A 40-year-old obstacle to expanding natural gas operations offshore of Canada’s East Coast was removed last week when an arbitration panel settled a boundary dispute between Nova Scotia and Newfoundland. While it’s not expected to ignite an immediate drilling rush, the settlement spelled an end to an exploration freeze in the Gulf of Saint Lawrence and opened up new areas for issuing resource leases in the future.

In Nova Scotia, Economic Development Minister Gordon Balser praised the ruling as a step that “thaws the exploration chill that was affecting activity in a huge portion of our offshore area.” His government accepted the decision by a federally-appointed tribunal even though Nova Scotia lost most of its territorial claims. In Newfoundland, Energy Minister Lloyd Matthews said the ruling “provides both provinces and industry with jurisdictional certainty. We can now move forward with the business of opening this area up to advanced exploration.”

The decision divided up the 23,000-square-mile Laurentian sub-basin between the two provinces. About 70% of the territory went to Newfoundland, while Nova Scotia and France split the rest. The French still control the St. Pierre and Miquelon Islands off Newfoundland’s southern shore, as well as territorial waters around them, as a last vestige of their 18th-Century empire in North America. Along with the two Canadian provinces, the French have offered drilling leases.

Virtually all the significant natural gas discoveries and imminent drilling prospects offshore of the East Coast stayed with Nova Scotia. All three producing operations in the region — Hibernia and Terra Nova in oil on the Grand Banks, and the Sable Offshore Energy Project in gas in the Sable Island area — lie outside the region affected by the decision. Nova Scotia retained areas covered by leases where industry is committed to spend about C$1.6 billion (US$1 billion) per year on exploration for most of this decade as a condition of the agreements.

About one-third of one lease, a 732,400-acre spread granted to Kerr McGee Corp. last year by the Canada-Nova Scotia Offshore Petroleum Board, was in the area transferred to Newfoundland. The company and the provinces are studying the ruling in depth to try and decide on their next steps. Only a modest, C$13-million (US$8-million) work program is associated with the divided block. Nine leases held by Imperial Oil Ltd. since 1971 were transferred to Newfoundland jurisdiction. The ruling also clarified jurisdiction over old leases held by Conoco Inc. and ExxonMobil Corp.

Canadian industry analysts predicted the ruling will lead to expanded exploration eventually. The contested region was under a moratorium barring industry activity while the protracted dispute was under way. The Laurentian sub-basin has been rated for decades as a candidate to harbor resource wealth on a scale to attract further projects. Speculative Canadian geological forecasts, using limited information available on the little-explored area, estimate the area holds 8 Tcf of gas and 700-800 million bbl.

At the same time as the boundary ruling cleared away a political roadblock against expanded drilling, an environmental obstacle showed encouraging signs of being reduced to manageable proportions. A commission appointed by the federal and Nova Scotia governments charted a course for settling a conflict between gas drillers and fishing communities.

The inquiry centred on plans to start marine seismic exploration on three drilling prospects held offshore of Cape Breton by Hunt Oil Co. of Canada and Corridor Resources Inc. It was widely viewed as a test case in often tense relations between the traditional mainstay of Atlantic Canada in fishing and the new development wave of gas and pipelines. Hunt, a wholly-owned subsidiary of its namesake in Texas, holds two exploration licences covering about 2,240 square miles offshore of Cape Breton. Corridor, a Halifax independent holds about 950 square miles.

While rated as highly prospective for gas, the offshore prospects are also in waters that stand out as among the most productive left in the East Coast fishery. Anxiety over effects of offshore seismic surveys, drilling and potentially production has ignited a protracted conflict. A 15-day hearing in the remote area drew 130 formal submissions by the companies, industry associations, commercial fishery interests, environmental groups, business organizations, aboriginal communities, tourism promoters, unions, educational institutions and government agencies.

The inquiry commissioner, scientist Teresa MacNeil, had a restricted mandate to confine herself to a fact-finding mission and refrain from suggesting how the sensitive case should be decided by the agency that appointed her, the Canada-Nova Scotia Offshore Petroleum Board. But she reported signs of hope that thorough consultations could resolve maritime conflicts, in much the same way that most juries eventually reach agreed verdicts by learning to collaborate in focusing on issues.

MacNeil reported that a “shift in viewpoints” was evident during the hearings after initial confrontations between the companies and business promoters in one camp, and fishermen, environmentalists and community traditionalists in the other. She encountered “an increasing openness to hear, understand and sometimes acknowledge merit in a competing argument from other participants.”

Balser said he is considering taking the commission’s advice to add a new dimension in continuing community consultations to the offshore drilling review process, such as a collaborative “working group” as well as improved communications from the gas industry and its regulators to fishing interests.

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