Wednesday, November 3, 2010

Who’s minding the minders? The sad case of offshore regulation 
Doug Matthews, Up Here Business 

October 2010 - The BP blowout in the Gulf of Mexico has turned what was to have been a relatively sleepy National Energy Board hearing about a decades old policy into a national show of emotional concern, involvement and opinion. 

What was announced in February as a written hearing into the long-standing same-season-relief-well policy for the Beaufort Sea was turned, after the Deepwater Horizon disaster on April 20th, into a fully fledged public review of Arctic safety and environmental offshore drilling requirements and the show, as they say, was on! 

The federal government has, since offshore drilling began in the Beaufort in the 1970s, required an explorer to have the capability to drill a relief well in the same season as the original well in the event the latter suffered a blow out.  

Given that the ice was always expected to come back in the fall – effectively putting an end to drilling – and that no one wanted an uncontrolled blow out to flow under the ice until the next open water season, the policy made eminent sense. But, after taking out licenses for deep water in the Beaufort, BP, Imperial Oil and Exxon Mobil began to actively question the policy. The new drilling vessel that would be required to drill in these ultra-deep waters would be a big-ticket item and the companies argued that to require two of them would add significantly to the cost of exploration. 

Further, an alternative well-control technology was being developed, one that would ensure that any blow out could be quickly, and permanently, controlled, thereby making the need for a relief well a thing of the past. The NEB agreed to look at the policy. A few letters were written and some comments made, but overall it was something of a regulatory non-event. 

And then along came the Deepwater Horizon and, in June, the NEB sent out a notice asking people to give it some ideas on what matters it might review in the now broader hearing it was proposing. As could be expected, the letters were soon flying in, with suggestions from the World Wildlife Fund, the New Democratic Party, aboriginal organizations, government agencies, business interests, the Canadian Association of Petroleum Producers, and, of course a school class in Vancouver. 

Virtually everyone wanted more from the NEB review: more geographic scope; more subjects including increases in liability levels; more members for the panel, with representatives from the North, aboriginal peoples and environmental groups; and more hearings from coast to coast. 

What seemed to be missing from all of this, in fact what seemed to be the only thing missing, was any serious 
suggestion that the competence and independence of the regulator itself be brought into the discussion. An odd omission, given the recent pillorying of the Minerals Management Service, the American offshore regulator, for its alleged incompetence in regulating exploration and production in the Gulf of Mexico. Perhaps just another case of Canadian deference to authority and yet, given that no one has ever drilled in the deep 
waters of the Beaufort, surely the question should arise as to how the NEB will regulate this activity? Who are the staff members with technical experience in these deep waters? And how did they obtain that experience, since there has been no previous drilling there? 

It is a given that while world blow out statistics are a useful, albeit broad, indicator of the probability of an incident, these statistics need to be combined with area and well specific characteristics in order to properly develop risk-reducing measures. And, one might ask, who from the NEB can provide those characteristics? 

For the answer to that, maybe we should look at the recent hearings of the Standing Senate Committee on Energy, the Environment and Natural Resources into offshore exploration. The committee concluded that all was well in the land and that nothing need interfere with the drilling of wells off the east coast or, presumably, with the flow of royalties to Newfoundland and Nova Scotia. 

The good Senators were happy to report that, “Canada’s offshore industry is subject to a regulatory regime that is modern, up-to-date and among the most effective and stringent in the world.”  

As proof of this, the committee noted that, “Canada is a leading member of the International Regulators’ Forum, a group of nine regulators of health and safety in the offshore upstream oil and gas industry.” 

At the forum’s 2006 meeting, the Canada-Newfoundland and Labrador Offshore Petroleum Board told the other members that, “it was examining its practices and procedures in the interest of achieving greater regulatory efficiency … prompted by calls from industry and governments for a speedier regulatory review process.” 

Three years later, the Newfoundland board informed the others that, “there has been strong political influence for a frontier and offshore regulatory renewal initiative.” 

Perhaps it’s time to talk to the NEB. 

- Doug Matthews is a former director of the NWT’s minerals, oil and gas division. He is now an energy consultant in 

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