Imperial Oil preparing application for drilling in the Arctic

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Imperial Oil Ltd. is preparing an application to drill in the Canadian Arctic that stands to renew the debate about how the energy industry will tap high-latitude resources.

In 2007 and 2008, Imperial, Exxon Mobil Corp. and BP PLC bid $1.8-billion to explore for oil and gas in large offshore parcels in the Beaufort Sea. The companies subsequently joined forces in a joint venture announced in 2010.

Now, following a delay of several years while the National Energy Board reviewed Arctic offshore drilling, Imperial is preparing to press ahead with drilling plans in the coming year, several sources say.

"They're very optimistic about moving things forward," Dave Ramsay, the Northwest Territories Minister of Industry, Tourism and Investment, said in an interview after meeting with Imperial parent Exxon in Houston this week.

An application for drilling approval is likely to come "sooner rather than later," he said. "I'd say next summer, you're in the ballpark," he added.

The Imperial application is expected to be the first to test new requirements by the National Energy Board that companies either be able to drill an emergency relief well in the same season as their original well, or provide an equivalent defence against blowouts.

It will also come amid a new push into the Arctic by the energy industry that has been beset by problems. This year, Royal Dutch Shell PLC began drilling as part of a $4.5-billion (U.S.) offshore Alaska program. But work on one well needed to be temporarily stopped amid encroaching ice. Later, Shell held off completing its wells after experiencing problems in a test of a containment dome that was designed to halt an oil spill.

The top of the containment dome had been "crushed like a beer can" during a Puget Sound test that went awry, according to internal e-mails from Bureau of Safety and Environmental Enforcement personnel released last week by a Seattle NPR affiliate.

Those problems may portend difficulty for Imperial, which will need to persuade the NEB that it has technology able to swiftly halt an undersea blowout. The failed test has already prompted concern in the U.S. On Wednesday, U.S. Representative Ed Markey, a Democrat who is frequently critical of the oil industry, released a letter questioning "the ability of containment devices to function properly in the harsh Arctic environment."

Industry, however, views containment domes as a key Arctic solution. Better blowout preventers have also been studied. It's unclear what Imperial will propose. In an e-mail, company spokesman Pius Rolheiser declined detailed comment on an Imperial drilling application, saying, "we're continuing to assess options and develop plans for potential further exploration activities."

Under licence extensions granted this year, Imperial has until 2019 and 2020 to mount a drilling program that will allow it to secure long-term rights to its Beaufort parcels, if it makes a significant energy discovery. (The extension was granted to compensate for time taken up by the NEB's Arctic offshore drilling review).

If the company opts for a new, ice-strengthened drilling ship to do the work, it may need to move quickly to secure drilling approval so it has sufficient time to build the vessel.

But the North is changing so rapidly that Imperial may be able to use more traditional drill ships. This summer, the Beaufort Sea was largely devoid of ice. On Wednesday, the U.S. National Oceanic and Atmospheric Administration reported another record-breaking year in the Arctic, with saw the lowest extent of summer sea ice since satellite measuring began in 1979.

Environmental groups, meanwhile, are sounding the alarm about a return of Canadian Arctic drilling at a time when the country's law maintains absolute liability limits for offshore drilling accidents of just $40-million. Critics want the rules changed to boost liability for spills from tankers, pipelines and drilling rigs.

"These accidents do occur. The risks are real and we need our federal liability regimes to reflect the fact that it is inappropriate for taxpayers to bear the risk," said William Amos, director of the Ecojustice Environmental Law Clinic at the University of Ottawa.