A standoff over drilling regulations between the federal regulator and oil companies is putting at risk the development of massive oil deposits under the Beaufort Sea.
Canadian oil companies say they will not be able to drill in Arctic deep waters unless the National Energy Board drops a provision that requires them to be able to quickly complete a relief well in the event of a blowout.
At a committee hearing in Ottawa Thursday, BP Canada Inc. president Anne Drinkwater said there are "technical challenges" that companies would face in satisfying an NEB requirement that they be able to complete a relief well in the same season that they conduct drilling of exploratory wells.
At risk is the development of one of the energy industry's new frontiers for oil exploration. Major oil firms including BP, Chevron, Conoco and Imperial Oil have exploration leases in the deep water of the Beaufort and have sunk hundreds of millions of dollars in early work to find new reserves. But the regulatory uncertainty could put any more exploration efforts on the shelf.
Ms. Drinkwater said BP is determined to learn safety lessons from the devastating blowout in the Gulf of Mexico before it takes positions on what regulations are required in the Arctic.
But BP's disaster in the Gulf has already forced the federal regulator to reverse itself on a planned review of its relief-well rules, and the prospect of a blowout spewing crude under the sea ice for two or three years will make it difficult for the NEB to give the companies the latitude they are seeking.
At the same time, oil companies with leases in the Arctic have made it clear that a strict application of the same-season relief well rule would preclude them from drilling in the Beaufort, where the open-ice drilling season can last as little as 50 days and it can take three years to complete a well.
"There is a challenge particularly in the deepwater North to do a same-season relief well in the same season," said David Pryce, vice-president with the Canadian Association of Petroleum Producers. Mr. Pryce testified along with Ms. Drinkwater and spoke to reporters after the session after the BP executive refused to answer questions from the media.
"Right now we're seeing no activity in the North as companies try to understand how to best proceed with projects they might want," Mr. Pryce said. "Companies are saying it's difficult to meet that expectation [of same-season relief well capability]and proceed with a drilling program.
Imperial Oil spokeswoman Laura Bishop said the company asked for a deferral of the relief-well policy hearings until the board can review BP's Gulf of Mexico accident.
"We think it could have an influence on any review of same-season relief well capability," she said.
But Ms. Bishop would not comment on the company's earlier argument that the policy stands in the way of development.
In the Gulf of Mexico, BP is now drilling a relief well in an effort to plug its out-of-control well. But that could take three months to complete - meaning the gush of crude will continue for that long if the company fails in its other efforts to cap the blowout.
While several major oil companies hold exploration leases in the Beaufort, none have received permits to drill and NEB chairman Gaétan Caron told MPs that no activity will occur before 2014.
The board had agreed to review its rule for requiring companies to be able to deal with a blowout by drilling a relief well in the same season. After BP's Gulf of Mexico blowout, the regulator suspended planned hearings on the issue, and said this week that it will examine its entire regulatory approach, including the same-season relief well policy.
In its March submission, BP said the same-season relief well policy "ought to be rescinded, and replaced by a series of goal-oriented regulations" that would include preventive measures and mitigation efforts that would include longer schedule for drilling a relief well.
In fact, Imperial Oil Ltd. had asked the NEB for an exemption from that relief-well regulation as it prepares for a drilling program in Ajurak property, which lies 120 kilometres off shore in 650 metres of water.
A strict application of the rule "would essentially preclude the drilling of deepwater wells, such as the Ajurak exploration well, which require multiseason operations," Imperial said in a submission to the board earlier this year."
Under Imperial's own scenario, a blowout in the Beaufort could spew for up to three years before a relief well could be drilled. Imperial also urged the board to focus on preventative measures.
Federal Environment Minister Jim Prentice said the NEB will ensure that any drilling activity in the Beaufort is done as safely as possible, and won't be approving any permits until it has conducted its review of the BP accident and its own safety regime.
Nova Scotia said Thursday that it would extend its moratorium on drilling in the fish-rich Georges Bank until 2015, but will allow activity near Sable Island, where companies are developing gas fields. Newfoundland and Labrador Premier Danny Williams has rejected calls for to halt Chevron Corp's deepwater drilling in the Orphan Basin.