Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 12 - Evidence - October 28, 2010
OTTAWA, Thursday, October 28, 2010
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:13 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 and the current status of operations/applicable regulatory rules and regulations).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good morning. I call to order this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. We are privileged to have with us this morning the Chair and CEO of the National Energy Board of Canada, Mr. Gaétan Caron, and his colleague, Mr. Bharat Dixit. I will get to those introductions in a moment.
We are continuing our study on Canada's energy system and the strategy or the search for a strategy for a framework for a sustainable energy future for this country.
I welcome everyone this morning, including viewers on the CPAC network, the webcast and our new dedicated website, which I am very pleased to say can be found at www.canadianenergyfuture.ca. The French site is avenirenergiecanadienne.ca. We launched this new website on Tuesday this week and I am delighted to say that it has been very well received; we are getting a great deal of interest. It is an interactive site and we encourage all viewers and others to join with us in a spirited dialogue and discussion on the matters that are so important relating to Canada's energy future.
Our report on the offshore drilling industry, which we carried out last spring during April, May and June, was issued this summer on August 18 and filed in the Senate. It was entitled Facts Do Not Justify Banning Canada's Current Offshore Drilling Operations: A Senate Review in the Wake of BP's Deepwater Horizon Incident.
Our report contained a number of recommendations. Once the report was finalized and circulated there were further developments, which led the steering committee to consider the possible reopening of the hearings. We concluded there would be nothing to be gained by having a full-fledged reopening of the hearings. However, a number of the issues relate to the National Energy Board of Canada and its ongoing mandate and its possibly altered future mandate. Therefore, I thought it appropriate to ask Mr. Caron to join us today.
Mr. Caron has been with us several times in the past, in particular on April 27 on the subject of our study. He was here again on June 22. We are happy, sir, to have you with us. As is my custom, I would like to quickly introduce the people around the table.
I am Senator David Angus from Montreal, Quebec. I chair the committee. To my immediate right is Senator Grant Mitchell of Alberta, our Deputy Chair. To his right are our very able researchers and helpers from the Library of Parliament, Marc LeBlanc and Sam Banks. To their right, from the great Province of Saskatchewan — it is not in the news at all — Senator Rob Peterson. From Toronto, we have Senator Linda Frum and to her right, from the Yukon Territory, is Senator Daniel Lang.
To my left is our clerk, Lynn Gordon, whom I believe you know. To her left is Senator Richard Neufeld from British Columbia; Senator Judith Seidman from Montreal; and Senator Fred Dickson from Halifax, Nova Scotia. Senator Dickson has brought a guest this morning representing Senator Tommy Banks, I think. Those are big shoes to fill, but we have Senator Willie Moore from Halifax. It is a pleasure to your have you with us. To his left are Senator Paul Massicotte from Quebec and Senator Bert Brown from Alberta.
Without further ado, Mr. Caron, I simply want to once again thank you for the help you have given us in guiding us through the jurisdictional maze and some of the other issues that pertain particularly to the offshore exploration and production, if you will, of our great natural resources off our coasts.
I do not think you need to be reminded that Senator Massicotte had some particular questions at the last meeting. I know you are well prepared to address those questions today. That is a little heads-up to you, Senator Massicotte. Mr. Caron is particularly interested in ensuring you are comfortable with his responses.
I should add that Mr. Caron is also in town to meet with the House of Commons committee, which has been harassing him. As you know, sir, that does not happen at this committee. Here we are very pleased to have you and we know you are not here to do anything but edify and not mislead parliamentarians. The floor is yours, sir.
Gaétan Caron, Chair and CEO, National Energy Board of Canada: Good morning, honourable senators. Thank you for the opportunity to appear before you today with Dr. Bharat Dixit our team leader responsible for the oil and gas activities regulated by the National Energy Board.
I look forward to discussing the latest developments on the NEB's Arctic review, as well as other emerging matters, such as the Gulf of St. Lawrence.
[Translation]
On May 11, just weeks after the blow-out in the Gulf of Mexico, the National Energy Board committed to reviewing the safety and environmental requirements for offshore drilling in the Canadian Arctic.
The purpose of this Arctic Review is to examine the best available information concerning the hazards and risks associated with offshore drilling activities in the Canadian Arctic and the mitigation measures to both prevent and respond to accidents and malfunctions.
[English]
Since I last appeared before you in late June, more than 115 different groups and organizations have registered to participate in our Arctic review, including northern communities, Aboriginal groups, environmental non-governmental organizations, other regulators and the industry.
On September 20, the National Energy Board of Canada announced that the Arctic review would be conducted in three phases. The purpose of phase one, which is currently in progress, is to gather the best available knowledge about offshore drilling in an Arctic environment. Participants were invited to make submissions to the NEB on the 11 topics that make up the scope of the review.
To further build on our knowledge base, the NEB also released a call for information on September 30, inviting anyone with expertise or knowledge to provide information to the NEB. The board will also consider the recommendations of the U.S. government's National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. We expect that phase one of the review will not be complete until those recommendations are available, which will be sometime in early 2011.
Phase two of the review will give the participants an opportunity to examine the information collected, to ask questions of each other, provide their comments and share their own views on the information.
Once phase two is complete, we will consider all the information gathered, along with the comments and suggestions provided by participants, and produce a public report to be used in our examination of any future applications for offshore drilling in the Canadian Arctic.
[Translation]
This review will be public. It will be transparent. There will be opportunities for people who are concerned about these issues to get involved.
[English]
Meetings are already being scheduled to discuss the Arctic review with Northern communities. On November 24, we will be in Inuvik to meet with the Inuvialuit Regional Corporation. In early December, we will also be meeting with the Inuvialuit Game Council and the Wildlife Management Advisory Council. Those are only examples of the people we will meet, and we intend to visit many Northern communities, including communities in Nunavut, to hear their concerns.
I would like to stress that it is very important for the NEB to meet with and listen to Northern communities. They are the people who will be the most affected by any decisions made regarding offshore drilling in the Canadian Arctic.
One of the topics the NEB will examine during the review is the subject of relief wells. In your August report on offshore drilling, your third recommendation stated:
The committee recommends a thorough discussion by regulators and industry respecting whether and under what circumstances relief wells should be prescribed.
Our stated policy at the NEB is very clear. The NEB requires relief wells in all cases, and a relief well must be able to kill an out-of-control well during the same drilling season. That is a very clear policy we have and it remains. In our recent call for information, we included questions on the effectiveness and reliability of options for regaining well control, including relief wells. We will study this matter inside and out so that we have clear information and can be prepared to receive applications for offshore drilling.
In the event of a spill or incident under the board's jurisdiction, the NEB is the lead federal agency. It is our job, as lead agency, to hold the operator accountable for anticipating, preventing, mitigating and managing incidents and oil spills of any size or duration.
Going back to your report on offshore drilling, your fourth recommendation states:
The committee recommends that there be greater collaboration between all those responsible for responding to an oil spill in developing, preparing and practicing in advance of an event.
We thoroughly agree. The NEB has a dedicated emergency response management program, and our staff participated in six emergency response exercises just in the last six months alone, many more if you go back further, and many more will take place in the future.
The NEB has not received any application for exploration work under the board's jurisdiction in the Gulf of St. Lawrence. Exploration typically begins with seismic work, which is a means of using sound waves to create a picture of geological formations that exist below the ocean floor. A noise is generated at the surface in order to record the sound waves that are reflected back by the underlying work.
You have read recently in the media about the Old Harry prospect, which is located 75 kilometres from the southwestern coast of Newfoundland and Labrador and 85 kilometres from the Isles de la Madeleine in about 460 metres of water.
Old Harry covers an estimated 20,000 acres and it straddles the jurisdiction of both the C-NLOPB, the Canada-Newfoundland and Labrador Offshore Petroleum Board, and the NEB. Approximately 60 per cent of the prospect lies within the NEB regulated sector. The remainder lies in the sector of the Gulf of St. Lawrence that is regulated by the C-NLOPB, where Corridor Resources Inc. holds an exploration permit issued by that board.
The C-NLOPB has recently approved Corridor's application to conduct a geo-hazard survey in their jurisdiction of the Gulf of St. Lawrence. We understand that the survey, which includes a four-day low-energy seismic survey, will take approximately six days to complete.
The Chair: Perhaps I could interrupt you there, sir, because this is one of the reasons we were concerned. We have had a number of approaches from groups, particularly in Nova Scotia, who have been suggesting to us that this permit involves drilling and other fairly invasive activities, not necessarily in your jurisdiction but in the Newfoundland and Labrador board's jurisdiction. Can you elaborate on that for us at this point? It fits in with where you are in your remarks.
Mr. Caron: Yes. The information we have, which is based on information that is publicly available, as I read in my statement, the Newfoundland and Labrador board has issued a permit for exploratory seismic work. I assume that work will happen in the near future, but I do not know that for a fact. Dr. Dixit perhaps knows more than I do in that regard.
As you say, the work that we anticipate will be occurring is not about drilling; it is about seismic work, which sends sound waves generated by an air gun. The sound waves travel to the structure and bounce back, and specialized equipment records the bouncing back signal. For reasons I cannot explain, geologists and geophysicists make sense out of the signals that they read on complicated charts. The information gives them some indication of what might be in existence in terms of hydrocarbons underneath the sea.
The Chair: To have drilling and more invasive activity would involve a new permit and a new process with hearings and so on. Is that correct?
Mr. Caron: I do not have personal knowledge of the situation is in Newfoundland and Labrador. I know in our case, every such interaction is the subject of a separate approval by the NEB, including a safety examination and an environmental assessment.
The Chair: Honourable senators, I would point out to our viewers that in our report that was issued on August 18, which I have referred to, in the appendices there are schedules of all permits, whether they be for exploration, drilling or absolute production at the ultimate stage. In that list, although we do not have a narrative in our report about Old Harry or that particular permit, it was included and is mentioned, if I may say, at page 59 of our August report. It refers to Corridor Resources Inc. and this permit for the seismic activity.
In hindsight, perhaps we could have questioned Max Ruelokke when he was here about it, but we had no idea that permit was there. It has caused quite a stir. That is just to put it in perspective. Thank you. Please continue, Mr. Caron.
Mr. Caron: In your August 2010 report on offshore drilling, in your sixth recommendation you proposed:
. . . a comprehensive review of the issue of liability, including whether the thresholds should be adjusted to reflect current economic realities.
To help bring some clarity to this very important topic, the NEB released a backgrounder on September 20 called Financial Responsibility and Liability, which is available on our website and is part of the information we are releasing gradually as part of the Arctic review. We have also included "Financing spill cleanup, restoration and compensation for loss or damage" as a topic to be examined as part of the review. We have asked a number of questions on that topic in our call for information released September 20.
Also as part of our review, the NEB will be looking very carefully at the new U.S. safety regulations released in early October. At first glance, I am happy to say that many of the changes being proposed in the United States are already included in Canada's regulatory regime.
As an example, the new U.S. regulations require companies to acquire an independent third party certification demonstrating the safety of rig operations, something that is already addressed in our Canada Oil and Gas Operations Act and the Canada Oil and Gas Certificate of Fitness Regulations.
The new U.S. regulations also call for industry to develop and integrate a safety and environmental management system. Canada's regulations already require operators to have safety and environmental management systems. My summary is that the U.S. is moving to where the NEB has been, and they call it the gold standard.
The Chair: That is what I was going to say. We noted in the newspapers recently that the United States has used the expression, "gold standard." Do I take it from your evidence that they are referring to Canada's regime?
Mr. Caron: I do not think so. I do not think that was their intention. I was careful with my words, and I am not using that phrase to apply to ourselves. As a safety regulator you must always assume that there is more than you can do. That is a basic attitude. A safety regulator must always be asking what more he can do. What have we not thought of yet? We refer to that as a safety culture. I would be delighted to answer questions about that with senators later during this meeting.
I do not think they are referring to us when they say that. I do not know that I would want to rank the NEB vis-à-vis others, for fear that it would make us believe that we can rest. We cannot rest. We must remain alert. We must constantly challenge ourselves. What more we can do to hold industry accountable for safety, environmental and emergency response outcomes? It is our job and we intend to do it very well, and that requires a constant state of wondering what more we can do.
The Chair: We are a member of this group of nine nations that have offshore industries. I think you or others have told us that Norway and perhaps the British, with us, are at the high level of oversight. Is that correct?
Mr. Caron: It is correct. The next paragraph of my opening statement makes that very clear. If you will allow me, I will give you the story of the IRF, as it is known, the International Regulators' Forum. In your August report you noted that Canada is a leading participant in the International Regulators' Forum, I will refer to them as IRF for convenience.
The IRF held its latest major conference in Vancouver just a few days ago. Several NEB staff, including Dr. Dixit and myself, attended the three-day conference. Dr. Dixit himself was active in preparing for this conference, working in the program and being part of all the preparations that made it a highly successful conference.
At that conference, I learned that the regulatory world, including the United States, Norway, Denmark, the United Kingdome, Ireland, Australia, Mexico, Brazil, the Netherlands and Canada, are united around the concept that we need to promote a safety culture in offshore drilling. This includes a need to rely on management systems to promote that culture and that the role of regulators is to hold the industry accountable for the desired safety, environmental and emergency response outcomes. I learned that audits of these management systems, and field inspections, form a key part of the enforcement tool kit of offshore safety regulators.
I also learned that the NEB is one of the very few — perhaps the only — regulators in the world mandated to focus entirely on safety, tasked with dealing also with the environmental aspects, and identified as the regulator and lead agency for emergency response. In other words, we are a true life-cycle regulator of everything related to drilling offshore wells. I do not know that there is any other example of this clear safety and environmental protection mandate anywhere else in the world. There might be, but I have not found one yet in terms of this well-rounded, complete life cycle picture.
[Translation]
In closing, I would like to stress to you that it is absolutely essential that the Arctic Review be transparent and inclusive and that the views of northern communities are heard and respected. Canadians in the North and elsewhere are depending on us to get this right. I firmly believe that the National Energy Board is up to the task and that we are committed to doing the right thing.
Thank you, honourable senators, for the opportunity to provide you with an update on the NEB's Arctic Review.
[English]
Mr. Chair, with your permission, I have late breaking news. We issued a letter yesterday at 4:30 p.m. It would take me a minute to outline what we announced at that time. Would it be appropriate for me to include that?
The Chair: Please.
Mr. Caron: Yesterday at 4:30 we released our latest process update for phases one and two of the Arctic review. We made clearer the process by which people can ask for meetings, to meet with us as part of phase one, for fact-finding and information gathering. We have asked people to tell us by January 31 whether they would like us to meet with them to share their knowledge with us.
We have also announced that we intend to contract some of the knowledge with consultants and experts, and we have asked for anyone at all registered in the review to make suggestions to us by the end of November for work to be contracted from experts and consultants. We have our own ideas, but we do not want to be deprived of the wisdom among the participants who have registered with us.
Finally, we had announced that we would be making available $300,000 to fund travel and other costs for people to participant in phase two meetings in the new year, when people will be invited to ask questions of each other. We have also announced that the meetings we will have for phase two purposes will include Inuvik, Iqaluit, Yellowknife and Whitehorse, and we will have other places as necessary.
With that, Mr. Chair, this completes my late breaking news addition to my opening statement. Dr. Dixit and I look forward to a dialogue with senators this morning.
The Chair: Thank you very much, Mr. Caron.
I would like to start with two things, to make sure we get it on the record. There was much talk during our hearings about the investigations into the Deepwater Horizon incident and what caused it and how bad British Petroleum was or was not, or others.
You told me in a recent meeting that the report of the investigation is to be filed with President Obama at some date and that then it would be made public. Could you just elaborate so we have on the record when we might anticipate receiving those findings?
Mr. Caron: We have very fresh information. At the IRF conference in Vancouver a few days ago, it was made clear that the target date is now January 2011. It was previously understood to be December 2010, but we have met some of the people working on that report and they are very serious and focused. I think they feel they need that extra month to do a good job. Our current planning assumption is January 2011.
The Chair: That would be made public eventually, in the normal course?
Mr. Caron: Absolutely.
The Chair: I understand there were other studies as well, investigations, or are they private?
Mr. Caron: In terms of the U.S. situation, I am sure there will be other proceedings of various kinds, including all the work around litigation that we are not monitoring.
Interestingly, though, before the end of the year we expect a public report issued by Australia about the Montara out-of-control well situation that they experienced in August 2009. I will give you a short answer and can go into further detail later. We had a situation in Australia that had many things in common with the situation in the Gulf of Mexico in terms of things not happening, as they should. We expect that report to be issued publicly before the end of the year. That will be a very nice addition to the information base we will have to do our work in phase one and questions in phase two.
The Chair: Did the incident in Australia occur after the Deepwater Horizon?
Mr. Caron: It happened before. It did not make the same kind of headlines as the Gulf of Mexico. It happened on August 21, 2009. The name of the well was Montara, and the company looking for hydrocarbons was a company known as PTTEP. The platform was called West Atlas, and the name of the company that was operating was Seadrill.
In the Gulf of Mexico, the Deepwater Horizon was the platform, Transocean was the operator, BP was the company, and Macondo was the well. We can copy and paste that and call it the Montara well, with the information I just put on the record. That will also be part of our examination. We will examine the facts and knowledge about safety, safety culture, and why is it that people do not always do what they are supposed to do and why material sometimes fails.
The Chair: When referring to our report you mentioned a couple of the recommendations. My colleagues and I am wondering if we got it right. Do you agree or disagree with our recommendations, knowing that we were constrained by the fact that it was a quick study to ensure that Canadians had nothing imminently threatening our shores?
Mr. Caron: We did not finding anything in the report that would not align with our own personal view in our jurisdiction as a safety regulator. We agree with the regulations recommended to us in our mandate. We believe that your report enables Canadians to form their own opinion as to what public institutions like the NEB should do. I will refrain from telling Canadians what opinions they should have, but the report contributes to a transparent and public statement of both the facts and the circumstances of Arctic drilling in Canada. I am thankful to the committee for that.
Senator Mitchell: When you talk about the nuclear industry, it is clear there is a zero tolerance for a mistake in attitude in that industry. You cannot contemplate that because the consequences are too great. Someone said to me that it would behoove the oil industry to have the same attitude and, in particular, for offshore drilling. You just cannot make a mistake. My question relates to that.
I appreciate that you are saying we are not the gold standard and that you are not taking anything for granted. However, you say something which is interesting to me. You state that we need to promote a safety culture in offshore drilling. That is the agreement you have come to with a variety of companies, as outlined on page 5 of your presentation. That suggests to me that you are not at that state of zero tolerance yet. I know you have zero tolerance but do you have the mechanisms in place? Are you going there? If so, when will you get there?
Mr. Caron: Yes, we always pursue that goal. When we speak as a regulator about pipeline safety, we say that our target is zero rupture. In offshore drilling, our target is that there is no loss of control of wells.
At the same time, while a regulator has that perspective — and I would assume a safety regulator in the nuclear industry has the same attitude — the regulator must always challenge himself. Technically, the regulator is always dealing with an event of low probability with large consequences.
In our call for information that we released on September 20, we address that question squarely. Question 1.1.2 called "Management System" and question f of that series about assessment of hazards, dealing with hazards and responding to hazards, asks participants to answer the following question: How are risks for low frequency/high consequence events judged? What is the risk for deeming risks acceptable? The risk is never zero. As a safety regulator, I cannot promise you that something will never go wrong. I cannot do that in good conscience. In terms of high consequence events, how are we assessing the situation by making the probability as small as humanly possible? We then combine that with the consequence of things going wrong. You have to be explicit as to what this looks like and whether the combination of low probability/high consequence is acceptable from a safety environmental protection standpoint. That informs what you do in terms of design, training and emergency response, relief well and all of the tools that we have in our tool box as a safety regulator to be able to say that if we approved an offshore well, this is acceptable from a public interest stand point. If it is not, then we deny the well. Those two options are available to the safety regulator.
Senator Mitchell: You cannot speak for the two offshore boards, either?
Mr. Caron: No. From a legal standpoint, I cannot close my mind to what the board will do with future applications. We must judge that based on those facts. As quasi-judicial administrative tribunals, it is our solemn duty and our legal obligation to not close our mind and listen to all sides before reaching conclusion.
Senator Mitchell: In the next paragraph, you state that you are a "true life cycle regulator." That is impressive. It is a whole bunch of work. Do you have the resources to do it?
Mr. Caron: Yes we do. The current offshore activity level is zero. There is nothing in sight in terms of several years before, if we approved it, a well may be drilled in the Beaufort Sea or anywhere in the Arctic offshore. Our plans include building up to the possibility of receiving an application for it. If that application were received and approved, it would include holding the applicant accountable for the outcomes. Combined with our jurisdictional review and with the partnerships that the company might have with departments and agencies responsible for aspects of emergency response, we may judge that a well may proceed or may not proceed.
Senator Mitchell: As horrible as the problem was in the Gulf of Mexico, in the back of our minds at least we had the comfort that BP had a whole bunch of money and the resources to do whatever was necessary. They spent billions of dollars.
The company that holds most of the exploration licensing in Old Harry, Corridor Resources Inc., is described as a junior resource company. If it does drill and it has a problem, does it have the resources to fix it?
Mr. Caron: I could not say. I will repeat what I said to the chair, namely, that the work they are planning to do as far as we understand is seismic work to allow airguns to send sound waves to the structure to measure the response. Seismic work is a different situation from offshore drilling. It does have safety and environmental consequences. A safety regulator must look at them.
Senator Mitchell: It is not inconceivable that they could get a licence to drill. Who is checking on their resources? Would you allow a junior to do that in your jurisdiction?
Mr. Caron: Quasi-judicial bodies are required not to close their minds. We would have to look at the facts. As we will cover later in discussion, we have a specific requirement in terms of financial security before we allow a company to do any work. The legislation that Parliament has passed requires us to do that. The regulations are even more specific and the way we administer them makes it abundantly clear that financial security is a must at the time of the application and it must remain in place during the operation. We even have the power to cease operations if financial security lapses during the operation of the well or if there is a lapse of any kind.
Senator Mitchell: How much is it? When you say "financial security," is it money in the bank?
Mr. Caron: It can take various forms, for example, bonds, financial instruments, reliance on the balance sheet.
Senator Mitchell: Would it be $1 billion?
Mr. Caron: It can be any amount. The law is clear that there is no limit.
Greenland recently authorized two wells on their side of the Canada-Greenland border. Based on media reports — I have not validated this independently — they required $10 billion in financial security before that company could drill.
Senator Mitchell: Could that be the gold standard?
Mr. Caron: It is a fact out there that in the case of Greenland — and it is based on media reports; I have not verified that — that is something they decided. At the NEB, we can do the same. We can ask for less or for more. It will depend on our examination of facts, the environment that could be affected, the financial strength of a company, which is a relevant point; and anything we deem relevant in our determination as a quasi-judicial body.
Senator Lang: Welcome, witnesses. I appreciate your coming and it is certainly of value to the public to be informed of the steps you are taking. You always bring new and fresh information that is important to Canadians.
In your opening statement, you referred to the Devon Paktoa C-60 drilling project in 2005-06. I think it is safe to say our main concern is deepwater drilling in the Arctic. Could you clarify for the record if that well is what we would call a "deepwater well"?
Mr. Caron: I can clarify that it was not; it was a shallow well in such a way that to drill the well, you had a direct connect between the rig and the bottom of the ocean. It was a physical structure.
Senator Lang: That is the point I want to clarify for the record. Our real concern here is deepwater drilling. We have had shallow water drilling for many years. Hundreds of wells up in the Beaufort Sea have been successfully drilled over the past few years.
There is one area I ask you to take note of if you would. On page 2 of your presentation you refer to meeting you will have on November 24 in northern communities. You will meet with the board of directors of the Inuvialuit Regional Corporation, which is obviously the priority, and the Inuvialuit Game Council and the Wildlife Management Advisory Council. I would like to see that you also include a meeting with the Government of Northwest Territories and the Inuvik city council because the other organizations do not necessarily represent other individuals in the community, collectively. It is important because they feel excluded, and they have some legal authority.
Mr. Caron: Thank you, Senator Lang. We will note that and make appropriate contacts with them.
Senator Lang: Senator Mitchell touched on what I think our real concern, which is the question of safety, and our ability to handle a situation if something goes awry with offshore drilling. On page 3, you talk about your staff having participated in six emergency response exercises in the past six months. I think it is safe to say that during our last hearings on offshore drilling that we were totally satisfied that we were well prepared to meet a situation if we had to confront something like what happened in the Gulf of Mexico.
First, did your staff physically participate up in the Beaufort Sea for such an exercise? Second, were they satisfied that we had the equipment and wherewithal to meet a disaster situation? Third, are the reports and observations made public on your website to let the public know what has happened and whether we have met our obligations?
There is one more comment I want to make. When we talk about equipment, I want to clarify for the record that we are speaking of equipment that is capable of dealing with it; we are not talking about 16-foot skips trying to deal with the situation that obviously none of us want to happen.
Mr. Caron: These exercises we have been and will be running are a combination of desktop exercises, which people really find helpful, and some underground, as well. Dr. Dixit will clarify that for you in a moment.
I cannot speculate as to whether we have the equipment and the facilities today to deal with a well that will be drilled in 2014 or beyond. I would say the goal is not to be ready now but to be ready then. My suspicion is that it is about becoming ready. I do not know if we received an application today for a well, whether the industry would be able to demonstrate that they have all the partnerships in place and all the submarines, helicopters and boats ready today to respond to an emergency.
As to whether reports are available, we will need to undertake to verify what we have and write to the clerk of the committee. If they are not yet in the public domain, we will make them available, subject to the usually limitation on the access to information. That is a good suggestion, senator. I will ask Dr. Dixit to supplement or improve on my answers.
Bharat Dixit, Team Leader, Conservation of Resources, National Energy Board of Canada: I cannot improve on the response, but I can add information.
It is incumbent on the operator to demonstrate that they have the appropriate contingency. That is our starting point and our expectation. As part of your recent announcement about the Beaufort Regional Environmental Assessment program, BREA, in August, a task talks about demonstrating Canada's preparedness. Therefore, a task is under way under that umbrella that will work toward answering the very questions you asked.
The last observation is to repeat what Mr. Caron said: It is a build-up to such a time as when anticipated applications are received, when such applications are decided upon, whether they should be approved and what their status. Our expectation is to build up and have the company demonstrate to our satisfaction that they have done all the networking and have all the equipment appropriate for dealing with those situations.
The board is not a responder. We ensure the right things are in place and the right actions are taken should things go awry.
Senator Lang: I want to make this point: In respect to the time frame and the money we have, I would like to have assurances about the money allocated. You talked about the $300,000 and did not refer to the amount of money through the Beaufort assessment, which is in the neighbourhood of $2 million.
Mr. Dixit: It is $22 million.
Senator Lang: I want to put on the record that I am quite concerned that the money be directed in such a manner that it meets the environmental objectives that we are striving for. We have gone through a five-year hearing on the Mackenzie Pipeline. It should have taken a year and a half and should have cost $1.4 million, but it actually cost $5 million with a time frame that has put that project in peril of even going ahead.
With an overview and with your responsibilities, can you give us assurances that this money, in conjunction with the local organizations, councils and all the organizations involved, will meet the environmental objectives we want it to meet?
Mr. Caron: I commit to you, senator, that the board is committed to implementing the legislation as passed by Parliament. What you describe is exactly what we have been asked to do. I think the money you just mentioned is part of the process.
There will be other actions on the part of NEB to have Canada ready to accept that application and, if Canada approves a well in the Beaufort Sea, to make it right. If things go wrong, the response will be satisfactory and in keeping with what we have determined to be in the public interest.
Senator Neufeld: Do you think there will be any applications received or approved before you are finished the study you are doing now?
Mr. Caron: No, senator.
Senator Neufeld: Good.
Let us talk about relief wells. You said they are required in deep water offshore regions of the North. Is there a specific zone that you drill into with a relief well? You say it is drilled in the same season, so at what depth do you intersect the main bore? Is there a standard or how do you make that determination.
Mr. Dixit: There is no predetermined depth at which a relief well is drilled. Typically a relief well is initiated when the original well goes out of control. It is rare that trouble has happened where the relief well has been planned to intercept.
The BP well in the Gulf of Mexico was approximately 18,000 feet below the sea floor surface. In shallower wells — the Paktoa C-60 oil well, will be in the order of magnitude 2,000 or 2,500 metres. It is where drilling gets into trouble.
Senator Neufeld: Perhaps I did not word my question properly. I understood that a relief well has to be drilled in the same season. I understand that, but there is a freeze-up. I live in the North. The well will not be producing or necessarily blown out in a season where you could actually drill a relief well. That is what I want to know. How do you predetermine where you will intersect that main bore? Is there a standard?
Mr. Caron: The area you need to target is where you can stop the blowout well from releasing oil into the environment.
Senator Neufeld: Which could be anywhere from 500 metres to 1,000 metres?
Mr. Caron: The geologist determines the source of the high-pressure zone. It is in that zone where you will get pressure and kicks and that is where you can lose control.
Senator Neufeld: You will not know where the main pressure is until you get to that total depth.
Mr. Caron: That is right.
Senator Neufeld: I am still a little confused, and rather than take up my time here, I would like to discuss it with you later as to how you predetermine where that relief well will intersect. I am talking about in the Beaufort Sea, not in the Gulf of Mexico where one can drill 12 months out of the year. In the Beaufort Sea, the drilling time is limited.
Mr. Caron: If it is a shallow well, like we had with Devon, we have limited capability. Therefore, we asked the operator to immediately begin drilling a relief well in the same season.
In the Arctic islands where ice is permanent, you have a situation almost comparable to onshore drilling. You drill a well, you lose control and you have 12 months in a year to begin the relief well. Within a timeline like three months, depending on the evaluation we make, we regain control.
If the well takes more than one year to drill in deepwater, that is where there is an issue. That is why industry has asked us, "What do you think should be the policy?" We say, "We do not know; we will have a review." We are completing this review right now.
Mathematically, the only way to regain control if a well takes two or three years to drill — in deepwater it may take up to three years to reach the target zone. Mathematically, the only way to obtain relief capacity in the same season is to drill two wells at the same time. We do not know whether that is a good idea; you double your risks.
We are looking at that in the Arctic review, and we will get to the bottom of it.
Senator Neufeld: It is interesting that it is dependent on a whole bunch of other things. I appreciate that. You are the lead agency?
Mr. Caron: Yes, we are.
Senator Neufeld: Does the Coast Guard and DIAND know that?
Mr. Caron: Yes, they do.
Senator Neufeld: I am happy if that is the case.
Mr. Caron: Most major departments are participants in our Arctic review. The federal family is part of this as registered participants.
Senator Neufeld: My third question concerns safety. I was quite surprised that there was a lot of discussion about blowout preventers, BOPs, failure and those kinds of things in the Gulf of Mexico. In your discussion and up until now, there has been no discussion about BOPs, but I am sure there will be discussion about BOPs during your study. Can we be assured of that?
Mr. Caron: Yes. You will find many questions about that in our call for information.
Senator Neufeld: Who do you use as an independent third party identity to verify safety?
Mr. Dixit: We have a regulation that lists five or six agencies that do that. They are called certifying authorities. Examples of those would be ABS, the American Bureau of Shipping, Lloyd's Register Group, those kinds of companies.
Senator Neufeld: If I remember correctly, when we discussed the Canada-Newfoundland and Labrador Offshore Petroleum Board and the Canada-Nova Scotia Offshore Petroleum Board, we found that the safety equipment was provided by companies that were actually owned by the industry. I had a little trouble with that. These independent organizations, although they will understand the industry, are they some industry related entity? When you say "third party," I want that to mean third party.
Mr. Caron: They were chosen for the purpose of regulations because of their independence. Their business requires them to be independent; otherwise, they would go out of business.
At the same time, when we look at the proposal, as it is the company that proposes, I understand their certification authority will look at it. If on the facts of that case we find something questionable, we would ask the question.
Senator Seidman: Thank you very much, Mr. Caron, for returning. I will go back over some of the territory that Senator Lang covered, just for clarification. For example, on page 1, in your introduction, you say that you have authorized only one offshore drilling project in 19 years.
Mr. Caron: Yes.
Senator Seidman: I would like to know why you authorized only one.
Mr. Caron: It is because only one was applied for.
Senator Seidman: That is a very good explanation. Thank you.
On page 3, you say that the NEB is the lead federal agency. You generally explained what that means, but I would like to know what that really means because this is clearly an issue that came up in the gulf, as to who was really in charge. If you could please tell me what that really means.
Mr. Caron: It is good you asked that question because it communicates the concept that when there is an emergency, it must be clear before the emergency begins how you would respond. All those exercises that we have been a part of will remain that way as we build up towards a time when we might need the capacity, which is about people never forgetting that we have a chain of command and it is clear who does what by when.
As Dr. Dixit said, we are not a responder. The NEB does not have ships, boats, helicopters or submarines. Our job is to hold industry accountable for getting it right, and when things go wrong, going back to your question Senator Seidman, that things are responded to very effectively. We hold the industry accountable to ensure that the outcome is acceptable to society.
It means that when in doubt, look to the NEB for direction as to what to do in terms of the sequence of events to regain control of a situation.
Senator Seidman: Does that mean that you actually coordinate, send out a request and get this ship out to that point?
Mr. Caron: It could mean that. The legislation allows us to take over management of the situation if we find the operator is not performing.
Senator Seidman: You can be the last stop? You can actually take control of a situation?
Mr. Caron: We have that authority under law.
Senator Seidman: That is very helpful.
Mr. Caron: It is.
Senator Seidman: You say that you agree with our recommendation that there be greater collaboration between all those responsible for responding to an oil spill. If we could just talk about the cooperation a bit, how have you built in collaboration?
Mr. Caron: Collaboration is what forms a safety culture among all of the participants. It is because you have tried through desktop or in-field exercises to get to know each other, develop trust, know where the phone numbers are and where the documented procedure is. Collaboration is a continual process. Even if we never need to use the skills, we will keep practicing in case we experience an emergency.
We also find that in cases of emergency, while there is a chain of command, at least among government authorities and also within industry, there is a strong desire to get things right as soon as possible. People who have been trained to think about the sequence of things to do to regain control do so very well, in our experience, when we have pipeline situations, for example. We have not had a situation with offshore drilling, but we have had some pipeline incidents. It is interesting what you have invested in bears fruit when the situation arises wherein you know what to do and who is in charge. It is not about show me your badge; it is about what to do now. That is what you see happening in actual emergencies. It is remarkable to see the degree of collaboration that naturally emerges because people know each other, they have worked together and they are ready for it.
Senator Seidman: I appreciate that as well. It is good to know there is a chain of command and a sense of who is in charge. That is critical.
I might just briefly make a comment about what you said in your presentation. Your attitude is that a safety regulator can always do more. I must say that the fact that you demonstrate no complacency is extremely reassuring, because, as we have discovered, technology moves forward. Regulators must be futuristic and be one step ahead of the technology.
I am pleased to hear that you have that kind of a safety culture.
Senator Frum: The rights to Old Harry are being negotiated and are in play. You say 60 per cent of the deposit is in your jurisdiction. In the event that exclusive rights were given to Quebec, would that change the structure of who is supervising?
Mr. Caron: It would depend on the arrangement. As you can appreciate, we are not part of these discussions. It is a policy discussion between Canada and Quebec. We have no part in those discussions, as we are an independent safety regulator. However, it is possible that we would no longer be the regulator if a regime were framed and implemented through legislation that made another body the regulator. It depends on the content of the arrangement.
For instance, since Yukon devolution the Yukon is the master of its energy resource development. However, the Yukon chose to contract with the NEB for technical services. In the exercise of their jurisdiction, they rely on people like Dr. Dixit to do the technical work, but they retain control of their decision-making. Senator, it depends on the outcome of those policy discussions and the extent to which COGOA, the Canada Oil and Gas Operations Act, is modified or not, as a result.
Senator Frum: In terms of how harmonized the levels of safety and procedure are among the various jurisdictions, would there be any change? I ask this in the context of a lot of the rhetoric in Quebec around gaining the rights to these deposits and the ability to extract $160 billion worth of goods out of them. Quebec is showing very aggressive interest in drilling.
Please tell us about the harmonization of standards and how they work.
Mr. Caron: What we have on the west side of Old Harry is a regulator like the NEB who is not involved at all in rights issuance. We do not issue exploration licences, whereas the offshore boards do. There is a bit of difference in the framework east of Old Harry and west.
In the case of the Gulf of St. Lawrence, under the current regime, Natural Resources Canada is the policy body that decides on these things, as INAC is the decision-making body in the Beaufort Sea.
I do not think it is responsive senator, but the regimes are very clear as to who does what. In our case, we do not get involved in the question of rights issuance and exploration licences. We get involved when it is the time to say there is a proposal to drill a well, is it safe, will it protect the environment? The clarity is there already. If there is a change in the legislation we have to see what that change is, and that is the policy of government and for Parliament to decide.
Senator Frum: Dr. Dixit, I am interested in the conference you attended with the international regulators. How frequently do they meet? Have you noticed a difference in the level of cooperation between international regulators? Presumably, if there is a disaster in Denmark or Brazil, it will affect us here, it will change the climate. Can you tell us a bit about that?
Mr. Dixit: Certainly. As you noted, the industry is international, and the regulators do need to react quickly. The answer to your explicit question is that the regulators meet annually. When there are instances, such as the Macondo well, they hold special meetings. One was held in September this year to make sure there is that convergence of knowledge, lessons learned, et cetera.
In terms of degrees of cooperation, I think that it is getting increasingly stronger. In addition to personal networks there are these structured opportunities whereby collaboration and cooperation can take place.
One change that has happened as a result of the Vancouver meeting last week is that instead of having these conferences every two years we are looking at having them annually. As well, we will include not just the nine or so regulators, but the whole industry and regulatory community can come together, share notes and be the better for it.
Mr. Caron: One example, senator, of the degree of cooperation we see in concrete terms is that the IRF is working on a joint standard to audit blowout preventers. We can talk about BOPs now. The international community might very well have soon, thanks to the IRF, a common document that says how we go about auditing a blowout preventer. It would be fantastic if that happened because we could have it and then continue to improve it, among all the countries involved.
Senator Frum: That will be good. Thank you.
Senator Brown: At our last meeting, we asked about multiple blowout preventers and metallurgical studies to determine the fail-safe depth of drilling in deepwater when combined with deep formation drilling as well.
Mr. Caron, does your team leader, Mr. Dixit, have some comments about more prevention to go with regulations? My Scottish mother always said that an ounce of prevention is worth a pound of cure. I do not know how to translate that, so I will have to leave it that way.
Mr. Caron: We are translating it in terms of Arctic review terms. In our call for information we released on September 20 we explicitly asked the industry, and any other participants in the review, to talk to us about redundancy. The concept of redundancy is actually ingrained in our regulations.
In addition, the concept of not relying on any one barrier is fundamental. We need to have two or perhaps more barriers. We are checking that out with the participants and conducting a review as to what that means, adapted to the unique Arctic environment.
Mr. Dixit: To build on the conversation you had in June, senator, the three aspects that I want to repeat is, in fact, reliability, redundancy and the capabilities of the BOPs themselves.
As Mr. Caron mentioned, those specific aspects are the kinds of questions we are asking regulated companies, manufacturers and academia to tell us so that we have confidence in the robustness of the equipment that is being proposed, and would be proposed for drilling activities. We concur with you in terms of those key aspects of reliability, redundancy and capability.
Senator Brown: Have you responded to any questions or asked about metallurgy? There must be some point at which a drill stem cannot take any more torque.
Mr. Dixit: Thank you again for the opportunity to clarify. Yes, those will be aspects of the Arctic review. In addition to metallurgy, it is actually what may be the circumstances where a BOP could be vulnerable — such as during a blowout — when a drill stem could be pushed out. While the rams are good at cutting, they may not be as good when something is going up. Those aspects are very much in the scope of our Arctic review.
The Chair: Senator Peterson, I was not going to let you speak today, you know, after that performance yesterday, but you are on. Senator Peterson from Saskatchewan.
Senator Peterson: Most of my concerns have been addressed already, so I will not take too much time. Concerning the financial strength of participants, I note in this particular project that this licensed junior resource company will probably want to drill an exploratory well. They may have the financial strength although I am not familiar with them.
Is there third-party oversight to determine whether a company has the bench strength to proceed?
Mr. Caron: Absolutely, senator. I cannot speak for the situation, as I said, in Newfoundland and Labrador, but their regime is similar to ours, save for the fact that they are in the business of issuing licences and we are not.
In terms of the question you asked, it is our legal obligation, senator, when we receive an application to drill a well, to verify that they have the financial strength to do the work and, if things go wrong, to respond to it. We cannot consider approving a well without that information. Not having that information can be the basis for rejecting an application.
Senator Peterson: When you say "we," you are talking about the NEB rather than, say, a bonding company that would look into it. I am trying to get at that aspect because they are removed from it and they will not stand behind a bond that they cannot handle.
Mr. Caron: There is another degree of protection. If a company must go to a third party for financial security to present to us, that assessment takes place. If that company does not have the financial strength to earn that, then that is the end of the discussion between the company and its financial lenders or providers. At the end of the day, we must evaluate what we have deemed to be acceptable. That is one of the many factors in accepting or rejecting an application to drill a well.
Senator Moore: Thank you, witnesses, for being here. When does a shallow well become a deepwater well? Is there a depth cut-off?
Mr. Dixit: There is no commonly accepted definition that beyond X metres it changes from shallow to deep. Generally, 100 metres or more is deepwater.
Mr. Caron: In my terminology, I would say it is deepwater in the Arctic Ocean if it takes more than one drilling season to reach its high-pressure target. That brings into question the complication that we were discussing with Senator Neufeld, because we require same season relief well capabilities. It might not be a rigorous definition, but if it takes more than one season to drill a well then I would call it a deepwater well.
Senator Moore: When was the International Regulators' Forum established?
Mr. Dixit: The first meeting of the IRF members took place in 1993.
Senator Moore: Have we been a member since then?
Mr. Dixit: We were asked to be a member then. However, because of the lack of offshore activities, our board chose to let the two offshore boards in Nova Scotia and Newfoundland and Labrador be Canada's representatives, and they have been active since then.
Senator Moore: Have the other nine countries that you mentioned on page 5 of your statement all been members since then?
Mr. Dixit: I believe Brazil joined later. I do not know the exact date, although I have it in my records. All the others have been long-standing members. Certainly, Norway, United States and Canada were the founding members.
Senator Moore: In response to Senator Frum's question, you said they meet annually and then Mr. Dixit said every two years.
Mr. Dixit: The members meet annually, and the offshore safety conference is held approximately every two years.
Senator Moore: When the situation occurred in Australia in August 2009, did this group get together right away and discuss what was going on what had occurred?
Mr. Dixit: I do not know the answer immediately, but I can respond to that afterwards.
Senator Moore: Are either of you Canada's representative at that table?
Mr. Caron: No.
Mr. Dixit: Canada is represented by the two offshore petroleum boards.
Senator Moore: Still?
Mr. Dixit: We continue to be, yes.
Mr. Caron: The reason for that is that every country has a vote. Canada has two votes because of the two offshore boards. It would be difficult to justify Canada having three votes on the table as a member of IRF. In terms of governance, the NEB does not vote and it is not a member per se, but we are totally engaged in their work in terms of getting conferences organized and we talk with the two offshore boards all the time.
Senator Moore: I wonder about the Australian occurrence and lessons learned. You get together. Did anyone talk about this? What is the mandate of this group? It is nice for the U.S. to talk about a gold standard now, but someone must have looked at that Australian situation and said, "We have to do something so this does not happen in our jurisdiction." Has that been done?
Mr. Caron: They have their own Australian inquiry going on which is near completion.
Senator Moore: I am talking about it from an international standpoint. That is, sitting down, looking at situations and trying to put in place measures so that these environmental disasters do not happen again. There is no authority within this group to require everyone to adhere to set standards?
Mr. Caron: You are correct. Among the phrases I heard in Vancouver during the conference is that they want this thing to remain a forum. They do not want it to be an organization in terms of the structure.
Senator Moore: Does your examination and work, in terms of the safety standards that you put in place and that you regulate, also look at directional drilling?
Mr. Caron: Yes.
Senator Moore: In terms of Senator Neufeld's question, I was at the North Slope BP field, in July 2007, on Endicott Island, where the drill went down two miles and out eight miles to the reservoir. How do you regulate something in those eight miles of transitional ground? How do you deal with that in terms of where you put in the relief well? It is very complicated. I try to envision how you handle that.
Mr. Dixit: The ability to intercept the well bore physically is the same as whether they are doing it vertically or for a deviated well. Typically, offshore wells tend to be straight wells because it is easier to drill. In situations like that, you want to have a facility on land and reach reservoirs further out. They would need to do similar drilling to be able to intercept. Alternatively, they can have a rig, depending on environment conditions, that is able to go vertically and intercept. Those are different options.
Senator Moore: You look at this procedure as well?
Mr. Dixit: Absolutely.
Senator Lang: My understanding is that in Canada — and I want to see if you can verify this — off the Alaskan coast, there has always been another oilrig close by that can drill a relief well if necessary. Is that correct?
Mr. Caron: With Devon in 2005, that was the case. It was part of our same season relief well capabilities. We regulate the outcome. If the well gets out of control, you must regain control.
Senator Lang: Can we verify for the record if that is the case on the Alaskan side, as well from a safety standpoint?
Mr. Dixit: I would have to review their capabilities. I am not 100 per cent conversant with them.
Mr. Caron: We will try to find that information and get it to the clerk of the committee.
Senator Dickson: Today I will direct my questions particularly to page 5 of your presentation. Following up on Senator Frum and Senator Moore's questions relating to lessons learned from the international regulatory community, is there a move away from a goal-based regulatory environment to a more prescriptive regulation environment?
Mr. Caron: The move is toward smarter performance based regulation. Those are different words but it is the same terminology that we were using as goal oriented. Every regulator still requires some very prescriptive elements. I will use an example I know well because I have been involved in pipeline engineering for a long time. To calculate the wall thickness of a piece of pipe in Canada, you use a first-degree linear equation that a Grade 12 student can calculate for you. That is very prescriptive; there is no discussion as to the wall thickness of a piece of pipe.
At the same time, we have also moved — like all those countries I identified on page 5 — toward reliance on management systems. The regulators hold industry accountable for the outcomes of safe drilling, environmental protection and emergency response. More and more, people are saying what matters or what went wrong is that people did not do what they were supposed to do. You are looking for regulators that promote the safety culture beyond the niceties of the words.
Is there a management system in place? Does the CEO believe in the management system? Are there documented procedures? Do people know where to find those procedures? Do they blow the whistle when they feel there is a safety situation? The company that punishes people because they say they are concerned about their safety does not have the safety culture we are looking for. Everybody is moving there, including, back in October, the United States of America.
Senator Dickson: Would you like to comment on the weaknesses that you found in management systems in other jurisdictions as a result of your attendance at the conference? What were the big weaknesses that have to be addressed and what are the strategies to address them?
Mr. Caron: I think it is the other way around. I hope I understand your question, but it has been reported that there were four prescriptive inspections of the platform that sank in the Gulf of Mexico. None of those inspections found major flaws in safety. The platform sank because the examination that was going on at the platform was not addressing the extent to which people were doing what they were supposed to do. However, I may have misunderstood your question.
The people around the table at IRF are saying that we need to continue to be vigilant. We must take nothing for granted. We must push ourselves, move toward performance-based regulation and continue to rely on management systems as part of the journey to promote safety cultures.
Mr. Dixit: We want to go beyond compliance. It is not just saying you have this, check, and you have that, check. It is to build that safety culture that Mr. Caron talked about. How do we promote that and encourage that to happen? It goes back to the establishment of a management system and all the steps that Mr. Caron just outlined.
Senator Dickson: I was very pleased to see that the Canada, Nova Scotia and Newfoundland boards are actively involved in the IRF, and particularly that you are active participants as well. However, my real concern comes back to the management systems. There must be companies that excel in their management systems and there must be companies that are moving toward the gold standard. I assume no one is at the gold standard.
Would you like to comment? Probably you cannot name specific companies, but you can give some indication of the weaknesses.
Mr. Caron: I cannot speak for other jurisdictions. They have their own database and their own management overviews. In Canada, I will name the company Devon. When we examined their application in 2004 and observed the drilling in shallow waters in the Beaufort Sea, we found what we were looking for in terms of the safety culture.
However, there were imperfections during the operation. There were a few workers affected by nitrogen that had to be evacuated. The company immediately found why this had happened. These employees fully recovered and it became part of the learning of how to drill safely in the Beaufort Sea, which is part and parcel of having an adequate safety management system.
We have much more experience with pipeline companies that we regulate. We regulate a few hundred companies and maybe a dozen major ones. There are shades of grey in terms of the degree of commitment to safety cultures. When we find breaches — the classic example of someone not wearing their hard hat or steel-toed boots — we always find the company agreeing to issue what we call an assurance of voluntary compliance, AVCs.
Companies voluntarily issue several hundred AVCs per year. We have hundreds of inspections and dozens of audits. We find that when we discover those imperfections, companies are not trying to hide them. They say, yes, maybe you are right; we will improve in our management system so that next time when you audit us, we will have that one nailed down.
That is very important because if the goal of regulation is to blame people for having deficiencies, that is a slippery slope toward a culture of hiding facts. Out of that, you get less safety for Canadians.
Senator Dickson: My last question relates to the Canadian Environmental Assessment Act and exploratory wells. Is a comprehensive assessment no longer necessary?
Mr. Caron: For offshore drilling and for drilling in general, we always do an environmental assessment.
Mr. Dixit: The comprehensive study list was modified in approximately 2005 to remove that aspect that you just mentioned. That is a parliamentary decision.
Independent of what is done in terms of regulations and statutes, the board is obliged to, and does, take seriously the environmental assessment at the front end to make sure all the factors that can cause harm are identified, and then looks at how they are addressed — particularly for the environment, safety and for people. Those are critical aspects that we look at before we make any recommendations for decision making.
Senator Dickson: Legally, all you had to do is the screening, am I correct?
Mr. Dixit: Legally, a screening that is required, but the screening is very thorough. Certainly, in the Beaufort Sea, it would include input from the agencies that were set up as a result of the Inuvialuit Final Agreement.
Senator Massicotte: On page 3 of your presentation, you say the recovery reserve potential is 1.52 billion barrels of oil and that equates to 4 per cent of Canada's current annual production of either crude or natural gas. Are we producing approximately 4.5 billion barrels of oil per day in Canada?
Mr. Caron: That is the order of magnitude for sure.
Senator Massicotte: Times 365 days. I am always trying to get an assessment; I am not an expert. I am asking how much is that? I would have thought that was close to one year's production of Canada's oil and you say 4 per cent. I am trying to figure that out. Maybe my math is wrong.
Mr. Caron: I doubt it, senator, but it is 4 per cent of the annual production of crude oil.
Senator Massicotte: You obviously made an immense assumption about future production of tar sands and so on. I am trying to get a sense of perspective. Am I correct that it equates to maybe one year of Canada's current production?
Mr. Caron: The 2 billion barrels of oil, I think, is a little less than one year's production. I think we produce more than that each year. If you do not mind, senator, it would be easy for us to send a table to the clerk that makes that clear in terms of precise numbers.
Senator Massicotte: Are we producing 4.2 billion barrels a day?
Mr. Caron: That is certainly the order of magnitude.
Senator Massicotte: Times 365, unless you want to do a leap year.
Mr. Dixit: I will add that the Old Harry prospect has not been drilled, so any numbers you see there are speculative and those are provided by the company. Until a well is drilled and delineated, it is speculative.
Senator Massicotte: Is this recoverable? I understand we only properly recover 30 per cent of the oil in a certain well today.
Mr. Caron: That is why Dr. Dixit is a bit cautious; I will be as well. We found this number on one website of one company. When we throw a number like that at the NEB, we have people quote the methodologies we use. If we ask our staff "What is the number that could come out of Old Harry?" the answer is that we do not know.
You asked if there was an answer out there. They found one and that is the number you have. We do not subscribe to it because it could be more or less. We need more information.
Senator Massicotte: You are still 100 times more expert than I am. If we recover 30 per cent today, which is the norm, is it reasonable to expect that with the right technology we will recover 80 per cent in 50 years? We have immensely increased oil recovery with the horizontal wells. Perhaps we will find 300 per cent more oil resources.
Mr. Caron: Technology changes all the time, onshore certainly, though perhaps not offshore. There is a question of injecting CO2 to achieve environmental gains. This is changing every day in terms of what people are trying to achieve technically.
The 30 per cent number you invoke is probably traditional and likely outdated in terms of people's desires to do better and as people seek to recover the resource more economically. Once the well is drilled, it is drilled. You have the resource. Therefore, if you apply your mind and intelligence to get more, it is only an economic and scientific calculation to get more.
Your point is well taken. We will undertake to send to Ms. Gordon a nice table that compares our own numbers on production annually.
Senator Massicotte: Times 365 that would be useful.
Mr. Caron: We will make it clearer because the math can be problematic. I would not want to guess right now.
The Chair: Mr. Caron, you indicated the Old Harry Oil Field straddles the jurisdictional border between Newfoundland and Labrador and Quebec. Anything that is on the Quebec side — any licensing, oversight or regulation — is within the jurisdiction of the National Energy Board of Canada because there is no agreement between Canada and the Province of Quebec to set up a board similar to the boards in Newfoundland and Labrador and Nova Scotia. Is that correct?
Mr. Caron: That is my understanding based on what I read in the media. We are not involved in policy discussions. For the longest time, we have published this map that shows where we regulate as the federal regulator in non-accord areas. Our area includes the West Coast; the North, less the Yukon because of devolution; and the Gulf of St. Lawrence, minus that part which is the subject of accord agreements. It includes half of the Bay of Fundy because Nova Scotia has half of it under their board jurisdiction. Under COGOA, the NEB has a role in half of the Bay of Fundy, south of New Brunswick.
The Chair: Today though, if Quebec wanted to exploit the Old Harry section within their territory — and I do not suggest they do — they would need to have approval from your board. Is that correct or not; could they just go ahead and do it?
Mr. Caron: Senator, when new board members take the course in terms of "quasi-judicial tribunals 101," the first thing we do is verify jurisdiction. As a technical regulator, we would not be looking for jurisdiction; we would be in standby mode and get an application if people choose to file with us.
If our jurisdiction is contested by anyone, we hear those views. I have said it before, but I will say it again: In terms of Arctic review, we cannot close our minds until we have seen an application.
For things west of the current line of responsibility of the C-NLOPB, the Canada-Newfoundland and Labrador Offshore Petroleum Board, we tell Canadians we are the federal regulator for that part of the Gulf of St. Lawrence as far west as the western tip of Anticosti Island.
If people disagree, we hear these views in front of us as a quasi-judicial body and determine jurisdiction or lack thereof.
The Chair: You are being your usual very careful self, and I commend you for that, but there is a lot of speculation in the newspaper and the Prime Minister of Canada has said things. We are being led to believe Canada and Quebec are negotiating a new accord, or something similar to what Nova Scotia and Newfoundland and Labrador have. I understand the NEB was involved at the time.
Do you know anything more than we know from reading the newspapers?
Mr. Caron: Absolutely not. In fact, the offshore board legislation was passed before 1991. We became the offshore regulator in 1991. An organization called COGLA, the Canada Oil and Gas Lands Administration, which combined not only safety regulations but also rights issuance et cetera, was involved at that time.
We do not have insiders' knowledge on that because we are independent from government and do not get involved in policy-making. We do not want policy-makers to involve themselves in our independent regulatory business, either.
Senator Moore: I want to follow up on Senator Dickson's question. You mentioned that the platform in the Gulf of Mexico had been examined and approved by four different independent inspectors. However, that rig did not only sink; there was an explosion and a fire. Eventually, it sunk but it was not like it was sitting there and had a leaky hull and went down.
It does not help me a lot to hear that four different groups looked at it. They looked at it, but did not look for the evidence of a possible explosion. Did they look at that threat?
Mr. Caron: That is the point we are trying to make. With management system attitudes, when you audit, you audit for all the hazards that can occur and you look for the company's readiness to deal with them.
In the North Sea, the Piper Alpha accident in the 1980s was the first major catastrophe that led to major gains in terms of readiness philosophy. They coined the phrase "safety case." We do not use the phrase in Canada, but we do the same thing. The safety case is about demanding of the proponent that they identify hazards and demonstrate to the regulator that the hazards are understood and, if they occur, they will take the following actions.
I am saying that perhaps it was not as thoroughly as it could have been done. I am speculating, and I hate doing that. That is why we are waiting for the report in January to see what the U.S. commission found.
The Chair: Senator Moore, I can give you the address in Washington. I think they are looking for counsel for the investigation. Only you can go; we do not want to send Senator Dickson. We want him here.
Senator Seidman: I am trying to clarify something about Old Harry. You said you are not looking for jurisdiction — I think that is what you said — or that you are not looking to add to decision-making issues for yourself and seeking jurisdiction.
Mr. Caron: Can I clarify that? I will wait for your question.
Senator Seidman: I would like to clarify this. Are you saying that if the application for Old Harry does not come before you for whatever reason, then you would not be involved in the decision-making process? You would not be actively seeking it out; I thought that is what I understood.
Mr. Caron: Then my answer was unintentionally inaccurate, senator. I am suggesting the board does not have people scanning the environment for applications filed elsewhere in case we thought they belonged to us. We do not have a business function assigned to checking out who is applying for what. I cannot speculate how we would comport ourselves if applications were filed with different authorities.
We have an obligation imposed on us by Parliament to exercise jurisdiction where we have jurisdiction.
The Chair: As good Quebecers, Senator Seidman and I are wondering about this. There is a lot of stuff in the newspapers now because the wind is up that they will start drilling in the Gulf of St. Lawrence. We believe — and you have not disabused us of that belief — that if someone wants to do exploration, subsequent drilling and/or production in the Gulf of St. Lawrence to the west of the Newfoundland board that would have to come before your board. We understand that it is what it is.
Mr. Caron: That is my expectation as well, Mr. Chair.
The Chair: We do not consider it a speculation; it is your jurisdiction.
Mr. Caron: I agree.
The Chair: That is the point, is it not?
Senator Seidman: Absolutely.
Senator Lang: I would like to redirect our thoughts toward the ever-changing technology. Since the BP disaster and since we have this international regulatory forum that meets, I would like to know if the money has increased towards research in this area, specifically perhaps in the United States, as well as in Canada, and whether that technological information is generally made available to industry. What are your expectations looking ahead from the point of view of NEB requesting more money and more expertise going into this area so we can narrow down the risk factors as close to zero as possible?
Mr. Caron: We will be getting that knowledge because we have asked for it, and we are holding industry accountable for that knowledge to be developed.
In our call for information on September 30, I will not waste your question time and look for the specific answer. We ask any participants in the review to identify where there are gaps in knowledge and science and how they will be filled.
The NEB itself is not in the business of issuing grants and stimulating research. We are not on that policy side of things. We are the safety regulator. However, we are entitled to ask and we are asking as a regulator of those who wish to apply for wells in the future to tell us where the science is, where the gaps are and how they will be filled. That is part and parcel of what to look at when we decide to approve or deny an application for a well.
Senator Lang: I understand that, and I appreciate that. What I am asking is in the international regulatory forum — perhaps Dr. Dixit can address this — from the point of view of the companies, of the regulatory bodies and the countries, is there an increase in financial contributions by the companies to bring our attention to the question of technology? Is that information generally available to the industry and obviously for your request?
Mr. Dixit: I can come at it from two slightly different perspectives, and hopefully I will address your question.
First, Director Bromwich, who is the director of the Bureau of Ocean Energy Management, Regulation and Enforcement in the United States, has indicated that they are seeking approximately $200 million to get more staff, more knowledge, et cetera. That is part of what the United States government is doing.
He also indicated that as a result of them raising the bar, there is an expectation that companies will do more. A consortium of companies, BP included, will be investing approximately $1 billion in terms of containment. That is an example of where companies are investing.
As far as Canada is concerned, we have a number of vehicles through which research in this area can be undertaken. One of them is the Program of Energy Research and Development managed by NRCan. We also have the Environmental Studies Research Funds, which is also focused towards industry funding and getting results so that both themselves and the regulators are knowledgeable about issues and solutions out there before regulatory decisions can be made.
Senator Lang: Getting closer to home off the Alaskan coast, could you update us as to whether there are any further steps being taken off the Gulf of Alaska and the Beaufort Sea. There was a request for a deepwater well submitted, if I am not mistaken. Could you update us as to whether there have been any changes to the current status?
Mr. Dixit: I knew things as of April 2010. What I can undertake to do is let the clerk know the status. Two companies, ConocoPhillips and Shell, have planned for drilling in the Beaufort and the Chukchi Seas.
Mr. Caron: They have reduced their plans a bit since April. I think Shell at least is still seeking some approval, and I understand it has been more than slightly downscaled since the Gulf of Mexico situation. Dr. Dixit will ensure the clerk receives what we know from our sources.
Mr. Dixit: At the risk of going a little further, in terms of sharing current knowledge in terms of physical environment, well drilling, et cetera, Canada is the host at the end of this month of a conference that will have researchers from both the United States and Canada coming and talking about oil and gas research results. They will have regulators there as well.
Senator Neufeld: I want to go back to relief wells. Maybe I mistakenly understood that relief wells were a requirement. Then I had the explanation that kind of told me that is after an incident because you have to determine where the high pressure is. That was my question. How do you determine prior to an incident where you intersect the wellbore? That is what I want to get at. It is fine to say that we require relief wells after there is an incident. I would hope for that. There should not be a requirement. You actually need to do it.
Maybe I am the only one who does not understand it, but I do not understand what was said and I do not understand the answers. I do not want it to be a long answer about the well in the Gulf of Mexico. That was almost total depth, which is determined by the company because of the information they gather through seismic and other exploratory wells. I understand all of that.
Please clarify for me what you mean by "relief wells are required under the NEB."
Mr. Caron: As we wrote in our call for information, our policy requires the operator to demonstrate as part of their application, long before they have an incident. They must demonstrate within their contingency plan, relief well capabilities to kill an out-of-control well during the same drilling season. By then, we know how deep, we know if it is directional or not, we know the risk, we know the pressure. They must convince us that they have figured it out. If they lose control, right then the second well intervenes, releases the pressure of the out-of-control well and stops it.
Senator Neufeld: You can have an incident long before total depth. That is a fact. When you say that it is a requirement to have a relief well, it is no different than actually what took place in the Gulf of Mexico. They needed a relief well drilled, and they brought the rig in to do it after the incident took place. That is exactly what we have at the present time.
Mr. Caron: That is right.
Senator Neufeld: Therefore, we do not have something in place that says, "You have to have a relief well drilled almost at the same time you drill the original well."
It is after the incident, and I am having trouble with that. Once it is covered with ice in the winter season, I guess you can drill a relief well, I appreciate that, but there is a certain period where you cannot bring a drillship in and move equipment by truck because the ice is not thick enough.
At first, I was kind of happy saying, "They have to have a relief well drilled." To me, that would mean relatively close to surface to intercept the bore because that is where it will come out. It will not come out some other place. I am not comforted by what you told me about relief wells.
Mr. Caron: I was not seeking to comfort you. However, at the same time that we are asking for that capacity, we are asking for information as part of the Arctic review as to what the ranges of losses of oil in the environment are when you lose control. That is question 1.5.1: They must estimate for us what amount of oil would be released, how long they would take to stop it, what amount of oil would remain in the environment and the impact of that oil on the land, on communities, on people and the extent to which this is recoverable.
Senator Neufeld: There is a huge difference between the Gulf of Mexico, the East Coast, the West Coast, Brazil and the North Sea as compared to a situation that we would see in the Beaufort Sea where you have seasons and it is not always frozen over or open.
Mr. Caron: You are totally correct.
Senator Neufeld: There are periods of time where you cannot access it with anything.
Mr. Caron: We acknowledge that. In the question we asked on September 30, you will find the phrase "in the unique Arctic environment" about 15 times. We ask those questions.
The Chair: That concludes our special hearing, in a way, supplementary to our offshore study.
We want to thank you, Mr. Caron and Dr. Dixit, for being with us and for the additional information you provided us offline. I understand you have some things for me afterwards, which covers it all. I believe we will be in touch with you as we may need clarification. In the meantime, thank you very much.
(The committee adjourned.)