Natural Resources Committee on June 17th, 2010

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

We're here today to continue our study of the regulations and the status of the emergency response to offshore oil and gas drilling accidents.

We have two panels today to continue our study. In the first panel, from the International Association of Drilling Contractors, we have Kevin Roche, general manager of Noble Drilling (Canada) Ltd. Thank you for coming today. From York University we have Gail Fraser, associate professor, faculty of environmental studies. Thank you very much for coming today.

Mr. Cullen.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I have a very small point of order, through you to the clerk.

Just to confirm, I know different parties had included some of the companies that actually do the drilling--the oil and gas companies that are doing the drilling off Newfoundland and the proposals off the arctic.

They were invited, correct? I just want to confirm that they were invited and chose not to come.

[The Chair, Conservative, Leon Benoit]

I can explain some of that. Actually, there are nine individuals or groups who declined to come or couldn't. Husky Energy is actually appearing right now before the Senate committee. Apparently the individual has a flight right after and couldn't make it work. Chevron was invited and chose not to. I have the list here.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Okay.

Is it possible to provide the list of companies? For future reference, if the committee were to go at this issue again, it would be very helpful to know which companies were invited or declined, so we can put a little bit more energy into making sure they come, because they're the ones ultimately doing the drilling. Those are the ones that I think a lot of committee members would like to hear from at some point in our process. If we could have that list from you, through the clerk, that would be great.

[The Chair, Conservative, Leon Benoit]

We will get that list to you, Mr. Cullen.

We'll start now, in the order appearing on the agenda, with Mr. Roche from Noble Drilling, if you could just go ahead. You're here on behalf of the International Association of Drilling Contractors.

Go ahead with a presentation of up to 10 minutes. Once we've heard from both witnesses, we'll go to questions and comments.

Go ahead, please.

[Kevin Roche, General Manager, Noble Drilling (Canada) Ltd., International Association of Drilling Contractors]

Thank you, Mr. Chairman.

Let me provide a little background. Noble Corporation, headquartered in Geneva, is a member of the International Association of Drilling Contractors, which is based in Houston. Noble Drilling Canada Ltd. is a Canadian subsidiary of Noble Corporation. It is headquartered in St. John's and is a member of the Canadian Association of Oilwell Drilling Contractors, based in Calgary. IADC is a trade association representing drilling contractor interests worldwide, which covers some 700 mobile offshore drilling units. CAODC is a trade association representing drilling contractor interests based in Canada, which covers some 800 drilling and 1,100 service rig units. Noble Drilling Canada has conducted drilling operations on the Hibernia platform for the last 13 years, since its tow-out in 1997.

I'm the division manager for Noble's operations in Canada. I'm a graduate in mechanical engineering from Memorial University. I've got 32 years in the drilling industry, and that includes assignments in the Beaufort Sea for six years, the North Sea, and Atlantic Canada off Nova Scotia and Newfoundland for 18 years. I've spent the last two years running our Mexico division for Noble. I currently hold the position of chairman of the CAODC Atlantic Canada division.

Noble and IADC believe the Deepwater Horizon incident was a tragic but preventable event. We mourn the loss of the 11 lives of our industry co-workers and we lament the environmental damage that is still in progress.

Coming from Noble's operational culture, in which there's no job so important that it can't be done safely, I find it very difficult to fathom the series of events that occurred on April 20, which sequentially overrode several key fail-safe features and led to the blowout. It's also very difficult for us to rationalize how, or why, experienced people did not stop unsafe activities that could, and did, lead to such significant loss of life and environmental damage. We must await the final investigation of the incident to understand the real root causes, effectively apply the lessons learned, and establish if there are indeed opportunities for us to improve our regulatory system and current operational practices.

I will next discuss accountability versus responsibility. In our world, the drilling contract between the licence-holder, which we call the operator, and the drilling contractor is the governing legal document that establishes accountability and liability. The operator leases the land, prepares the drilling program, and obtains approval from the regulator to drill the well. The operator contracts with the drilling contractor and many other contractors to bring equipment, people, and processes needed to deliver a cased conduit--the well--through which oil and gas are delivered for processing. Each contractor is responsible to the operator for executing its contracted duties according to its contract terms. Standard, typical drilling contracts recognize the operator as being ultimately accountable to the regulator for compliance and performance in delivering the well according to the plan submitted.

Now I will discuss emergency response assets. Standard drilling contract terms in Canada and internationally make the operator accountable for pollution and spills emanating from the well and for the associated response and contingency plans. The drilling contractor is responsible for pollution emanating from the drilling unit and its equipment, subject to mutually agreed indemnities and caps. A three-tiered oil response capability is required by Canadian offshore drilling permit regulations; it is coordinated by the operator, typically using outside specialists and third-party services.

With regard to the adequacy of the current regulatory regime, we believe Canada has a very robust regulatory system in place, and the processes used for pre-auditing and permitting are highly regulated. Authorization submissions by the operators must include a safety plan, an environmental protection plan, and a contingency plan for drilling and production regulation compliance. Regulatory regimes around the world are moving to less prescriptive and more goal-oriented regulatory models. Goal-oriented regulations should not decrease the standards, but rather, we believe, should promote more effective and more innovative practices. The operator remains accountable for compliance to its plans and for its decisions, the drilling contractor remains responsible to the operator for compliance to its contract and service agreement, and the regulators remain accountable for ensuring that effective goals are met in executing approved drilling and production plans.

In conclusion, with a focus on the tools we have for preventing spills, effective risk management is a fundamental and common goal of the operator, the drilling contractors, and the regulators. The primary focus of the drilling contractor must be on managing operational risks to prevent the loss of well control, and in doing so, to remove the risk of injury to people and the environment.

We have five primary tools in our arsenal for managing well control risks, which are prescriptive and fundamental to providing effective and professional service to our contracts. Those five items are as follows.

We always maintain two independent well barriers during drilling operations, and we ensure that the operator and subcontractors support and enforce this obligation in compliance with the drilling permit requirements.

We employ a robust competency assurance program to document the competency of key people and ensure they've got the training and the experience to identify potential problems and correct them in advance.

We conduct regular drills and well control exercises to test personnel competency and to manage complacency.

We deploy an effective planned maintenance program to ensure that critical equipment will work as designed and when required.

And we enforce a comprehensive health, safety, and environmental management system where hazards are identified and corrected spontaneously, where personnel are empowered with the right to refuse any unsafe work, and where the workforce believes there is no job that important that it can't be done safely.

Thank you for your invitation to meet with the committee today.

We support the initiative, and we are available to assist you, the regulators, and the operators in finding ways to improve the processes used in the safe and responsible development of our oil and gas resources.

Because I know the history of this committee, I've tried to keep my comments short, thinking we were going to be part of a big group of presenters. In my early career I spent 10 years involved in BOP and well control systems design and construction. With the time we've got here today, if I can help you to understand any of these issues, I'm wide open to answer any questions you have.

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Thank you very much for your presentation, Mr. Roche. I'm sure you'll have lots of questions later.

We go now to Gail Fraser, associate professor, faculty of environmental studies, York University.

Go ahead with your presentation, please.

[Dr. Gail Fraser, Associate Professor, Faculty of Environmental Studies, York University]

Thank you, Mr. Chairman and members of the committee. I'm honoured to be here today. I want to thank the committee for asking me to participate in this very important process.

I'm going to focus my presentation on three key points around the regulatory regime in Newfoundland and Labrador. That's my primary focus: Newfoundland and Labrador. The key points are going to be around transparency, the conflict between the Atlantic accord and the Canadian Environmental Assessment Act, and the intersection between the Canada-Newfoundland and Labrador Offshore Petroleum Board--the C-NLOPB--and the Migratory Birds Convention Act.

I want to first consider the context in which we're operating oil and gas in Newfoundland on the Grand Banks. The northwest Atlantic is a globally important habitat for some 30 million to 40 million migratory seabirds, some of which come from Greenland, Antarctica, and the Gulf of Mexico. Seabirds are also a local resource, providing revenue for tourism, and locals also hunt certain species of seabirds. Environmental assessments associated with offshore oil and gas production identified seabirds as what's called a “valued ecosystem component”. They also identified these organisms as the group most vulnerable to oil pollution.

Transparency is a value identified by the federal and provincial governments of Canada through various acts. When a process is transparent, it is understood to be open to public scrutiny, yet this fundamental value of transparency is exactly what's missing from the current administration of offshore oil and gas in eastern Canada. I will support this statement with two examples. I had three; I was going to do one, but since I have a little bit more time, I'll do two.

Here is the first example. In conjunction with Newfoundland-based non-governmental organizations that had participated in the environmental assessment reviews for all three offshore oil and gas production projects, we placed four freedom of information requests between 2006 and 2007 to the C-NLOPB. All four requests were related either to pollutants containing oil or oil-like substances or were related to oil spills. We were requesting these data to evaluate how the operators meet waste treatment guidelines and to specifically link environmental assessment predictions to realized effects. All of the information was requested. It was underlined by our interest in understanding how offshore oil and gas intersects with marine birds.

Offshore oil and gas projects are approved on a basis of risks to the environment, and these risks are presented in the environmental assessments. Following the EA approval, the responsible authority, which is the C-NLOPB in this case, approves what's called an environmental effects monitoring program. Environmental effects monitoring programs are critical, as they verify--or should verify--what the realized impacts are. Without linking environmental assessments to environmental effects monitoring programs, environmental assessments are a paper exercise in which nothing is learned. Marine ecosystems are not well understood, and therefore it's important that we proceed in a transparent manner with marine-based industries so that we can improve our understanding of these complex systems.

All four of those data requests were denied.

The second example of the lack of transparency was another request that we placed to the C-NLOPB in 2007. This was not for data, but for information regarding the methods used to understand how they determine the effects of an oil spill on wildlife. We asked for the methods, not data.

That request was also denied.

So all of the requests for information--five requests in all--were denied to the very stakeholders who had reviewed these environmental assessments. The C-NLOPB cited subsection 119(2) under the Atlantic accord as the reason for this denial. They were unable to disclose information because the operators did not want the information disclosed.

This lack of transparency associated with the Atlantic accord creates other problems. One is the relationship with the Canadian Environmental Assessment Act. The Canadian Environmental Assessment Act expresses a commitment to “facilitating public participation in the environmental assessment of projects...and providing access to the information on which those environmental assessments are based”.

The Canadian Environmental Assessment Act has committed to doing follow-up programs related to environmental assessments through these environmental effects monitoring programs. Based on the examples that I provided, the Canadian Environmental Assessment Act is in fact in direct conflict with the Atlantic accord under subsection 119(2). Further, the C-NLOPB is also placed in a conflict because they are both supposed to promote public engagement through these environmental assessment processes and subsequently deny data related to those environmental assessments.

The final point I would like to make is that the C-NLOPB is self-described as at arm's length from government, yet this same entity is the decision-making body related to issues around the protection of migratory birds. It's Environment Canada's mandate to enforce the Migratory Birds Convention Act, but through a memorandum of understanding that Environment Canada and the C-NLOPB signed in 1988, Environment Canada is moved to a position of consultation in all issues relating to offshore oil and gas. While I don't have time to present the details--perhaps I could give you some in the follow-up questions--my colleague and I have conducted research that demonstrates that this arrangement is compromising Canada's international obligations to protect migratory seabirds.

Mr. Chairman and the committee, this appears to me to be a very serious issue on which I would recommend that this committee seek legal counsel.

To conclude, the devolution of federal jurisdiction over environmental protection through the creation of these special status bodies such as the petroleum boards, in my professional opinion, requires review. The current legislative structure does not provide the marine environment with full protection or complement our understanding from offshore oil and gas activities. The Atlantic accords are flawed, and this is manifested by a lack of transparency. An immediate recommendation would be to change the particular sections of the Atlantic accord that relate to transparency, including subsection 119(2) in the Atlantic accord and section 122 in the Nova Scotia accord. I would also recommend the use of third-party independent biological and technical observers on board all oil and gas operations.

In the current system, transparency is not a public right but is administered as a privilege granted by the industry when it decides whether or not to release information. We cannot hope for sound management, which I assume is what this committee is aiming for, to reach its full potential without the fundamental value of transparency, and I would argue that a broad review of related legislation is in fact fully required to address these challenges.

Thank you for your time.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Ms. Fraser. We go now to questioning. We have about 40 minutes.

We will start with Mr. Regan. You have up to seven minutes.

Please go ahead.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman. Thank you to the witnesses.

Ms. Fraser, should I call you Professor Fraser or Doctor Fraser?

[Dr. Gail Fraser]

Gail is fine. Doctor, Professor--they're both fine.

[Geoff Regan, Liberal, Halifax West, NS]

Okay, Professor, I have heard that in the event of a spill in the Orphan Basin, given typical wind and wave conditions in the North Atlantic, only a small percentage of oil--between 2% and 12%--can be recovered, and in winter it's more likely the 2%.

I don't know if you've studied this question or if you have expertise in terms of this question of recovery of oil, but what can you tell us about that? I'm asking because on Tuesday we had NRCan officials and Environment Canada officials and officials from Indian and Northern Affairs, and none of them knew the answer to that question, which was a bit of a surprise to me.

Do you know?

[Dr. Gail Fraser]

I will do my best to answer that question, although I'll footnote my answer by saying that I'm not an emergency response expert.

I heard the chair of the petroleum board in Newfoundland say to the media a couple of weeks ago that in fact the recovery of a spill would be very difficult. He estimated less than 5%. He said that in the gulf situation it's currently less than 5%, and he certainly didn't anticipate it being any better on the Grand Banks, or off the Grand Banks in the case of the Orphan Basin. In the environmental assessment there is a statement that cleanup and containment of a spill would in fact be extremely difficult.

[Geoff Regan, Liberal, Halifax West, NS]

Mr. Roche, is your knowledge of this any different? Would you have a different answer?

[Kevin Roche]

No, I wouldn't have a different answer. What we all understand is that with the harsh weather and the wind and wave action in Atlantic Canada, it would be more difficult to contain.

[Geoff Regan, Liberal, Halifax West, NS]

Professor, would you say that the federal government should have an overall contingency plan to deal with a major spill offshore, and if so, how would this help to coordinate the response efforts? Are there any lessons that we've learned from the gulf disaster in this regard that would help?

[Dr. Gail Fraser]

There are certainly lessons. One could look to California, which has a detailed spill response plan that is incredibly detailed. It is down to the nuances of who is doing what, and when, and how it's going to be administered. I've looked at Environment Canada's oil spill response plan, which is about 14 pages long, and frankly, I found it a bit lacking. I think more nuance is needed. More details are needed, because, as we know, when a spill occurs is not the time when we need to be figuring out who is doing what. We need to be figuring out who is doing what before a spill occurs, and make sure that it is all running smoothly.

Certainly the federal departments need a bit more coordination and discussion. They really need to hammer out these details.

[Geoff Regan, Liberal, Halifax West, NS]

Can you comment on the environmental expertise of the offshore petroleum board and the number of people they have? Is their level of expertise in this regard adequate, in your view? The chair of the Canada-Newfoundland Offshore Petroleum Board told us that they are not industry promoters and that other departments have some of that role. Are the boards seen as industry promoters?

After you, Professor, I'll ask Mr. Roche to answer this also: what about government departments like NRCan or INAC?

[Dr. Gail Fraser]

To answer your first question, all I can comment on is the makeup of the board. It's worth reflecting on what the board's mandate is in this regard. The board's mandate is, first, safety, and second, environmental protection. If you look at the expertise that the board is bringing--and I understand that these are appointments made by the ministers of natural resources--it's economics, it's finances, it's industry engineering expertise. None of those really speaks either to safety or to environment, yet these people are making very important decisions about what's happening.

I understand that maybe they're not involved in the day-to-day decision-making process, but nonetheless I find it really quite odd that there is nobody on the board who says they have environmental expertise, given that protecting the environment is their number two mandate.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

Mr. Roche, could you answer that question, and can I add one to that? Are you able to provide us with a list of the spills that have occurred in Canadian waters in the last few years?

[Kevin Roche]

I'm not prepared to do that today, but--

[Geoff Regan, Liberal, Halifax West, NS]

If you could provide that--

[Kevin Roche]

Yes, sure. The C-NLOPB has that data readily available, so that is not a problem.

I can't comment on the qualifications of the personnel employed by the regulatory body. I know they do have people who review and audit environmental aspects of the drilling program approvals, and I know that the structure that holds the operator accountable for spill response allows that three-tiered response program through which you have experts employed by companies such as the Eastern Canada Response Corporation, which brings that expertise and can access other experts as needed.

That's my understanding of the structure.

[Geoff Regan, Liberal, Halifax West, NS]

My understanding is that the Canada-Newfoundland and Labrador Offshore Petroleum Board has six environmental affairs group members as employees and that Nova Scotia has seven or eight, but only two work directly on environmental protection. That doesn't seem like a lot. These days, when we're looking at what's happening in the gulf, that is worrisome.

Let me ask you about what we've heard from others. We heard from Craig Stewart, a previous witness who is a World Wildlife Fund Arctic program director. He said that Greenland, Norway, and the U.S. all have regulatory processes governing both the leasing stage and the exploration stage, but ours only kicks in at the exploration stage.

Should that be different? The NEB stage only kicks in basically halfway through. Should there be, in your view, a different regulatory process, and what is the regulatory process for granting leases in the Arctic?

[Dr. Gail Fraser]

I wish I could fully answer your question. I did listen to Mr. Stewart's presentation to this committee, but my area of expertise is associated with eastern Canada and not the Arctic. It does seem odd to me, though, that across Canada we have three different regulatory regimes. Frankly, I don't think industry would be very happy about having to deal with three different regulatory regimes in Canada.

In Newfoundland, they deal with the leasing process. They deal with the leasing process all the way through, yet that is different in the National Energy Board.