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Chevron wins bid to explore for energy in Beaufort Sea

Three polar bears walk along the shores of the Beaufort Sea. Chevron has won a federal auction by committing to spend $103-million exploring a 205,000-hectare deep-water parcel.


Chevron is making a major bet that the oil industry will be allowed to develop Canada's Arctic offshore resources, winning a federal auction by committing to spend $103-million exploring a 205,000-hectare deep-water parcel in the Beaufort Sea.

Indian and Northern Affairs Canada - which manages Arctic development - declared the winning bid despite calls from Inuit leaders for a moratorium on sales until regulators have completed their reviews of BP PLC's catastrophic oil spill in the Gulf of Mexico, which the company has now sealed after months of oil spewing into surrounding waters. The Arctic bids closed a month ago but the winning bid wasn't revealed until this week.

The National Energy Board (NEB) is set to conduct hearings on Arctic offshore drilling, and to consider whether it can be done without undue risk to the fragile Northern environment. The U.S. has banned deep-water offshore drilling until at least November while officials study industry safety measures in order to help prevent more oil spills.

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BP itself is among a core group of major international oil companies that hold licences to explore in the Beaufort Sea, though no drilling is expected until 2014 and the board would have to approve any drilling program. BP has committed to spend more than $1-billion on exploration over a five-year period.

Chevron's licence covers an unexplored parcel some 100 kilometres offshore in deep water. The company must spend $103-million over five years or face penalties. That spending would cover seismic activity to map prospective oil and gas deposits but would not include the drilling of an exploration well, which alone could cost well over $100-million.

"We're pleased with the lease sale results," said David MacInnis, vice-president with Chevron Canada Resources.

"What it demonstrates is our commitment to advancing the potential of the Beaufort as a future oil and gas producing region for the company. The region, we think, has the potential to yield major discoveries and is part of our growth strategy."

The company has interests in 10 oil and gas discoveries in the Beaufort Sea, and is the third-largest lease holder. ExxonMobil Corp. - and its Canadian subsidiary Imperial Oil Ltd. - is a major player in the North, along with Chevron, BP and ConocoPhillips Co.

Mr. MacInnis said Chevron would be "at the table" as the National Energy Board conducts its review, promoting "new methods for ensuring responsible development of the Northern resources."

Prior to the Gulf of Mexico blowout, Chevron, BP and other companies had been urging the federal regulator to change its rule that companies must have the capacity to drill a relief well in the same year they begin any exploration well. The policy is intended to ensure that a blowout could be killed before accumulating sea ice made it impossible for the responders to operate, leaving a rogue well to spew under the ice for an entire Arctic winter.

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Chevron is developing a next-generation blowout preventer, which it claims would make relief wells unnecessary.

But Inuit organizations remain fearful that offshore oil development will threaten their habitat, arguing the BP well - which gushed some 4.9 million barrels of oil into the ocean before it was capped - has provided a vivid illustration of the risks.

Nellie Cournoyea, chief executive officer of the Inuvialuit Regional Corp. (IRC), a local economic development body, had urged Ottawa to impose a moratorium on offshore activity, including lease sales, pending the NEB review. A blowout in the Beaufort would be disastrous for Inuvialuit, the Inuit population of the area, who continue to rely on fish and marine mammals for their livelihood.

The IRC is involved in onshore oil and gas development but Ms. Cournoyea said recently that local residents have little stake in the offshore activity, since the industry tends not to use local suppliers or workers.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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