National Energy Board on the Latest Developments in Northern Oil & Gas Regulation

National Energy Board on the Latest Developments in Northern Oil & Gas Regulation [PDF 131 KB]

National Energy Board on the Latest Developments in Northern Oil & Gas Regulation
Gaétan Caron, Chair and CEO

Speech to the 14th Annual Arctic Oil & Gas Symposium
March 11, 2014

I am pleased to be here today to discuss the latest developments in Northern oil and gas regulation. I will start by outlining the Board’s role in the North: what and where we regulate. I will highlight some of the unique challenges in the North that must be considered when regulating. I will go on to describe current and upcoming industry activity followed by what we, as a regulator, are doing to prepare.

The National Energy Board’s role in the North

In the North, the Board currently has regulatory responsibilities for oil and gas exploration and production activities in the Northwest Territories and Nunavut - onshore as well as offshore.

Our regulatory responsibilities are set out in the Canada Oil and Gas Operations Act - referred to as COGOA - and the Canada Petroleum Resources Act - referred to as CPRA. The Board is also responsible for worker safety under the Canada Labor Code.

The Board, through COGOA, focuses on safety, environmental protection, and the conservation of oil and gas resources, while land tenure or rights issues, benefits plans, and royalty management issues are administered by federal departments (Aboriginal Affairs and Northern Development Canada and Natural Resources Canada).

It is worth noting that on 30 January 2014, the Government introduced the Energy Safety and Security Act (Bill C-22), which includes proposals to amend COGOA and CPRA. The proposed legislative changes add further openness and transparency. The Bill would enable the Board to conduct a public hearing under COGOA and reduce the scope of privilege under CPRA. The changes would also allow the Board to establish and manage a participant funding program for project reviews where CEAA 2012 applies. In addition, the Bill proposes increases to offshore absolute liability amounts and imposes new financial requirements.

It is important to note that these changes are only proposals until they are passed by Parliament. The Bill will follow the usual legislative process, which includes debate in the House of Commons and Senate, and careful study through the Parliamentary Committee process. If the Bill is passed by Parliament, most of its provisions will take effect one year after royal assent.

As of 1 April 2014, the devolution agreement will transfer responsibility for most onshore oil and gas activities in the Northwest Territories to the Government of the Northwest Territories. The Board will remain the regulator for the offshore, Norman Wells Proven Area, trans-border pipelines and the onshore portion of the Inuvialuit Settlement Region.

  • We recently signed a service agreement with the GNWT to provide these services after April 1 for ongoing projects that will transition from the NEB to the GNWT.

Challenges ahead

In regulating oil and gas development in the Northwest Territories and Nunavut, there are a number of important challenges which must be considered.

Since drilling began in the Canadian Beaufort Sea, in 1973, about 100 wells have been drilled, with only one well drilled within the past 20 years. These have largely been in relatively shallow waters. However, seismic exploration has continued and there is potential for further drilling activity. It should be noted that there have been no oil well blow-outs in the Canadian Beaufort Sea.

Conditions in Canada’s North can be harsh, including extreme temperatures and periods of 24 hour darkness. Offshore, there are also strong currents, the circular Beaufort gyre, and changing ice conditions including multi-year pack-ice. Both on and offshore, the drilling season is short so the pressure for completion is high.

Northern Aboriginal Land Claim Settlement Agreements - or lack of agreements in some areas - have helped shape the regulatory landscape in the North.

  • These agreements - such as the Inuvialuit Final Agreement and the Nunavut Land Claim Settlement Agreement - have established co-management boards (Government/Aboriginal).

In my travels throughout the North, and as many Northern attendees at this conference know, traditional harvesting pursuits continue to be important in many communities. At the same time, economic opportunities and access to post-secondary education or specialized training can be limited. In addition, exposure to oil and gas exploration or development, and past experiences with such matters are varied across the North.

  • Northerners have told us that they are looking for a balance between protecting the environment, economic growth and responsible development (however this tends to differ between individuals, communities, and land claim areas).

I do not need to tell you about the challenges of work in the North. We all know that the remote locations are challenging in terms of access and limited infrastructure. This is a concern for us, because if there are no other operations in the area, there may not be the option of support from others in the event of an incident.

As a result of recent offshore incidents, such as the Deepwater Horizon incident in the Gulf of Mexico, Canadians have heightened expectations about environmental and safety requirements.

  • While not unique to the North, a significant proportion of recent and potential operations in the North - such as hydraulic fracturing and proposed deep-water offshore operations - are of interest to many people.   For example, there are concerns with fracturing fluids, potential impact on ground water, and seismicity.
  • We understand that Canadians demand that hydraulic fracturing be done safely, responsibly and transparently. In November 2013, we joined FracFocus and are asking companies to post the fracturing fluids they are using on the FracFocus.ca website.

Industry activity

Historically, the Board receives an average of about 15 applications per year for activities in the North - including applications for: operations authorizations; drilling a new well; altering conditions of a current well; and geophysical/geological programs.

  • There is shale oil exploration activity occurring in the Central Mackenzie Valley, including hydraulic fracturing, exploratory drilling and seismic surveys. This activity will soon be regulated by the Government of the Northwest Territories.
  • In the Beaufort Sea, two offshore seismic programs were conducted in 2012, with the potential for further seismic and drilling activity.

In the coming years an increase in industry activity in the North is anticipated.

  • From 2011 through 2013 Central Mackenzie Call for Bids saw successful bids received for 14 parcels totaling over $600 million.
  • Most recently, the Board issued a Commercial Discovery Declaration for Lone Pine Resources Canada Ltd. in the Pointed Mountain area of the Southwestern NWT. This was the first one we have issued for an unconventional operation in the North.
  • There are a number of other potential operations in the Central Mackenzie Valley canol shale play that are anticipated, these include:
    • ConocoPhillips currently drilling horizontal wells to conduct multi-stage fracturing and extended formation flow tests;
    • ConocoPhillips has indicated tentative plans for a five year exploration program to drill and hydraulically fracture as many as ten wells;
    • Husky has indicated plans for an exploration program to drill and hydraulically fracture two horizontal wells in winter 2014/15 and drill and hydraulically fracture another two horizontal wells in winter 2015/16;
    • Explor has indicated plans to conduct seismic programs in the area;
    • While MGM has not indicated its plans for its ELs, it has submitted an application for a significant discovery declaration based upon a well drilled.

Of particular interest to many people in this audience will be the offshore operations.

  • 16 exploration licences have been issued for the offshore totaling roughly $2 billion dollars in work bid commitments. However, no applications for operations authorizations have yet been submitted to the Board for Arctic offshore drilling.

Currently, no drilling is taking place in Canada’s offshore Arctic, however I will mention a couple of proposed projects.

First, Imperial Oil Resources Ventures Limited, as the operator of a joint venture between Imperial, ExxonMobil and BP, referred to as the Beaufort Sea Exploration Joint Venture, has indicated its interest in drilling one or more offshore exploratory wells about 125 km north-northwest of Tuktoyaktuk (Tuk), in the Northwest Territories, on its exploratory licenses where water depths range from 60 to 1,500 m.

  • The regulatory review process began with their submission of a Project Description to the Inuvialuit Environmental Impact Screening Committee on September 9, 2013. It was subsequently referred to the Environmental Impact Review Board. The Draft Terms of Reference for the Environmental Impact Review of the project were recently released for public comment.
  • We are discussing, with the Environmental Impact review Board, how best to coordinate our respective reviews.

Second, ConocoPhillips is in the initial planning phase for development of the Amauligak offshore oil and gas field. The Amauligak Field, located approximately 50 km northwest of Tuk in 30 m of water depth, is the largest oil and gas discovery in the Beaufort Sea.

Arctic Review

The nature of development in the North necessitates a unique approach to engagement. Our review of the safety and environmental requirements for offshore drilling in Canada's Arctic environment - called the Arctic Review - was held following the Deepwater Horizon incident.

  • The objective was to gather information and knowledge through meaningful engagement and dialogue. We achieved this through extensive community engagement and holding a week-long Roundtable meeting in Inuvik so participants could have a face-to-face dialogue.
  • The result was the development of filing requirements for offshore drilling in the Canadian Arctic.

During the Arctic Review, the Board heard that if there was a drilling accident, life in the North would change irrevocably.

  • Some people told us that, if there were to be an accident like the Deepwater Horizon in the Canadian Arctic, they would not be able to provide for their families, even if there was financial compensation.
  • Despite concerns about potential hazards, many people recognized the importance of energy and were not opposed to development, but emphasized that it must be done right.

A key finding was that the National Energy Board has the regulatory tools we need to protect the safety of Northern residents, workers, and the Arctic environment.

  • This includes the use of risk-informed, management system-based regulations, allowing flexibility in terms of the means of achieving compliance while requiring a consistent level of performance.

Many of the learnings that the Board gathered through the Arctic Review have also been incorporated into the Board’s filing requirements for future applications for offshore drilling in the Canadian Arctic.

I would like to highlight that the Board continues to take all available actions to protect Canadians and the environment. Drilling will not occur in the Arctic unless the Board is satisfied that drilling plans are safe for workers and the public, that they will protect the environment and that the resource will be conserved throughout the drilling operation. Processes for environmental screening or assessment under the various land claim agreements must also be respected.

What we are doing to prepare

Given the increasing interest in the North, the National Energy Board has been working to strengthen its regulatory framework to ensure future decisions on applications will be made in a manner that addresses the safety of workers and the public and the protection of the environment.

As part of this, and as per our mandate, the Board will continue to efficiently and effectively implement legislative and regulatory changes once such changes are approved by Parliament.

As noted, we remain committed to supporting the Government of the Northwest Territories and the Government of Canada through the regulatory transition. In this vein, we have signed a service agreement with the GNWT to provide technical services and advice for those projects that will transition from the NEB to the GNWT on April 1, 2014. I want to reassure everyone that there will be no decrease to the emphasis, priority, value and importance the Board places on its relationship with northerners and Aboriginal communities in the North.

We are building on our provincial and territorial, federal, and international partnerships to deal with overlapping jurisdictions and common regulatory objectives. We are committed to enhancing and developing cooperative agreements with regulators and land claim organizations. Some examples that I would like to highlight are:

  • We have established a Memoranda of Understanding with the Mackenzie Valley Land and Water Board, the Mackenzie Valley Environmental Impact Review Board, the Inuvialuit Environmental Impact Screening Committee, the Inuvialuit Environmental Impact Review Board, the Nunavut Water Board, the Nunavut Impact Review Board, the Inuvialuit Regional Corporation, and the Yukon Government.
  • We are working with the Government of Canada, Newfoundland and Labrador, and Nova Scotia, as well as the two offshore Boards (Canada Newfoundland and Labrador Offshore Petroleum Board and Canada Nova Scotia Offshore Petroleum Board) to modernize the legal framework for frontier and offshore oil and gas (referred to as Frontier and Offshore Regulatory Renewal Initiative).
  • We have collaborated with these domestic offshore Boards, United States’ Bureau of Safety and Environmental Enforcement (BSEE), and the United States’ Pipeline and Hazardous Materials Safety Administration (PHMSA) on opportunities to move a concerted safety culture effort forward, including:
    • Building a shared understanding of the term safety culture among regulators and regulated companies;
    • Articulating clear regulatory expectations as they relate to safety culture; and
    • Collaborating on the development of reference and resource material for industry in order to provide clarity and consistency in terminology, and safety culture dimensions and attributes, where possible.
  • We are supporting the work of the International Organization for Standardization - Chairing the Canadian Standards Association mirror committee for the Arctic operations standard that is working on the physical environment.
  • We are working with Canadian organizations such as Public Safety and the Canadian Coast Guard as well as with agencies of other interested governments, such as the United States Coast Guard, BSEE and others, regarding oil spill response coordination.

The Board has been developing and consulting on additional guidance documents to provide clarity on our expectations of companies operating in the North. Most recently, this includes:

  • Filing Requirements for Onshore Drilling Operations Involving Hydraulic Fracturing, released in September 2013, outline the information the Board would consider in future applications that involve hydraulic fracturing.
  • Ongoing work and engagement on Financial Responsibility guidelines. These Guidelines will describe what an applicant must do to demonstrate they have sufficient financial resources to deal with a spill.
  • Developing Filing Requirements for Geoscience Programs to provide specific guidance on a range of geophysical operations (the most frequent applications are for onshore and offshore seismic programs).
  • Developing Standby Vessel Guidance in collaboration with the two offshore Boards and the supply vessel industry to ensure requirements are up to date and reflect industry best practice.
  • Developing an Audit Protocol for the Drilling and Production Regulations to provide clarity to companies regarding how the Board will audit its management system requirements in the North.

Another key element of strengthening our regulatory framework in the North is our northern engagement activities.

  • Over the past year alone, the Board has held over 50 meetings throughout the Northwest Territories and Nunavut. Board Members, staff and I have met with Northern communities, youth, governments (Aboriginal, territorial, federal and international), environmental non-government organizations, regulatory agencies, and land claim institutions.
  • These meetings have involved, among other things, discussing key concerns around oil and gas exploration and development, explaining the Board’s role, and getting feedback on guidelines the Board developed to clarify its expectations of regulated companies. 
  • We remain committed to listening to those who would be most affected by oil and gas activities in Canada’s North in support of realizing shared objectives for safety and environmental protection.

Thank you and I look forward to your questions.

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