Delay has spread into drilling from notoriously slow pipeline regulation in the Canadian Arctic, holding up long-range exploration and production (E&P) development planning.
Canada’s National Energy Board (NEB) has turned down a request by Imperial Oil Ltd. and its 70% owner, ExxonMobil Corp., for speedy approval of a proposed Beaufort Sea well. The pair’s program — and exploration planning by other producers working on northern targets — has to wait for the NEB to review a traditional approach to offshore safety and environmental protection now deemed to be potentially too easy-going by current standards.
Exploration schemes were previously approved under an informal, unwritten policy of accepting company commitments to drill quick “relief wells” for siphoning off oil or natural gas blowouts during the same work seasons as any accidents happen. The assurances were reviewed in private by a lone official, a chief conservation officer appointed under the Canada Oil and Gas Operations Act governing industry conduct on federally controlled northern frontiers.
Imperial unsuccessfully protested that the review sets back an exploration program that has already spent C$150 million (US$141 million) on preparations, such as seismic surveys to pick a well location, and was ready to order construction of a new Arctic drilling vessel.
The producer told the board, “Deferral of additional investment to allow for the comprehensive policy review will jeopardize Imperial’s ability to procure the Arctic drillship, obtain the necessary permits, drill an exploration well and conduct formal evaluations necessary to make an application for a significant discovery license (establishing permanent rights to new reserves) before the exploration license expires in October 2016.”
The virtual certainty of a lengthy delay arises from the industry’s seasonal operating pattern on the Mackenzie Delta and off its coast in the Beaufort, due to the region’s severe climate and isolation. Short summers are used for preparations such as shipping supplies by barge and sailing out to drilling locations, followed by long winters when the frozen landscape and sea enable heavy equipment to move short distances and work. Breaking the rhythm of the cycle for any reason, such as a regulatory pause, delays a program by at least a year.
Imperial and ExxonMobil have been doing preliminary work for 30 months on an exploration license for 2,053 square kilometers (790 square miles) of prospective geology beneath shallow Beaufort water offshore the delta, northwest of the coastal settlement of Tuktoyaktuk. The companies obtained the target zone in an auction of federal government-owned mineral rights, in trade for a commitment to conduct C$585 million (US$550 million) in exploration work. The northern mineral rights regime requires the companies to drill at least one well within five years of their acquisition of the exploration license in July 2007.
The partners set a target of 2013 for starting a program of multiple wells, allowing a previously predictable period of time for jumping through notoriously complicated northern Canadian regulatory hoops such as environmental studies. Since 1965 Imperial has drilled 107 Mackenzie Delta and Beaufort wells as the most active Arctic explorer.
In asking for its next well to be approved under the old regime rather than await development of new rules, Imperial warned the board that a forced pause will compound damage done to Canada’s reputation by delays to the C$16.2 billion (US$15.2 billion) Mackenzie Gas Project. “This will be viewed by industry and northern stakeholders as another example of the regulatory system slowing down development and will further reduce, from a global perspective, the attractiveness of investing in Canada’s North.”
Since 2004 producers have scooped up 13,708 square kilometers (5,291 square miles) of new Delta-Beaufort exploration licenses in trade for total work commitments of C$1.9 billion (US$1.8 billion). Besides Imperial and ExxonMobil, the lineup includes Chevron Canada, EnCana Corp., Shell Canada, ConocoPhillips, BP and MGM Energy. Although oil is always an exploration target, the Canadian Arctic is well known to be primarily gas-prone.
The stalled Mackenzie project remains the most fully developed scheme for connecting northern discoveries to markets. After a two-year delay, the pipeline proposal’s socioeconomic and environmental Joint Review Panel is promising to release its report next week.
But a revival has been under way of other ideas with potential to avoid the intricate maze of multiple regulatory agencies and aboriginal politics along the Mackenzie Valley pipeline route through in the Northwest Territories, where the panel remains far from the only holdup. The industry-sponsored Canadian Energy Research Institute has twice conducted fresh economic studies of updated 1980s proposals for Arctic coast liquefied or compressed natural gas plants and icebreaker-tanker shipments to markets. Both studies concluded that the marine delivery alternative is workable, even without taking into account the global climate change theory that the Northwest Passage will become an ice-free ship channel.
In ordering the forthcoming review of northern drilling approval policy, the NEB said traditional acceptance of the industry’s same-season relief well capability has become “an issue of public concern.” In refusing to authorize the Imperial-ExxonMobil program under the old regime, the NEB warned that it was bound to provoke public attention and intervention that would delay approval in any case.
In the Delta-Beaufort region, as in Alaska, industry activity is arousing more steadily increasing interest and resistance beyond the Arctic communities directly involved. Earlier this year a Canadian non governmental environmental organization dedicated to fighting industry before regulatory agencies and the law courts, Ecojustice, fired a shot across the NEB’s bows.
The warning from the group’s office in Vancouver, a renowned British Columbia hotbed of environmental activism, centered on approvals of Beaufort seismic surveys in the same quiet way that industry assurances about blowout relief wells have been accepted. In a letter to board Chairman Gaetan Caron, Ecojustice said “we are concerned that environmental assessments . . . are being conducted without public input,” and “we feel such scrutiny is now well overdue.”
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