have a good regime, but it will be improved coming out of that review. We are confident of that.
Senator Dickson: Do you have any recommendations as to government agencies or third parties that should intervene? In other words, has INAC consulted and encouraged people to intervene in that process?
Mr. Borbey: Not directly; NEB has its network of contacts and is active in the North, so I am sure that the right people will come forward, whether they are Aboriginal organizations, territorial governments or environmental groups. I am sure they will all be there.
Mr. Chenier: To pick up on a point that was made earlier, we have not established a number of review processes: We have one central review process that is under way, and that is led by the NEB. All departments and organizations, private or public, are aware of this review. We expect that all experts who have materials to bring to bear for the board's consideration will come forward.
Senator Dickson: You made reference to the fact that you were looking at the regimes on the East Coast. Do you think that there needs to be an umbrella organization in the North, not necessarily with the same jurisdictional powers, as there is on the East Coast, from your experience of having reviewed the Canada-Newfoundland and Labrador Offshore Petroleum Board and how it operates, as well as the Canada-Nova Scotia Offshore Petroleum Board?
Mr. Borbey: That issue is a policy issue. At the end of the day, an arrangement has been negotiated between the federal government and the provincial governments in both cases. We have an engagement process with territorial governments with respect to devolution of responsibilities but, for now, the federal government, in two out of the three territories, continues to be the lead for management of natural resources.
We have devolution in place in the Yukon. For Yukon's offshore oil and gas, we have a memorandum of understanding in place whereby we collaborate with the territorial government. One possibility is that eventually arrangements similar to those on the East Coast might be contemplated.
Senator Brown: I want to follow up on what the previous senator said. We have a lot of departments and agencies involved: Natural Resources Canada, the National Energy Board, the Canada-Newfoundland and Labrador Offshore Petroleum Board and the Canada-Nova Scotia Offshore Petroleum Board. Each one of these boards is an independent agency that reports to Parliament and provincial legislatures where applicable. Some boards have nine members and others have five. Are any of these board members experts on oil-well drilling, or do these boards bring in people who have expert opinions on oil-well drilling? If we do not have experts on these boards, then we are asking for expert advice from the oil industry itself to tell us what we might be getting into, with deepwater drilling in certain areas. I am looking for some sense of comfort in knowing that some of the people involved are independent of the oil-drilling companies.
Mr. Borbey: I am sorry; I cannot give you a clear answer on this question because we are not involved in the nomination process of members to the NEB or the two offshore boards. Our minister's responsibility is to the boards that are established under land claims within the North. For example, our minister has responsibility for putting forward nominations to the Governor-in-Council for any regulatory boards established in the Inuvialuit region.
Senator Brown: You give a lease to a drilling company and they undertake the research to prove that they should drill. Where do you find a comfort level that this company is giving you correct information; that all points are covered; that they have the ability to drill; and that they have the ability to deal with accidents and spills? Where does that information come from? Does it come from the company or do you have people who can ask the tough questions?
Mr. Newkirk: There are two parts to that question. With respect to our responsibilities with the decision to put an area out for a call for nomination, we have a considerable amount of expertise in my shop. We have a transparent online geo-mapping tool that lays out particular value ecosystem points and locations. We take those maps, generate them, validate them and go to other government departments to have them validated. For example, we talk to the Department of Fisheries and Oceans about where the whales are located, and to Environment Canada about where the birds are. All that information feeds into our annual process. Other non-governmental organizations add comment with respect to our responsibility and releasing the lands for a lease.
You are zeroing in more on our level of comfort with respect to what the company puts forward in terms of seeking permission to drill. That part is the NEB process. The NEB has over 400 technical staff reporting to it. I cannot comment because I do not know the list of who is on the board and their biographies. I am sure that information is available, but there are two different processes. Our comfort comes from our robust process at the front end. As a department, we decide whether we are comfortable with activities going forward in various pristine and non-pristine areas. That is why, when another department says it has an interest in creating a marine protected area, that area is removed from our maps for disposition.
Mr. Borbey: Before we open up an area in the Arctic that has not been subject to exploration, we will lead a strategic environmental assessment — that is a thorough process involving community stakeholders — before any decision is made to open up the area. There has been a fair amount of focus on Greenland, Lancaster Sound and the East Coast of Baffin. That area is not open for exploration. If there is to be exploration in the future, it will depend on the outcomes of the strategic environmental assessment.
Senator Brown: I want to go back to why we are worried about BP and possibly some other companies. I understand that BP was drilling in a mile of water before it reached the surface of the land it was drilling into. Unless I am mistaken badly, we were told that a well was being drilled off the coast of Newfoundland and Labrador. I believe the depth figure is 2,600 metres. You gave us information on offshore drilling in Canada but there was no mention of that well. A depth of 2,600 metres translates to about 7,800 feet, which is almost another 50 per cent deeper before the drilling begins. It seems to me that it could be more difficult to prevent an accident in deeper water. Perhaps that is why British Petroleum is in trouble, given that the well is about the deepest well currently in the Gulf of Mexico. Another spill a couple of years ago, I believe, was also a deepwater well. My concern is about trying to prevent spills rather than trying to figure out who will be responsible for the spill afterwards. I commented at our last meeting that maybe these deep-well drillings are beyond the strength of the metallurgical materials used. Maybe the equipment literally cannot handle one mile of drill stem drilling into the surface without a complete breakdown. That is what I think happened with BP.
I ask people to take a look at the possibility that we are going beyond the capability of our drilling equipment.
Mr. Borbey: For clarification, when we were talking about the offshore, we were talking about the Arctic offshore, for which we are responsible. We do not have a responsibility on the East Coast. We handle the two territories that do not have devolution in place and the Arctic offshore. The depths that Mr. Newkirk mentioned are between 200 metres and 1,000 metres, in terms of the parcels currently under exploration. All the lessons learned will be extremely important, as to whether the technology is, as you said, robust enough to sustain the kinds of pressures associated with those depths.
Senator Brown: I apologize; I thought we were being given figures for all the deep wells being drilled in Northern Canada.
The Chair: We have two final questioners, briefly, Senator Lang and then Senator Banks.
Senator Lang: I will move to another area that the witness touched on. Perhaps he can inform us as to what is happening in the drilling off the coast of Greenland. You said in your opening remarks that you advise through the Arctic Council on these matters. I assume that Greenland was likewise advised, where there are two wells. Perhaps you can outline what advice we gave, and tell us whether they follow the same type of regulatory process that we follow.
Mr. Borbey: My department, also the NEB itself, as well as the Department of Foreign Affairs have had discussions with Greenland and Denmark about their plans. There was also a meeting of environmental ministers. I believe it was in Ilulissat a few weeks ago. Mr. Prentice spent time with his counterpart from Greenland talking about their plans.
My understanding is that there are plans for NEB to monitor the drilling; to be there to learn in terms of what is taking place and how that process is going. There is also an agreement between Canada and Greenland with respect to any spill response involving hydrocarbons for exploration or otherwise, and that response will be activated if there is ever any incident as we are monitoring the situation.
Yes, we will be learning from their experience, and I expect the industry is also interested because if the program is successful on the western side of Greenland, it will indicate that there is strong hydrocarbon potential on the other side of that border, as I mentioned, off the East Coast of Baffin. We will monitor the situation carefully.
In terms of the specifics of their regulatory regime, I do not have that information and I do not know if anyone among my colleagues have comments on how they manage that.
Mr. Newkirk: I will note that it is based on the Denmark regime, which formerly governed. The system is a fairly robust system with considerable northern experience. It is our understanding that they basically followed through and adopted the same types of procedures that Norway is using.
Senator Banks: Mr. Borbey, you talked about the strategic environmental assessment that you conduct before you issue a lease.
Mr. Borbey: I was talking about before opening new areas for exploration.
Senator Banks: Is that done under the Canadian Environmental Assessment Act?
Mr. Newkirk: Unfortunately, the term "strategic environmental assessment" has taken on a lot of different meanings and been brought in —
Senator Banks: I want to know what that is.
Mr. Newkirk: It is not specifically for the directive to government departments to conduct strategic environmental assessments in advance of new policies, but it is consistent with the same kind of approach. The idea is to go in and take a look at all the environmental aspects of a decision before going forward, so what we would do, I think, would be probably more robust than what would necessarily be demanded by a CEAA process.
Senator Banks: Under CEAA, in much development of resources, the actual work on an environmental assessment is completed by the applicant company, for all intents and purposes.
Mr. Newkirk: No.
Senator Banks: Is that not the case with a strategic environmental assessment?
Mr. Newkirk: Not with a strategic environmental assessment.
Senator Banks: You are talking about before you even decide whether to ask for bids, right?
Mr. Newkirk: Yes; in fact, the tool I mentioned before, using our online tools, we gather a lot of baseline information in that area anyway as a normal matter of course. That information will be the foundation for a strategic environmental assessment that we commission.
Senator Banks: Are you actually doing that assessment, and not someone else; are you doing it?
Mr. Newkirk: We will probably contract experts for whatever region we are going into, but the report will be done for us. That assessment is done for us as a department, and then the department makes a determination based on that report.
Senator Banks: Can you describe the nature of the experts with whom you contract to provide that report? Are they oil companies?
Mr. Newkirk: No; I am guessing into the future because it will depend on the area, but it will be, more than likely, scientific expertise that we will seek outside of industry. However, frankly, a lot of our best scientists come out of industrial activities. If you look to the North, already on the two major leases up there, there have been hundreds of millions of dollars spent not only on seismic, but a considerable amount on Arctic research, so we do not discount that information. We look to peer-reviewed information; we look to traditional ecological knowledge as well.
Senator Banks: There is no doubt that the preponderance of knowledge about oil drilling and dealing with oil drilling is with the industry; that is what they do.
The Chair: At this point, there being no further questioners, first I want to thank you, gentlemen, and I think my colleagues will agree with me that it is a good thing we had the people from INAC. You have added an interesting and important dimension to our study.
Subject to anything that might be decided later in our in camera meeting, this winds up our special study on the offshore situation in Canada. For those who are interested, and I am led to believe there is great interest in our hearings and in our deliberations, it is our intention to issue a report in the coming weeks. It is not designed to be a state-of-the-art report about making recommendations, but rather hopefully a fulsome description of the facts of what is taking place in Canada.
There seems to be universal agreement amongst all Canadian players, if I can use that expression, in the offshore — be they government, regulatory or industry itself — that we are lucky the Deepwater Horizon accident did not happen here, not because we are especially vulnerable but because there is so much to be learned from the accident and because it was more than the one-in-a-hundred-year happening. It is so extraordinary, and we have learned that Canada is watching it carefully; that experts from Canada and from all departments and agencies involved are following it day by day. An exhaustive review of the Canadian oversight and regulatory regime is taking place.
This is all a good consequence of an otherwise terrible and unpleasant happening, which has led to what is being characterized now as the worst ecological environmental disaster in North America of all time, with consequences for everyone in North America in the sense of our migratory birds and the like from Canada. We are learning how currents move and we are learning new things for the industry. For our viewers and for those on the web, hopefully our report will add something to this new experience.
I thank everyone who has participated in these hearings and contributed to our deliberations. We are most grateful and the Senate is hopeful that this service will prove to be one that is appreciated and will be the precursor of other such studies in circumstances like these ones.
Without further ado, I ask the committee members to remain for an in camera meeting.
(The committee continued in camera.)