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

Issue 10 - Evidence - June 29, 2010


OTTAWA, Tuesday, June 29, 2010

The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 6 p.m. to study the current state and future of Canada's energy sector (including alternative energy) (topic: Canadian offshore oil/gas exploration and drilling: the current status of operations/applicable regulatory rules and regulations).

Senator W. David Angus (Chair) in the chair.

[English]

The Chair: Good evening. I call to order this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources as we continue our special sub-study, which we are also calling an emergency study, on the Canadian offshore exploration, development and production industry in light of the tragic accident in the Gulf of Mexico on April 20 and the explosion of the Deepwater Horizon and all of the ensuing consequences.

Our mission in this special study has been to step aside from our ongoing in-depth study of the energy sector in Canada, but we are trying to set a road map and get a national dialogue going with a view to having a strategic framework for a future sustainable energy policy for Canada. That is our big-picture goal.

However, in this case, we were given to understand by various public opinion polls that there was fear in the land and a call for a moratorium in offshore work. We in the committee were aware that there is not actually any offshore drilling going on in the West Coast, nor is there any in the Arctic. Whether there will be in the future is another story. We were fairly aware of what is happening on the East Coast.

We would like to obviate the risk of throwing the baby out with the bathwater or overreacting to the Deepwater Horizon and perhaps setting the industry back, a significant industry, especially to the Maritime provinces, and an industry that produces a good proportion of our crude oil. Close to 15 per cent of Canada's crude is developed in the offshore, and we have the gas in the Sable Island and Panuke areas. We did not want to prejudge it, but we wanted to get the facts out so that Canadians can take another peek at it and decide whether they want a moratorium.

We have had a long series of hearings. I understand our witnesses, whom I will introduce in a moment, have been following our procedures. I want to welcome them, as well as our public out there, which includes the people in the room and also those watching on the CPAC network and on the World Wide Web, who have also been sharing our hearings.

My name is David Angus. I am a senator from Montreal, Quebec, and chair of this committee. To my right is Senator Grant Mitchell, the deputy chair, from Alberta. To his right are the able people from the Library of Parliament, Sam Banks and Marc LeBlanc; Senator Richard Neufeld, from British Columbia; Senator Judith Seidman, from Montreal, Quebec; Senator Daniel Lang, from the Yukon Territory, the centre of the universe; Senator Paul Massicotte, from Montreal, formerly Winnipeg; and a surprise guest, who I thought was on her way to the airport, Senator Nancy Greene Raine, from British Columbia, a well-known and esteemed Canadian personality. We are proud to have her in our numbers here.

To my left is our clerk, Lynn Gordon. Another guest tonight is Senator George Baker, a long-standing member of Parliament from Newfoundland and a great student of all litigation relating to the oil and gas industry. He can cite every case from a municipal law infraction right up to the Supreme Court of Canada. He is filling in for my predecessor, Senator Tommy Banks. Welcome to you, Senator Baker. To his left is Senator Rob Peterson, from Saskatchewan; and Senator Johnson is replacing Senator Frum. Senator Johnson is from the province of Manitoba and chairs the Standing Senate Committee on Human Rights. She is very knowledgeable and an astute questioner, so I give you advance warning.

Before introducing our guests, I have a short commercial: This committee is proud to have tabled in Parliament today, in the Senate chamber, its phase 1 report of its study of the energy sector, entitled Attention Canada! Preparing for our Energy Future. It is hot off the press, in the two official languages, English and French. Copies can easily be obtained, either electronically or in hard copy, and Senator Mitchell and I are available for interviews. I say that to you in cyberspace and to everyone else here watching. This is a significant report calling on Canadians to wake up to the issues facing us from the increasing population boom and from the fact that Canadians are still consuming per capita more energy than any other country in the world. This is an interesting report. I mention it because we are proud of it, and our staff members have been wonderful in helping us put it together.

Without further ado, it is our pleasure to welcome witnesses from ExxonMobil Canada Ltd. We are proud you could come and share your knowledge with us tonight. We have Mr. Glenn Scott, President of ExxonMobil Canada Ltd., who hails these days from Halifax, Nova Scotia; and Mr. Paul Schuberth, Drilling Technical Manager with ExxonMobil Development Company. At the moment at least, you are from Houston, Texas; is that correct?

Paul Schuberth, Drilling Technical Manager, ExxonMobil Development Company: That is correct.

The Chair: You were fortunate to live up near Senator Baker for some part of your career in Newfoundland, I believe?

Mr. Schuberth: That is correct. We lived in St. John's and enjoyed the opportunity to be there. It is a beautiful province. Our family enjoyed the time we spent in Eastern Canada.

The Chair: We are pleased you could be here this evening, gentlemen. Mr. Scott, I understand you have an opening statement. I would like to share with my colleagues here that you started your career with ExxonMobil in 1986 and have held numerous positions in the U.S., overseas and in Canada. In August 2006, you were given your current assignment as production manager for ExxonMobil Canada East and president of ExxonMobil Canada Ltd.

Over to you, and I am sure my colleagues will have lots of questions for you. I do not think it bears repeating, but I will do it anyway, and that is to say that in nearly every other witness's statement, when it got to the point of lessons to be learned from events like the Deepwater Horizon disaster, we heard about the Piper Alpha and the Ocean Ranger and about the Exxon Valdez, but only in passing. We will hear more tonight.

Glenn Scott, President, ExxonMobil Canada Ltd.: Yes, sir, you will. Thank you, Mr. Chair and committee members, for hosting us and for your hospitality.

In the wake of the recent tragic events in the Gulf of Mexico, it is important to bring forward relevant information about offshore drilling in Canada.

While in the past four years I have made my home and raised my children in Halifax, my 25 years in the oil and gas industry has included time working in the Gulf Coast. I am saddened by the loss of life that occurred in the Deepwater Horizon disaster; by the effects of the ongoing spill on the environment; and by the toll — economic and psychological — on those who make their living in the Gulf waters.

As the investigations into this incident continue, it is essential we understand the events that led to this tragedy in order to develop the appropriate responses. My prepared remarks will be very brief, as I know that your time is valuable and that you have invited me here primarily to answer your questions. However, it may be helpful if I briefly outline the activities of ExxonMobil Canada and share with you our approach to safety and the environment.

ExxonMobil Canada is a leading developer of petroleum resources off the East Coast with offices in Halifax and St. John's. We operate the Sable Offshore Energy Project more than 200 kilometres off Nova Scotia. There we produce natural gas from several platforms located in shallow waters spread across several hundred square kilometres in the Sable Basin.

We also supply personnel and management systems to Hibernia Management and Development Company, or HMDC, in which we hold approximately a one-third interest. HMDC produces oil through ongoing, controlled and systematic drilling from a large, gravity-based structure that sits on the ocean floor in shallow water in the Hibernia field.

We are the operator of the Hebron project, which is now approaching the early construction phase of its development, and it, too, will be a gravity-based structure.

The Chair: Excuse my interruption. We do understand there are two regulatory agencies, one that deals with the Newfoundland and Labrador offshore; it is a joint federal-provincial body, as is the one that deals with the offshore Nova Scotia. I believe you are in both areas, so as you are telling us about your involvement, as you say Hebron or Hibernia, for example, please let us know which area it is in. That would be helpful to us.

Mr. Scott: Absolutely. Sorry about that. Hebron and Hibernia are both offshore Newfoundland and Labrador, so the Canada-Newfoundland and Labrador Offshore Petroleum Board regulates our activities in those developments. The Sable project is in Nova Scotia, and the Canada-Nova Scotia Offshore Petroleum Board regulates our activities there. We are also interest holders in the Terra Nova field. That is offshore Newfoundland and Labrador, again regulated by the Canada-Newfoundland and Labrador Offshore Petroleum Board. That facility is operated by Suncor. We are in the Orphan Basin, exploration play, which again is in Newfoundland and Labrador, operated by Chevron.

For many, current events bring back memories of the 1989 Exxon Valdez tanker spill. The tanker spill, although the low point in the history of our company, was also a turning point. After responding to the spill, ExxonMobil undertook a top-to-bottom review of its operations. This review led us to develop our Operations Integrity Management System, or OIMS. I have left you with a handout with some of the headlines from our OIMS system. I will be referring to that throughout the question-and-answer session.

OIMS is a disciplined regime of 11 separate elements that measures and mitigates safety, security, health and environmental risks. This management system applies to every operation we undertake. It is our common global language for safety and accountability.

The rigour embedded in OIMS, supported by internal and external assessments and audits, determines our approach to all drilling operations. It documents our standards for well design, the proprietary technology we use to predict pressures and model resource flow. It governs and tests the way we monitor and analyze information to both understand and reduce risk.

OIMS ensures that everyone on board a rig understands their roles and responsibilities and that everyone knows that all operations must comply with ExxonMobil's standards and expectations. Embedded in this knowledge is the requirement that we do not proceed with work if we cannot do it safely. We test this knowledge through regular drills and exercises.

In practical terms, OIMS produces a culture where decisions to stop work in the interest of safety are reinforced and rewarded by management. I will share some examples when we get to your questions.

OIMS also explains why ExxonMobil has consistently been able to perform successful drilling operations in challenging marine environments and in deepwater. We have drilled almost 8,000 wells over the last 10 years, 262 of them in deepwater, and we have done it safely.

Finally, OIMS systematically incorporates learnings from our own experience and the sharing of best practices. The investigation into the disaster in the Gulf will undoubtedly provide some of those opportunities.

My comments are made in the following context. I have had the privilege of working closely with Canadian employees and contractors on Canada's East Coast who, in my opinion, are examples of dedication and professionalism in the work they do every day. Their efforts ensure that Canadian energy is safely supplied to consumers who need it to heat their homes, to run their vehicles and to power their businesses. Our workforce is also driving economic activity that has helped to transform the economies of Newfoundland and Labrador and Nova Scotia.

We need to take the time to understand the events that led to this incident and to ensure that the right lessons are learned. It is important that our collective response is appropriate and does not undermine the efforts of so many who do their work conscientiously in a critically important industry.

Thank you for your attention.

The Chair: Thank you, Mr. Scott. You were true to your word about the brevity of your opening, and it has been a good segue into the questioning.

Senator Mitchell: Thank you very much, gentlemen, for being here and for your presentation. One of the obvious questions on some Canadians' minds is what are we doing differently here than British Petroleum did or did not do in the Gulf situation. I know it is difficult to speak about another company, but is there any way you can give us some assurance that there is a procedural or technological rigour, different technologies, some better regulation, or a series of things that somehow apply in the Canadian case in a way they did not apply or exist in the BP case, so that we can have some assurance that will not happen here?

Mr. Scott: As you stated, senator, I cannot speak to the BP incident specifically. We are watching and trying to learn everything we can from the reports we hear. Honestly, the reports we get are from the same data sources as the reports you get. We are not privy to any additional information. We will be watching for facts that come out throughout the investigation that takes place.

I can tell you that we have rigorous systems that assess risk and apply stringent design criteria that really are irrespective of the regulatory regime that we are in. At ExxonMobil, we apply in many cases a higher standard than regulatory regimes require. We will always meet regulatory requirements. We have good, solid training for our workforce. We have well-developed, robust procedures for executing jobs. We have a safety culture that empowers everyone to stop work if they do not believe it is safe. We have a feedback loop where we measure ourselves against our own systems to ensure that we are actually implementing them the way we say we do.

I measure my team. I have experts from elsewhere across the planet from ExxonMobil who come measure me against my own systems. The regulator measures me against my own systems in Nova Scotia and in Newfoundland and Labrador. We have a certifying authority that backs up the regulator as well. They come and measure me against my systems, my standards and my requirements.

Before we drill a well, we apply all of our standards and design criteria. We do not just review the well design locally. We review it with global experts, like Paul Schuberth here, and his management up line to gain the value of global experience and expertise within ExxonMobil.

Further, we review our well designs with the regulator. Those reviews are fairly detailed and a back-and-forth, iterative process to make sure the regulator truly understands how we will drill a well safely.

We never start a project, including drilling a well, unless we are confident we can do it safely.

Senator Mitchell: No matter how safe it is, things can still happen. The recourse that would reassure people is that if something were to happen, there would be a way to fix it and plug it. That was not the case in the BP example. I was struck by the fact that, immediately it occurred, they began to design and develop this box that they had never tried. They had presumably not thought of it prior to this happening. They take this box out and put it over the problem, and it freezes up and cannot be used. What sort of mechanisms do you have in your operation to plug a blowout that is as deep as some of these are and could be?

Mr. Scott: Senator, one common theme you will hear from me throughout, which should not surprise you, is that we believe that all accidents are preventable. We fundamentally believe that we have the equipment, the tools, the procedures, and the training to identify all risks before we start a job and to mitigate those risks so that they do not affect us and so that we can drill safely.

However, we do have emergency response capabilities and plans. You have heard from some of the other witnesses, and you will hear from me, that we have a three-tiered response system.

In the first tier, we have vessels and equipment stationed adjacent to our facilities. We have a standby boat equipped with response equipment, which stands by our manned facilities 24 hours a day, seven days a week. The first tier response will handle smaller incidents in terms of a release to the water.

The second tier is the regional response capabilities, tapping on resources that you have heard about: the Eastern Canada Response Corporation, ECRC. We have a contract with ECRC for our operations in Nova Scotia and in Newfoundland and Labrador to bring in regional response capabilities for larger spills. You have heard about their capabilities.

ExxonMobil also has global capabilities. We have a team of people who are trained every year in global response. They go around to various locations to train for tabletop scenarios. They have knowledge, contacts and access to resources virtually around the world that ExxonMobil can call in at our disposal if need be. That would be the third tier of response.

Senator Mitchell: We have heard witness testimony concerning the Stena Carron, which is the drilling ship for Chevron. Apparently, it has three ways to stop a blowout: a remotely operated vehicle; some sort of stacking process; and the audible activation of these plugging mechanisms.

The exploration is the drilling of the hole, and now you are producing. That could be subject to a blowout as well. Do you have three levels of redundancy there?

Mr. Scott: I will try to answer your question. In all of our drilling and production operations, we have a two-barrier minimum requirement. You talked about the blowout preventers, BOPs, but that is not the first barrier. The first barrier is the drilling mud that has the right density to ensure that the fluids from the reservoir stay in the reservoir where they belong.

When we move into the production well, the first thing we do is set a casing string across all of the open sections and cement that in place. We test that casing strain to ensure that it will hold pressure. Then we run some tubing down the hole and put in a packer above the interval that we intend to perforate and produce from. That packer is a barrier. We have tubing that is run up the surface. That is a barrier. Above the tubing, we set up a tree, which is a series of multiple valves that allow us to shut in the well. Along that tubing string several hundred feet below the sea floor, we install another valve, which is called the surface-controlled subsurface safety valve. That acts as a barrier downhole. There are multiple barriers in place. The tubing runs up to the tree with the multiple valve systems, into a flow line and into the process equipment. Once we start producing, before we ever perforate the well with a wire line perforating unit, we have these multiple barriers in place. Then, we perforate the well once we are safe and ready to produce.

Senator Baker: We have a new addition to the committee, Senator Dickson, who is a recognized legal expert in the offshore and Canada's continental shelf. I might say, Mr. Chair, thank you for your kind comments. When I began as a member of Parliament, you were busy appearing before the Supreme Court of Canada. You are perhaps the most experienced litigator and jurist Parliament has ever had. I congratulate the committee on its choice of chair.

The Chair: Another unpaid commercial.

Senator Baker: Perhaps you will not wish to answer some of my questions, but I hope you will take a crack at them. They will be pointed questions. As I understand it, shortly before the U.S. disaster, oil companies in Canada urged Canadian regulators to drop a requirement that companies operating in the Arctic had to drill relief wells in the same season as the primary well was drilled. Do you wish to make any comment about that?

Mr. Scott: Senator, I believe you are referring to some of the Arctic leases. As I understand, the National Energy Board will undertake a broad review of that question. At ExxonMobil Canada, we are supportive of that review. We hope to participate in the discussions to help answer that very question and make those kinds of decisions.

Senator Baker: Are you aware of the Frontier and Offshore Regulatory Renewal Initiative, FORRI?

Mr. Scott: I have heard the term, yes, sir.

Senator Baker: Apparently it is a partnership that includes the Canada-Newfoundland and Labrador Offshore Petroleum Board, the National Energy Board and the federal, provincial and territorial governments. Its purpose is to create new regulations that are more goal-oriented in nature to replace the current set of prescriptive regulations. I understand that these new drilling and production regulations came into effect in early 2010. Is that correct?

Mr. Scott: Yes, sir. New drilling production regulations came into effect in December 2009 or early 2010. I would characterize them as a combination of goal-oriented and prescriptive regulations. Many areas are still prescribed. There is a good example that does not relate to drilling: We have a certain number of beds on the Thebaud platform off Sable Island, the Hibernia platform or the new platform at Hebron that we will design. There is a prescription on the maximum number of people we can have on the platform at any given time relative to the number of beds. That will not change with the goal-oriented approach.

Under the goal-oriented approach, you have to say how you will drill the well safely. Every well might be a little different. In my view, it is more of a show-me approach by demonstrating how you will do it and prove that it will be done safely. ExxonMobil's systems, designs, standards, training and competency assurance program are well-suited to showing the regulator how we will undertake virtually any operation safely.

Senator Baker: You mentioned a moment ago the cement and the casing that are used. Is it correct that these new regulations, which came into effect this year, remove the requirements and the regulatory directions for how drilling companies should cement the casings on oil wells and how they should conduct pressure tests?

Mr. Scott: Senator, I must admit that I am not familiar with the details that you refer to, but I can assure you that whatever latitude a regulation may provide will not change ExxonMobil's standard approach to design and well drilling. We have rigorous systems and a rigorous approval authority program. You do not deviate from systems and standard requirements at a low level. In fact, any change in standard receives a high level of scrutiny and challenge.

Senator Baker: These new regulations would affect your drilling.

Mr. Scott: Any flexibility they afford will not result in a lowering of or reduction in ExxonMobil's standard approach.

Senator Baker: No, but there has been a lowering of your standard effective this year. I ask the question because the only litigated case I know about concerns Dome Petroleum Limited and their drilling in the Beaufort Sea and some of the first wells that were drilled.

The reason it is in case law is that regulations were made by Canada's oil and gas authority and a change was made relating to what you were describing a moment ago, that is, the amount of pressure that is put down. All the geological surveys were done when they applied for their drilling permit. They are called seismic surveys, deep seismic surveys and so on. In the adjudication of the court, the judge said that the strata in the Canadian Arctic are young — they are unconsolidated or at best slightly consolidated — and that a like situation exists in the Gulf of Mexico.

In this case a change was made. The regulation was determined by the federal regulatory authority, then a change was made with regard to exactly what you were talking about a moment ago, which is that at certain levels, because of the pressure that was estimated from oil, gas, water, rock or the sediment, cement had to be used down to 10,000 feet below the ocean floor. At 4,000 feet, the regulation was altered so that they did not have to use the same amount of cement because it was estimated that the pressure would not be great beyond 4,000 feet. However, when they struck 12,000 feet, the whole thing caved in. The gas came up to 4,000 feet and then dispersed in the ocean. As the judgment says, two years after that spill, the gas was still running into the Beaufort Sea.

You say that you will have your own regulations and regulate yourself and so on. However, this decrease in the standard of regulations in Canada starting in January of this year does not suggest to the general public that this will be a wise thing for all drilling companies to do.

The Chair: Senator Baker, at this committee we have you on the clock. As a new ad hoc member, we are very interested in your legal lecture, but our study has nothing to do with the Arctic. You may finish your question and the witness may answer.

Senator Baker: It has to do with drilling, Mr. Chair.

The Chair: You are saying things about lowering standards as if they were the truth. That is not what the evidence has been.

Senator Baker: I will take back the lowering of standards. The regulations were changed. I will not say "lowering" because the chair does not agree with it.

The Chair: This is a committee of consensus and non-partisanship. We have never had a vote.

Mr. Scott: In the handout I gave you on OIMS, element 7 is management of change. If the regulations change, we, as part of our design, procedure and training philosophy, will assess the implications of that change as a routine course of our business, and if that change has knock-on effects and changes the risk profile, we will take a step back before we act and before we change, and possibly before we do the job. We are very rigorous about our management of change process.

Currently we are not drilling at Sable. We will support the study of the National Energy Board and the review in the Arctic. Hibernia is drilling. We have 64 slots on the platform. We have drilled about 60 wells over the past 10 or so years, and we go basically to the same level of strata every time. It is called the Hibernia reservoir, and we are just getting to different sections laterally in the reservoir.

We have a good understanding of the strata, the consolidation of the material we are drilling through and the pore pressures in the reservoir. Our designs there are quite well tested. With the experience we have gained, we will not lightly institute any change in our design standards there.

Senator Baker: Is it true that for this year you do not have to have a relief well drilled in the same season as you drill your exploratory well?

Mr. Scott: We are not drilling exploration wells at Hibernia. We are drilling production development wells.

Senator Neufeld: You say you are a shareholder with Chevron in the Orphan Basin.

Mr. Scott: Yes, sir.

Senator Neufeld: I do not know what percentage, and I do not think that matters. Are you comfortable that Chevron applies the same procedures and rules as you would apply if you were the operator of that well? I am asking you to compare with Chevron. We have heard from Chevron, and you have probably read the transcript.

Mr. Scott: I read the testimony.

Chevron is the operator of the Orphan Basin well, which is currently being drilled in the offshore of Newfoundland and Labrador. ExxonMobil Canada Ltd. holds a working interest in the well being drilled.

In the planning for the well, lots of consultation takes place between all the co-ventureres in it: Chevron, Shell, Imperial Oil and ExxonMobil Canada. There is much consultation on which prospect we will drill, how we will drill it, how we will drill it safely, and how much it will cost. That consultation does not stop with us, as you heard. It goes through the regulator. The regulator is intimately involved in the review of the well design and the operation.

To put it simply, we are confident in the well being drilled. That is why we agreed to fund our share of it.

Senator Neufeld: I appreciate your answer, but I do not believe that it answered my question.

Chevron told us many of the same things that you are saying, that this will not happen with them because of what they do, et cetera. I am not asking you to explain that. As Senator Tommy Banks has said many times, I am sure that is what BP always said too: Do not worry; what we do, we do right.

Is your company comfortable that Chevron's regulations either meet or exceed the rules, regulations and procedures of Exxon?

Mr. Scott: We reviewed the design of the well that Chevron is drilling and their plans. One of our managers is flying to the drilling rig next week. We are getting reports routinely. We are confident that Chevron will drill that well safely. We are confident in the regulatory regime that Chevron is operating in.

Senator Neufeld: Does it meet or exceed yours?

Mr. Scott: I cannot compare Chevron's systems directly to those of ExxonMobil and say that they meet or exceed ours. However, Chevron's do meet or exceed the regulatory requirements in Newfoundland and Labrador, which are quite thorough.

Senator Neufeld: That is what BP would probably say in the Gulf. I am not asking you to answer that.

In the last 10 years you drilled 8,000 wells. I assume that is in the offshore. Two hundred and sixty-two of them were in deepwater. What is the deepest water?

Mr. Burgess: I believe you are speaking about water depth. The deepest water depth well that have we drilled is in the Gulf of Mexico, called North Bront, and it was in 8,700 feet of water.

Mr. Schuberth: You are correct. The 262 wells in there are our deepwater wells around the world on a global basis over the past 10 years.

Senator Neufeld: What do you call deepwater? I do not want to go through 262 of them, but how do you define that?

Mr. Schuberth: There are different definitions for deepwater. Deepwater in the Gulf of Mexico with the recent moratorium was 500 feet and deeper. In industry nomenclature, deepwater is traditionally 2,500-foot to 3,000-foot water depth and deeper. That is the traditional deepwater limit, if you will, for drilling activities.

Senator Neufeld: The offshore boards have regulations in place. If you were drilling a well in the Orphan Basin, the deep one that Chevron is drilling that you are a partner in, would you exceed those regulations? Do you exceed any of the regulations that are in place? What I am trying to get at is whether you just match what the board says or whether on a general basis you exceed all of the regulations or 50 per cent of them.

Mr. Scott: I will not speak to a hypothetical if we drilled in the Orphan Basin, but at Hibernia and Sable we do routinely exceed regulatory requirements. I will not say we exceed every single one of them. There are areas where we match, but that is the least common denominator. We will always meet or exceed regulations.

Senator Neufeld: You always meet or exceed. Do you meet or exceed regulations for blowout preventers?

Mr. Scott: Right now at Hibernia we exceed regulations. That is where we are drilling off the East Coast.

Senator Neufeld: By what fashion?

Mr. Scott: We have an extra ram or valve in the configuration of our BOP that is not strictly required.

Senator Neufeld: Is it a shear?

Mr. Scott: Yes, sir.

Senator Neufeld: How many shears do you have?

Mr. Scott: We have one blind shear. You have to remember Hibernia is a fixed structure, not subsea drilling, so the blowout preventers are sitting on top of the platform and are integral to the rig.

Senator Neufeld: It is totally different; I understand that. Let me go to your response system. You said you have three tiers. That was explained to us, but a number of things bothered me about what they talked about. One was that they said that tier 2 was for, I believe, up to 10,000 tonnes of oil and that they had the equipment for there that they could gather up from onshore and get out there relatively quickly.

I asked how that compared to the size of the Exxon Valdez, and they said it was about a quarter of what the Exxon Valdez was. I was trying to put it in perspective. Ten thousand tonnes in a blowout is not that much oil, but they had never practised a tier 3 or had the equipment that was close to actually look after a tier 3 blowout. That is one thing that bothered me. Where you are at with that?

Mr. Scott: I read through the testimony of both ECRC and Max Ruelokke from the Newfoundland and Labrador regulator.

The 60,000 barrels that you mentioned is a capacity, but as you recall, Mr. Carson testified that it is a function of time as well. ECRC has the capability to pick up more oil. It will just take a little more time. If we do not feel like we have the time, we can call on additional resources worldwide that ECRC does not have access to but that ExxonMobil can call upon. That is what we would refer to as a tier 3.

We do conduct tabletop drills on tier 3 throughout the year. People in my organization who are on our global response teams, what we call the North American response team, just went to Alaska for a tabletop drill. We have a tier 3 tabletop drill in Newfoundland and Labrador in September 2010.

Senator Neufeld: I still leave that out there. Senators were wondering after that explanation. I know it is all about time, how much oil actually pours out in the ocean, and time is time. We are seeing lots of time right about now with lots of oil going in the ocean, so that was some fear. I know my time is running short.

ECRC is a company owned by different oil companies, as I understand; it is a response unit, and it is very closely aligned with you in working out your plans for a spill, if in fact a spill happens. Do you think it should be a company owned by the oil companies that are actually drilling off the coast, or should it be a different company, because it has some responsibilities and rules it has to live under from the board? I found that quite surprising.

Mr. Scott: You are right. ECRC is comprised of a group of owners, all of which are either upstream or downstream oil-related businesses.

Senator Neufeld: Yes, Chevron and Exxon.

Mr. Scott: ExxonMobil is not; Imperial is. It is an arm's-length organization that acts independently and negotiates contracts for its services, quite independently from anybody who wants to call on that service.

The Chair: Do you think we should send Senator Neufeld to that tabletop test in September?

Senator Neufeld: I have probably been to one.

Mr. Scott: We do invite regulators and other participants to observe our tabletop exercises.

Senator Lang: I want to go back to your 262 deepwater wells, if we could. I am trying to assess what deepwater is. The one off Newfoundland that is being drilled presently I understand is over 5,000 feet. Of your 262 deepwater wells, how many were 5,000 feet and beyond? I understand that the deeper the well, the more risk there is and the more difficult it is from the point of view of technology. Perhaps you could give us that information.

Mr. Schuberth: As I said, the water depth that industry identifies as deepwater is somewhere between 2,500 feet to 3,000 feet and deeper. I do not have the statistics in front of me for which of those 262 wells are 5,000 feet or deeper, but that includes wells in the Gulf of Mexico, in West Africa and other places we have developments. That is where we have been drilling those deepwater wells.

Going back to what Mr. Scott said earlier, with respect to drilling wells, whether in a deepwater environment or not, we rely on trying to prevent any incidents to start with. It starts with having the right equipment and well design. That ensures that the appropriate standards have been applied, the casing design and tubing design are correct, things of that nature.

We look to ensure the equipment we use has been effectively inspected at start-up and periodically thereafter, and then we also have periodic tests of this equipment, whether it is a function test or a pressure test, to ensure confidence and the reliability of that equipment.

We also train our crews and ensure proficiency through drills and training. We do drills until the crews establish competency or proficiency to identify an influx from a well-control event or something as simple as a pit drill or trip drill, where we see an artificial influx of flows so that we can assume we are detecting a well-control event and be prepared to shut in the well.

We also have our operating procedures. In my role as the drilling technical manager, one thing we do is to make sure that the worldwide lessons that are learned and our global practices are communicated throughout our entire drilling organization. That ensures we have had the latest learning and best practices employed in what we do.

Our organization also ensures that all of our global standards and reference documents are up to date. This is consistent with the latest learning not only in Canada but also in the U.S., and we bring that learning around globally.

Finally, as part of my organization, we do the training for our engineers and rig supervisors on things like well control. ExxonMobil has our own in-house well-control school, and we do that to ensure consistency in message and the appropriate application for well control. We do that through having an in-house well-control specialist. We have other specialists within the drilling technical organization — marine specialists and others — to ensure their practices are appropriately and consistently applied.

That is a long answer to your question, but I think it needs to go about having the right design, equipment, training, tests and operating procedures and then, yes, we can safely and reliably drill not only in shallow water but also in deepwater and in wells where there is normal or abnormal pressure.

Senator Lang: I want to say we know that you do not want to have an accident. We appreciate what you are telling us, but the concern I think we have on this side of the table is that when you get into the deepwater, that much more risk is involved. Therefore, there must be that much more care taken and that many more stages of redundancy so that you can handle a situation such as we have seen in the Gulf of Mexico.

Another concern we have, at least I as a new member to this committee have and I think most members have, is that we did not remember back in 1979 when we had a similar oil spill in the gulf, and now we have one today as well. That is the concern.

When you get over 5,000 feet and in that neighbourhood, when we are talking about deepwater, what more do you do than you do in shallow water? My understanding is that it becomes more and more risky.

Mr. Schuberth: Let me compare the Hibernia blowout preventer stack, which has a blind shear ram as well as three pipe rams and an annular.

In a deepwater environment, you mentioned the key word is "redundancy." We do have additional redundancy in a deepwater environment, and oftentimes an additional annular. An annular is like a doughnut that closes around the drill string in the event that you want to close in a well.

We also oftentimes have additional rams, which include pipe rams and blind shear rams and even casing shear rams. Those operate differently than an annular does. If you think of an annular as a doughnut that squeezes in around the outside of the drill string, pipe rams come and close side to side. It is two blocks that come together and seal off. Again, you are able to seal the well. Blind shear rams come together and cut that pipe and then seal the well bore. Of course, casing shear rams are the same concept; they come together and shear the pipe so that you have the ability to close in a well.

Those redundancies that you mentioned are included in the deepwater environment and are over and above what you would have for surface BOPs or surface stacks.

Senator Dickson: Mr. Schuberth, on the BOP system, that would not be in a prescriptive regulation. That would be on the goal-oriented side. Am I correct? In other words, in Newfoundland, they do not dictate specifically in their regulation what the blowout preventer mechanism is to be.

Mr. Scott: In Newfoundland right now, even with the new regulations, there are minimum requirements.

Senator Dickson: There are minimum requirements, so you are above the minimums, I assume.

Mr. Scott: We are above the minimums.

Senator Dickson: Mr. Schuberth, from your experience around the world, are Norway and the other countries where you have worked moving more towards goal-oriented regulations as opposed to prescriptive regulations? What is the trend worldwide?

Mr. Schuberth: Let me state up front that I am not a specialist in regulations. I can tell you that from what we understand, in places like Norway and others there is a trend of shifting from prescriptive to more goal-oriented or performance-oriented regulations, where the regulators ask the operators, such as ExxonMobil, to tell them how we will comply. Then we state what we are going do with regard to casing design and safety factors, for example, and how we will prepare our BOPs and what type of equipment we have on the rig. We communicate that as part of our regulatory permitting process. The regulators will evaluate that to determine competency and whether this meets the expectations of what we are trying to do for liability and assurance.

Senator Lang: I would like to follow up with the blowout preventer and the question of safety checks and reliability.

A number of meetings ago, one senator brought information that reported that about 40 per cent of blowout preventers malfunctioned at one time or another. If that is true — you are in the industry — what are you doing to ensure that we are on the 60 per cent side of that equation?

Mr. Schuberth: I understand, and that is a good and important question.

I am not aware of the statistic, but I will tell you what we are doing at ExxonMobil. I will give an example for a deepwater environment. Before we deploy the BOP stack from the rig floor — it is on the stump — we will do a full pressure and function test and inspect that BOP. Once that BOP is deployed below the sea surface at the sea floor and latches on to the subsea wellhead, we will again do a function and pressure test.

Our own internal OIMS requirements state that we will test those BOPs at a minimum of every 14 days, which is every two weeks. We test that every two weeks, or we will test it sooner if a large piece of pipe is deployed through that BOP. For instance, we run casing. If we can drill a whole section in seven days and we run casing, we will do another pressure test of the BOPs.

That was key to my earlier point: Those types of inspections prior to deployment and then the actual function and pressure testing of the BOPs will give us confidence in the reliability and assurance that that BOP will work when it is required.

The Chair: I omitted to introduce Senator McCoy from Alberta when she came in. She is a very valued member of our committee.

Senator Seidman: As a result of the catastrophic spill in the Gulf of Mexico, many experts say a failure by industry to commit adequate resources to research and development targeted at oil cleanup and response technology has been exposed. While oil companies spend billions of dollars to drill deeper and further out to sea, relatively little money and research have gone into the R & D that would produce the technology to respond to the kind of events that we have been observing in the gulf.

A Canadian Press article published on June 26 points out that best practices as we have seen them have been oil booms, mechanical skimmers and oil dispersants — the very same tools used to deal with the 1989 Exxon Valdez spill that you referred to. I would like to know how you might explain this.

Mr. Scott: ExxonMobil globally spends significant amounts of money on research and development across a spectrum of opportunities, including drilling, safety and recovery-type initiatives. Locally in Canada, ExxonMobil Canada spends in the neighbourhood of $10 million a year in Newfoundland and Labrador on research and development, through some requirements that the regulator has put in place for us. Many of the opportunities that come forward and that we fund are related to safety.

I sit on the board of Petroleum Research Atlantic Canada, a non-profit entity that was formed jointly by industry, government and some educational institutions in Atlantic Canada to identify strategies for R & D funding and to select projects that fit in those strategies and implement the strategies. A good example of a safety project that really came to fruition for us two years ago, I think, and that was funded by Petroleum Research Atlantic Canada, PRAC, of which ExxonMobil is a member, was a lifeboat simulator project. We have lifeboats on the platforms as a last resort for people to get off the platform if they need to in the case of an emergency. People are trained to drive the craft and to be coxswains, but to get real-life training out in the open water poses some hazards to individuals. Through PRAC, we solicited proposals to develop an alternative to training in the live, open water, the rough seas of the North Atlantic. A group came through with a proposal to develop a simulator. I have been in it. It is actually pretty neat and gives a realistic feel without subjecting the trainee to any hazard. This company has gone on to build a business out of this opportunity that it is exporting globally.

That is a good example of a project that has panned out. We are not stopping there. We have an industry task force that is constantly looking for the best opportunities to spend this R & D money on.

Senator Seidman: If we talk about best practices, how is it possible that right now, in 2010, we are still using the very same mitigating procedures that were used in 1989 for the Exxon Valdez? In other words, we are still using oil booms, mechanical skimmers and oil dispersants. It seems to me the R & D to mitigate such disasters has not been very developed, and I am wondering how you explain that. Why is that the case, given that these events do happen?

Mr. Scott: I will come back to a key premise of mine and ExxonMobil's: All accidents are preventable. We can identify the risks, and we can develop approaches, even through technology development, to mitigate risks to enable us to do things that we could not do 20 years ago, and we have been doing that over the last two decades. Also, the boom and skimmer technology that is in place in Newfoundland and Labrador today can collect oil in higher sea states than the technology that was in place just five years ago. There is progress.

The Chair: It is not about reinventing the wheel; it is about making the wheel a better wheel.

Mr. Scott: In some cases, yes.

Senator Seidman: You also talk here about your involvement in producing natural gas from several platforms in the Sable Basin. We had some testimony here about that, but very little. One witness discussed the differences between the potential challenges and problems that we could encounter, comparing gas with oil. Could you tell us a bit about what potential difficulties there are with gas?

Mr. Scott: ExxonMobil is the operator of the Sable facility. We produce about 350 million cubic feet of gas per day. We are currently not drilling in Sable. We have several production platforms spread across an area. The wells have been completed. They have the subsurface safety valve and the tubing string and the valves at the surface that I talked about, all piped in to processing vessels at the surface to get the natural gas to shore where consumers need it.

Gas is much more volatile than the oil from down south that you are seeing on the TV screens. If there is a release, the natural gas will vaporize. Well, it is a vapour, but it will just spread into the air. It will not form a slick. Many times, what comes with gas, and we have it at Sable, is condensate. In the reservoir, it is typically a vapour, but as the fluids are produced out of the well, they cool down and the pressure is reduced. Some of the more dense components — propane and butane, et cetera — do condense as they come up to the surface. Those components typically form a very small fraction of the total. They are much lighter in colour than what you see, and if they do get on the water, they spread thin. You heard Stuart Pinks talk about the micron-thick layer of condensate that will quickly evaporate or vaporize into the atmosphere. That is a brief description of some of the key differences the natural gas field has compared to an oil development.

Senator Seidman: One thing we did not complete, and I did not have total assurance of in that discussion, was whether there is the same kind of risk to the environment with a potential gas spill as there is with oil.

Mr. Scott: The environmental risks would be different. Anything that does release will quickly dissipate into the atmosphere. Even the condensate will quickly evaporate and dissipate into the atmosphere. There would not be impact on marine life and birds. There would not be shoreline impacts and those sorts of things with a dry gas production field.

Senator Lang: You would not want to be a smoker.

Mr. Scott: That is right.

Senator Seidman: That was what I was looking for. Thank you very much.

The Chair: Thank you, Senator Seidman. I was glad you made that distinction. I was going to ask it myself.

Senator Peterson: Thank you, gentlemen, for your presentation. Your safety work ethic is certainly impressive, and I presume it extends from the drilling platform to the corner executive office. You also say your OIMS template produces a culture of safety, and you indicated you have some examples you could give us.

Mr. Scott: Absolutely. Our goal at ExxonMobil, and we believe it is possible, is that no one gets hurt at work. We have examples all over the world, and in Atlantic Canada, where I live, we achieve that day in and day out. So far this year, in all of the ventures in which ExxonMobil Canada participates in Eastern Canada, including our office environment, our plants, the onshore Goldboro plant, the Point Tupper plant in Nova Scotia, the offshore field at Sable, the Hibernia plant, the drilling rigs, our Hebron project team that is just starting up, we have not had a single recordable injury. That means no one has lost a day of work because of an injury. No one has had to go to the doctor for medical treatment, to get a prescription drug or stitches. No one has had even a restriction to their work, for even a single day. No one has been told to rest up, to sit in a chair and not conduct his or her normal workday activities tomorrow.

We are getting the results at ExxonMobil. It is achievable that we can create an environment where no one gets hurt.

Where does that start? It starts at the top, with management commitment. You are right; it starts with me. I get assessed on my safety performance at work, not by my boss but by people around me. Someone just last week came in and did an ergonomic assessment of my workstation because we see repetitive strain injuries as a potential source of a future injury for people if they do not take care of themselves and they do not have good work habits. They could create strains in their wrists, shoulders or necks. It is a real risk we mitigate at ExxonMobil every day. Someone comes into my office, observes my work, and writes up a checklist on improvement opportunities. I sign the form that I will mitigate those risks through changes, possibly by purchasing equipment. The company will support me in purchasing equipment I need to improve.

There are other examples of reinforcing behaviours, because it really is all about positive reinforcement to make sure people believe what I say, that I want a safe work environment.

Three years ago we got a report from the Canadian Coast Guard. They called us and said they had a side-scanning radar satellite image of an anomaly near our Alma platform, which is a remote, unmanned platform in the Sable field. They said that anomaly could be indicative of a slick.

What did we do? Our platform superintendent and the operator on the platform shut in the Alma platform remotely. We have the capability to do that. We contacted the regulator. We diverted our helicopter with people on it and we flew around the platform. About a third of the field's production was shut in, mind you. We took a fly around the platform. We did not see anything other than a flock of seagulls on the water. We were not able to land right then, because we did not have a standby vessel next to the platform. We always have to have a standby vessel next to the platform as a safety precaution, as a secondary way for people to evacuate the platform. We had to steam a standby vessel over to the platform. It took a few hours to get there. We flew the helicopter back. This whole time a third of the field's production was shut in. We put a crew on the platform and did a physical inspection of all of the equipment on the platform. We verified that there were no leaks. We had full integrity of all the equipment on the platform. Then the field superintendent gave the order that it was safe to start up. We recognized the positive behaviour of the field superintendent. We recognized the positive behaviour of the control panel operators offshore. Frankly, when I told my boss we were shut in for a few hours or half a day, he said, "You did the right thing." That is the kind of thing we do every day at ExxonMobil.

The Chair: What was the anomaly? Was it the birds?

Mr. Scott: We still do not know, but that is the suspicion.

Senator Peterson: I have one further question. Your OIMS elements I take it you use to evaluate projects as well. I do not know whether you are able to quantify it numerically. Has a project been rejected because it did not meet this standard?

Mr. Scott: We will never undertake a project unless it meets all of our standards. We have design standards that are part of element 3. We have training standards that are part of element 5. We have procedural standards that are part of element 6. We will not go forward until we have every box ticked that says that the project is ready to go forward or it is safe to start up.

You do not have to trust me on that. We have an assessment element, element 11. We get a team coming through once a year to assess whether we are really doing what we say we do. Every third year, that team comes from outside.

For the last assessment we had from within the global company, the head of ExxonMobil's corporate safety health environment department, from Irving, Texas, our corporate headquarters, came and participated on the assessment team to validate that we are doing what we say we will do. They actually give us a numeric score that tells me and my management that we are really doing what we say we do.

There are always opportunities to improve. They identify areas for improvement. We actually steward ourselves over a relatively brief period of time to close or address those improvement opportunities.

Senator Peterson: A project will always work; you just have to work a little harder to make it work. Is that what you are saying?

Mr. Scott: I firmly believe we can make projects work. We can identify all success factors; we can identify all risks; we can mitigate the risks, and if we cannot, we will not do it.

Senator Lang: I want to follow up on the tier 3 oil response program you have in place. Does an independent body come and oversee your response program to ensure that you have what you need and that you have the ability to do what you say you will do? Does the regulatory body have to approve that particular program to ensure it satisfies the timelines, the access to equipment, all those important things that have to be done in order to shorten up the time that it takes to mitigate a situation?

Mr. Scott: The regulator reviews and approves our response plans. We have a production operations authorization that comes up every three years in addition to the initial reviews, where the regulator gets to review our systems holistically and makes sure they are comfortable with those systems. If they have improvement opportunities that they suggest along the way, they feed those back to us so that when we file our production operations authorization, we are aware that their expectations will be higher than perhaps they were three years ago.

Globally, we have people who come in on these tabletop drills who see best practices from around the world and help us make sure that we are constantly raising the bar.

The Chair: I may send Senator Neufeld with you to that tabletop. I would like to go as well. Senator Johnson had some experience in Newfoundland once upon a time.

Senator Johnson: You are doing the Hebron project now, and you say here that you are approaching your early construction phase and that it will be a gravity-based structure, but you do not explain it further. Can you take us through how this operation is proceeding right now?

Mr. Scott: Hebron is not in the operation phase yet. I am losing track of my years now, but about two years ago we signed royalty agreements with the provincial government of Newfoundland and Labrador and a benefits agreement. We formed a project team. Throughout last year we started ramping up the project team to develop the designs for the gravity-based structure, the drilling rig that will be on top of the structure, the living quarters and the process facility and to look at how many wells we will drill initially and whether we will use water injection or gas lift. The oil will not necessarily flow all on its own when the water rates increase. This project team is in the formative stages of design right now.

Senator Johnson: Is it working out of St. John's?

Mr. Scott: Yes, the team is working in St. John's and growing every day.

Senator Johnson: How many people would that employ through the various stages?

Mr. Scott: Thousands of people will be employed throughout the spectrum. When the project team ramps up to peak loads in Newfoundland and Labrador, it will exceed 1,000 people in the offices in St. John's to do the detailed design and engineering and to manage construction teams.

Senator Johnson: St. John's is the place to be.

Mr. Scott: It is an exciting place to be.

Senator Johnson: As well, you have the platform at Terra Nova. What else do you have? I understand you have drilled 8,000 wells in the last 10 years, with 262 in deepwater. Is that figure accurate today?

Mr. Scott: That is a snapshot over the last 10 years all over the world.

Senator Johnson: There are 262 wells in deepwater. What are the others?

Mr. Scott: Mr. Schuberth can probably venture a guess.

Senator Johnson: I want only an overview. I am curious to know where you are busy at the moment.

Mr. Schuberth: For the worldwide drilling organization, we will notionally run, on average, around 50 rigs. Those 50 rigs are spread out around the world. Earlier I gave you some of the areas where we are active. We have one rig working at Hibernia, a couple of rigs on standby in the Gulf of Mexico, and rigs working in West Africa and Southeast Asia. We look at opportunities and rig activity on a global basis.

Senator Johnson: You apply the same standards worldwide that you apply to your Canadian operations. You have never had problems other than the Exxon Valdez. Is that right?

Mr. Scott: We apply the same standards. Our Operations Integrity Management System is the bedrock foundation for us. We have not had any blowouts or anything like that since implementation of OIMS in 1992.

Senator Johnson: You must be happy about that.

Mr. Scott: It makes me proud to work for ExxonMobil and to know that we have such value placed on safety and integrity every day, all the way to the top level of the corporation. It is a nice place to work.

Senator Johnson: It is good for the environment too, if you can keep it going.

The Chair: To clarify the record, the Exxon Valdez was not an oil exploration or drilling spill. It was a tanker that ran aground after too much Grey Goose was consumed perhaps somewhere.

Senator Dickson: I compliment you on your good work in Atlantic Canada and on all the jobs you have created, particularly in Newfoundland. Senator Baker and I work closely together to make it happen in Atlantic Canada. I am glad to see him here tonight. He takes very good care of what I do up here.

My first question relates to Sable Island. The Minister of the Environment is in the process of designating an area around Sable Island as a park. Will this in any way affect your operations, either current or future?

Mr. Scott: We have heard from the Government of Nova Scotia about the plan to make Sable Island a national park under the stewardship of Parks Canada. We have not yet had any discussions with Parks Canada about any impacts on or implications for any further drilling. However, our plan is that if transition takes place, we will develop the same kind of positive relationship that we try to develop with all community stakeholders and help them to understand our business, our integrity system and our safety record. We do not have any drilling in that area now, so there is no impact at this time.

Senator Dickson: I understand. Let us assume the area is a prospective area, in your view. The federal minister is accepting presentations on reactions to the designation of that area as a park. I understand that you have some future plans for development in that area. Perhaps for business reasons you do not want to comment on that. I will not put that to you. My interest is when will you contact the federal minister. He seems to be driving this ship.

The Chair: Senator Dickson, you used the term "park." Are you referring to an area around Sable Island that they are calling a marine conservation area, such as the one announced recently near the Queen Charlotte Islands?

Senator Dickson: That is the same idea.

Mr. Scott: Senator, the Government of Nova Scotia has communicated to me that its understanding with the federal government is that while drilling would not be allowed from the island, if a resource were underneath the island and could be reached by drilling an extended reach well from away, it would not be off the table. ExxonMobil has a number of significant discovery licences in the region that we have an interest in. We have been evaluating those licences, which were explored and found off Nova Scotia in the 1970s and 1980s, to see whether we can develop them economically. If we found one near Sable Island within reach of the target reservoir, we would definitely take a proactive approach to communicate with all stakeholders — the federal government, the provincial government and the regulator. We are not quite to that stage yet.

Senator Dickson: My second question relates to your Operations Integrity Management System. How far does that go down the chain? Does it extend to your major suppliers and the helicopter company that you use? Do you look at their systems and compare them to yours? What are the criteria for selection of your major subcontractors?

Mr. Scott: Element 8 of our Operations Integrity Management System deals with expectations related to third-party services or contracts to provide specialty services, such as helicopter services. Before we select a contractor, we look at their qualifications and we pre-qualify them before we consider their bids. For contractors selected to work for us, as part of their contract they agree to adhere to our standards and our system requirements. They also agree to audits against the contractual requirements and integrity-related system requirements. For helicopters, we have an aviation specialist who comes in every year and reviews the aviation service providers in both Nova Scotia and in Newfoundland and Labrador relative to our internal requirements, regulatory requirements and general guidelines from Transport Canada and the Federal Aviation Administration.

Senator Dickson: I understand that you audit, but is there a third-party, independent audit of major subcontractors, not government regulators, just as a third party overviews ExxonMobil?

Mr. Scott: I believe many of the other operators audit service providers as well. That adds a layer of independence relative to ExxonMobil's assessment. I cannot speak to Transport Canada or other regulatory bodies auditing specific contractors. I will have to look into that if you want.

Senator Dickson: I have a couple of short questions.

Are the facilities provided by the Canadian Coast Guard adequate from your perspective, both in Nova Scotia and in Newfoundland, or could they be better?

Mr. Scott: I believe that is part of why we have a multi-tiered response system, so that if local and regional resources can be supplemented we have a means to supplement those internationally. It is really hard to speculate based on the situation, but we do believe that with that third tier of global resources we can respond.

Senator Dickson: At present, for tier 1 and tier 2 risks, are the services that the Canadian Coast Guard provides adequate or not?

Mr. Scott: If you are referring to spill response, our primary service comes from equipment we have ourselves on site and equipment we have contracted and services we have contracted through the likes of ECRC.

The Coast Guard can provide other services. If someone has a health issue offshore during the middle of the night and we cannot fly our own helicopter for some reason, a Coast Guard helicopter can be called in for that. It is dependent on the situation.

Senator Dickson: I assume you are comfortable that the Coast Guard has the helicopters there and that they have adequate equipment.

Mr. Scott: We are comfortable. There is a joint regional command centre that we have routine engagement with and participate with in various communication and drills.

The Chair: You were saying, sir, that before you do things you have people overseeing you to be sure you understand the risks of what you do and to ensure you never have an accident. I assume they explained to you the risks you were taking coming here and subjecting yourselves. So far there have been no serious accidents, but we save our toughest questioner for last, and now Senator McCoy has the floor.

Senator McCoy: I do not see you shaking in your boots. Thank you, chair.

This is somewhat of a different tack. I am from Alberta, as you heard earlier. With our oil and gas industry, we have come to have a high regard for the ingenuity of engineers. In fact, we have more engineers in Calgary per capita than any other place in Canada. It was at the University of Calgary that horizontal drilling was first conceived and developed, and now it is used. Of course, shale gas is only possible because of it. We are big on the ingenuity and the intellectual capital aspects of our industry.

What struck me early in response to Senator Seidman's question was that you said you are spending $10 million a year in Newfoundland on R & D. I thought that does not sound like a very large contribution. President Obama has called for 3 per cent of GDP, and there have been complaints in Canada that our industries do not pony up quite as much as we should here.

I want to open up this question: In terms of revenues or operating budgets in Canada, what is your R & D budget overall? Then you might make some general comments, and we can start this conversation tonight.

Mr. Scott: The spending on research and development in Newfoundland and Labrador is actually revenue-based, and it is based on a guideline developed by the Canada-Newfoundland and Labrador Offshore Petroleum Board. As oil prices go up and our production goes up, the research and development spending goes up commensurately.

Senator McCoy: What is that proportion?

Mr. Scott: It is a formula based on the average R & D spending across Canada as reported to Statistics Canada, which varies from year to year based on the average of other companies, so it is a variable.

As I said, for us it can amount to about $10 million a year just in our small sector of Canada. ExxonMobil globally spends enormous amounts of money on research and development, and the other owners of projects on the eastern seaboard are spending money on research and development too.

As you know, Newfoundland and Labrador has about half a million people, and we are working to find the best opportunities to spend our money on in that province.

Senator McCoy: It is late, and the subject I have opened is a little tangential. I would be interested in some more detail. Would you be willing to provide us as a follow-up with a description of that formula and how it was developed in Newfoundland? Maybe you could also add information about your Canadian operations as opposed to your global operations. That would be helpful for our ongoing energy study.

Mr. Scott: Yes, I can do that.

Senator McCoy: That would be greatly appreciated.

The Chair: If you consider it proprietary, the normal caveat would apply; but I think the question is a fair one, and if you can provide that through the clerk, it would be appreciated.

Mr. Scott: Certainly the formulation and the spending requirements are public information.

Senator McCoy: There is some proprietary stuff.

The Chair: Right, you are not after that. You would have to sell your shares.

Mr. Scott: We will pull something together and start the dialogue.

Senator McCoy: Yes, let us do that. That would be lovely. Thank you very much.

The Chair: I would like to ask a couple of questions, if I may, to terminate. As you know, we are trying to reassure Canadians or otherwise scare them about what is the actual state of play. As I said in my opening comments, we were responding in a certain fashion with these special hearings to some public opinion data that indicated more than half of Canadians would like to have a moratorium on drilling in Canada, and of course the only drilling is what you are all involved in with your partner Chevron and in the other things you described.

Let me put it to you: What do you think of that? Do you think maybe, given the uncertainties of this incredible accident in the Gulf of Mexico, it would make sense to call a halt? What would be involved practically, technically and economically from your point of view if that had to happen, or if that did happen?

Mr. Scott: I believe we can drill safely. We do drill safely. We have the right designs, equipment, procedures and training. I believe we have a track record across the planet of drilling safely. I believe we have a track record locally of conducting all of our operations safely. I have talked about some of the statistics here today. I believe that what we do as an industry is fundamental. As I said, we provide energy to heat people's homes and to fuel people's vehicles.

We are building an economy. I talked about the excitement of the project activity in St. John's and in the rest of Newfoundland and Labrador, where construction activities will take place all across the province.

I think, given all of those factors, that we need to keep looking at what we can learn from the incident in the Gulf of Mexico and keep improving where we identify improvement opportunities. We need to give credit to the fact that we have demonstrated we can do it safely.

The Chair: I was not expecting you to say yes, there should be a moratorium, or that the Orphan Basin project should be at least temporarily halted. However, the other half of my question was what would be involved if there were a moratorium. We already heard what Premier Williams said in his comments about a moratorium and how negative the effects would be. Let us say there was an edict tomorrow that we will stop the Orphan Basin project for two months. What would be involved in that? How would you physically do that? I am assuming you are law-abiding folks and you would reluctantly comply. What would be involved in the process? Would there be a loss of employment? I do not know what would happen.

Mr. Scott: Given that Chevron is the operator of the Orphan Basin, it is not fair for me to talk about what Chevron would do. However, we complied where the moratorium applied to a couple of our drilling rigs in the Gulf of Mexico.

The Chair: You went to court and won.

Mr. Scott: We stopped drilling, and we have not been drilling in deepwater in compliance with the moratorium in the gulf.

The Chair: I do not want to put words in your mouth, but what I was getting at, and this may be viewed by some as a softball question, is that you are a financial partner in Chevron and the deepwater well in the Orphan Basin. We do not know; we are liberal arts people here. What is involved in actually stopping drilling if you had to stop?

Mr. Scott: Depending on where they are in the drilling operation, the very first thing they would need to do to comply with any sort of stoppage is to secure the well and ensure they can leave it in a safe condition. Whether that is a safe condition that they can come back to or permanent abandonment would depend on the situation, but they would absolutely need to safe out the well before disconnecting and moving the rig anywhere. That would be the first step.

The Chair: Again, this just shows my technical ignorance, but it seems to me the operation cannot just sort of stop. I guess there is a mechanical process that must happen in sequence and suddenly it stops for six weeks. Can you do that and start up again? It sounds like you have to dismantle the whole operation. I do not know.

Mr. Scott: If you are drilling and there is an open-hole section, you would have to install barriers in the well before you leave, and those can be a combination of cement plugs or mechanical iron type plugs and the like to make sure you have adequate barriers to prevent any flow up to that wellbore that you have drilled.

The Chair: We are getting from your evidence that Canadians have nothing to be concerned about — that is your testimony — with the East Coast operations, be it either production or exploration on either the oil or gas fronts. Is that correct?

Mr. Scott: I believe we can drill a well safely, and we do so every day.

The Chair: Even though it was Senator Baker's first time filling in at this committee, he got right down to the chase and determined there are three or four things that have concerned us. Our questions reflected those concerns, and you have allayed them in some cases.

One thing we have heard lately, which is in the media this week, is that these offshore industry regulatory agencies, the federal-provincial ones for Newfoundland and Labrador and Nova Scotia, have a dual function. On the one hand, there are safety belt-and-suspenders procedures to ensure everything is done with a maximum of safety and with huge built-in safe working load factors. On the other hand, there are economic initiatives to stimulate the economy and have a booming offshore industry that renders huge revenues to the provinces in question.

At least according to what we have been hearing, there has been perhaps a conflict of interest in these agencies and maybe they should be split. Apparently they are split in countries such as Norway and the like.

Mr. Scott: Based on my knowledge of the regulator, I believe the mandate of the offshore petroleum boards in Nova Scotia and Newfoundland and Labrador is safety and the environment. The mandate of the provincial and federal governments, however, may be to develop and monetize a resource. We do not pay royalties to the regulator; the royalties are paid to the government. The financial aspect, therefore, from my viewpoint, is totally segregated between the regulator and the government here in Canada.

The Chair: You do not feel there is a problem. There are critics of everything. One of our jobs is to try to take a balanced assessment, so we bring in the World Wildlife Federation, Ducks Unlimited Canada and many legitimate, well-functioning and good people on the environmentally focused side to testify. On the other hand, we bring in the economic producers, such as the Canadian Association of Petroleum Producers, CAPP, and the members of CAPP, who want to get the product out. We have to balance what we hear.

The critics are calling for a separation of regulatory duties in Newfoundland and Labrador. They say the federal-provincial board that licences and oversees oil activity from the province is in a conflict of interest. Do you think they are in a conflict of interest? I think I understood you to say no. Is that correct?

Mr. Scott: That is correct.

The Chair: Are there any other questions? We have had a tremendous session. Is there anything you would like to say? We had a chat beforehand, and you know what we are trying to determine. We are coming to the end of our hearings. We have one or two other witnesses to hear from. Are we on the right track?

Mr. Scott: You have given me a great opportunity to share with you ExxonMobil's perspective. I appreciate the opportunity, and I hope that I have helped in some way.

The Chair: You have helped significantly, and your company is a great example of how to learn from a terrible disaster; you brought in these processes that you have described in your handout. Thank you very much.

I will ask colleagues to stay for a brief in camera session.

(The committee continued in camera.)