Natural Resources Committee on March 1st, 2011

[The Chair, Conservative, Leon Benoit]

Good afternoon, everyone. We're here today to continue our study on energy security in Canada.

We have two panels with us. The first is on offshore drilling, and the second is on the west coast pipeline and offshore activities there. We will start with the first panel in the order listed on the agenda.

Monsieur Pomerleau, you have a point of order.

[Roger Pomerleau, Bloc, Drummond, QC]

Yes. Thank you, Mr. Chair.

I have heard that the witnesses we suggested for one of our upcoming meetings on transporting dangerous nuclear material or waste on the St. Lawrence Seaway have not been contacted at all.

I would like to know if that is true. I would also like to know if they will be contacted, if they have not already been.

[The Chair, Conservative, Leon Benoit]

Can we deal with this at the end of the meeting? Can we leave 15 minutes? Is that acceptable?

[Roger Pomerleau, Bloc, Drummond, QC]

Yes, that is not a problem.

[The Chair, Conservative, Leon Benoit]

We can talk about it then. To answer your question simply, all of the members mentioned in the motion have been contacted, as have most of the other witnesses, but not all.

I'll go back to the order of business on the agenda for today and the first panel.

I'd like to thank you all for being here today. We have Jeff Lehrmann, president of Chevron Canada Resources. Welcome, and thank you for coming today.

By video conference from St. John's we have the Honourable Shawn Skinner, Minister of Natural Resources and Minister Responsible for the Forestry and Agrifoods Agency, Government of Newfoundland and Labrador. Thank you very much for being here, Minister. Welcome.

We'll start with Mr. Lehrmann, from Chevron Canada Resources.

Go ahead with your presentation for up to seven minutes, please.

[Jeff Lehrmann, President, Chevron Canada Resources]

Thank you for the opportunity to appear before the Standing Committee on Natural Resources.

On behalf of Chevron Canada, I am pleased to share with the committee details of the deepwater exploration program that we successfully executed during the summer of 2010 in the Orphan Basin off the coast of Newfoundland and Labrador. We completed this drilling program without incurring a single lost-time incident.

Before I talk in greater detail about the Lona 0-55 well, I would like to explain how Chevron’s commitment to uncompromising standards of operational excellence gave us the confidence to proceed with this well, despite the uncertainty that followed the Deepwater Horizon incident in the Gulf of Mexico.

Chevron Canada Limited is a wholly owned subsidiary of Chevron Corporation, one of the world’s leading integrated energy companies. Chevron employs 60,000 professional men and women who are committed to delivering safe, efficient, reliable, and affordable energy sources to the communities and economies around the world.

We have been operating in Canada since 1938. Headquartered in Calgary, with an office in St. John’s, our upstream arm is focused on exploration and production activities in Atlantic Canada, Alberta, and the Canadian Arctic. Chevron’s corporate vision is to be the global energy company most admired for our people, our partnerships, and our performance. Protecting people and the environment is one of our seven shared values, along with integrity, trust, diversity, ingenuity, partnership, and high performance. Ensuring the health and safety of our employees, contractors, and the communities in which we live and work is a foundational value I and the employees of Chevron Canada commit to daily.

Chevron’s global systematic approach to ensure safe, healthy, environmentally responsible, reliable, and efficient operations is our operational excellence management system. The constant corporate-wide application of this system has created a step change in our performance and our ability to manage risks. Chevron’s commitment to operational excellence is summarized in our ten tenets of operations. The tenets are prefaced by two principles: do it safely or not at all, and there's always time to do it right.

I'd also like to share with you one important aspect that characterizes our overall approach to ensuring safe and incident-free operations. It’s called “stop-work authority”. It obligates any employee, contractor, or business partner to stop work if they suspect an unsafe condition or are just unsure of what is happening. During the Lona drilling program, more than 400 stop-work authorities were exercised. In each case, work was halted until the operations staff confirmed that no unsafe work conditions existed.

Chevron drilled the Lona O-55 exploration well approximately 430 kilometres northeast of St. John’s in a water depth of 2,600 metres between the months of May and September of 2010. This was Chevron’s second well in the Orphan Basin. The Lona well underwent two levels of environmental assessment. Regulatory approval was in place for all aspects of the program.

In response to the Deepwater Horizon incident, the Canada-Newfoundland and Labrador Offshore Petroleum Board, C-NLOPB, instituted a number of additional regulatory oversight measures on the Lona operation. Chevron complied fully with all of these measures. In appendix III of our submission, you will also see a detailed list of additional steps taken by Chevron in this well program to ensure safe and incident-free operations. In some cases, these additional steps had already been built into our well plan, while others were implemented by us as a result of the April 20 Gulf of Mexico incident. Allow me to highlight a few of those measures.

From February 8-10, 2010, Chevron management hosted a three-day safety leadership workshop in St. John’s involving all Orphan Basin project contractors and observed by the C-NLOPB.

In April, Chevron led a risk assessment meeting facilitated by an external deepwater organization to review step-by-step well design and contingencies.

On May 1, prior to commencing operations and after taking possession of the drill ship, Chevron conducted two seven-hour safety sessions, one for each of two crews on board the Stena Carron, to deliver Chevron’s commitment to an incident-free operation.

Chevron added additional functional tests to the secondary well control systems.

The blowout preventer was fully pressure-tested on surface and after subsea installation in the 2,600 metres of water. Prior to drilling into the potential hydrocarbon zone, Chevron conducted a second emergency response exercise to ensure that all the emergency protocols were in place and functioning. The C-NLOPB was witness to this exercise. The well abandonment technique was reviewed upon final casing configuration when total depth was reached, to adjust for any new information gained while drilling the Lona O-55 well.

Prior to drilling the Lona O-55 well offshore Newfoundland and Labrador, Chevron Canada had expressed a high degree of confidence in our ability to safely execute this challenging deepwater exploration well. As I indicated in my opening remarks, we succeeded in this endeavour, completing the Lona well without a single lost-time incident. This performance was achieved by our adherence to Chevron’s uncompromising safety standards in all aspects of our drilling program, and by our compliance to all special oversight measures instituted by the Canada-Newfoundland and Labrador Offshore Petroleum Board. Indeed, throughout the planning and execution of the Lona well, our steadfast focus on ensuring safe and incident-free operations was underscored by our operational excellence tenets “Do it safely or not at all” and “There is always time to do it right”.

Thank you for your time. I will now be pleased to answer your questions.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Lehrmann, president of Chevron Canada.

We have next, by video conference, the Minister of Natural Resources from Newfoundland and Labrador, the Honourable Shawn Skinner. He doesn't seem to be there right now.

Is the deputy going to make the presentation?

Oh, here he is.

I was going to stall by asking Monsieur Pomerleau, was your question answered? Because I want to know how to allocate the time between the two committees.

Do you need some time at the end, or was your question answered?

[Roger Pomerleau, Bloc, Drummond, QC]

No, I will need some time at the end of the meeting, 5 to 10 minutes maximum.

[The Chair, Conservative, Leon Benoit]

Okay, five or ten minutes. Sure. We'll leave that, then.

Thank you very much.

Okay, Minister, please go ahead with your presentation, for up to seven minutes. Thank you for being here.

[Shawn Skinner, Minister of Natural Resources and Minister Responsible for the Forestry and Agrifoods Agency, Department of Natural Resources, Government of Newfoundland and Labrador]

Thank you very much, Mr. Chair. I appreciate the opportunity.

As you've indicated, my name is Shawn Skinner, and I'm the Minister of Natural Resources for the Government of Newfoundland and Labrador. I appreciate the opportunity to appear before your committee today.

My opening remarks will touch briefly on the impact petroleum development has had on Newfoundland and Labrador. I will talk about deepwater drilling offshore, the potential for natural gas development, and the emerging unconventional plays in western Newfoundland. I will finish by relating how Newfoundland and Labrador's energy resources contribute greatly to Canada's energy security.

The challenging economic realities of the past in Newfoundland and Labrador have been replaced with a robust and expanding economy full of opportunities. This is largely due to the Atlantic Accord, which gives our province control of its offshore petroleum resources and ensures that we are the principal beneficiary of these resources.

In the decade after first oil in 1997, nominal GDP in the province increased by 170%. In 2005 our province's nominal GDP per capita surpassed the Canadian average for the first time and is now at nearly 130% of that average. This economic turnaround can be almost exclusively attributed to petroleum development. The petroleum industry is the largest contributor to the provincial economy, accounting for up to 40% of GDP in recent years, and it makes a significant contribution to our employment.

Our province typically produces approximately one-third of Canada's conventional light crude oil. In 2009 about 35% of this oil was shipped to Canadian refineries. The remaining 65% was sold into the United States. Our substantial crude resources form a steady supply of domestic crude oil for Canada and North America as a whole.

Employment associated with petroleum investments in our offshore, including the pending Hebron development, is expected to be 284,000 person-years of employment. Direct employment will rise to more than 104,000 person-years. These significant industrial benefits have led to a growing and maturing petroleum industry in Newfoundland and Labrador that is now being recognized around the world for its expertise.

Benefits are not just accruing to our province. The rest of the country is estimated to see $64.5 billion in total business revenues and over 206,000 total person-years of employment from the development of our resources. Given that over 90% of our discovered oil resources are either in production or in the approval process, it is critical that we continue our quest to discover additional resources.

While all of our current and pending offshore developments are found in relatively shallow water depths, there are promising deepwater basins being explored. It is incumbent on us to ensure that this exploration is done responsibly, particularly in the wake of the Macondo disaster in the Gulf of Mexico last year.

As you heard earlier, we have had some deepwater drilling experience in recent years, but the most relevant to this discussion is Chevron's Lona well, which was drilled in some 2,600 metres of water just last year. The Canada-Newfoundland and Labrador Offshore Petroleum Board required the operator to comply with additional oversight measures specific to deepwater drilling. In the end, the well was drilled safely, without incident.

We also committed to undertake a detached and objective review of offshore safety issues, and the province has commissioned a study on offshore spill prevention and remediation.

Drilling for oil in deep water represents a new frontier for petroleum development and will be necessary to ensure that Canada's, and indeed the world's, demand for oil and gas is met into the future. We are confident in the offshore safety regulatory oversight provided by the CNLOPB and are supportive of further responsible deepwater drilling in our region.

The offshore is also home to significant gas resources. To date, over 11 trillion cubic feet of natural gas and 500 million barrels of natural gas liquids have been discovered, and an undiscovered volume of 60 trillion cubic feet has been estimated. While the North American gas market is currently impacted by a strong supply of unconventional gas, this major east coast resource has great promise as a secure energy supply.

This provides a great segue to mentioning the resources of western Newfoundland, which are being actively explored, and the involvement of the provincial energy corporation, Nalcor Energy.

There has been an increase in exploration activity in the past couple of years, including a trend toward drilling deeper wells, that has provided valuable information and data for the region. This is promising activity, and we look forward to future opportunities in our western region.

This brings me to the final area I wish to talk about, Newfoundland and Labrador's significant contribution to Canada's current and future energy security. Our province is an energy warehouse. In short, we have energy and we have lots of it. We have discovered oil reserves of more than three billion barrels and natural gas reserves of more than 11 trillion cubic feet. It is thought that future exploration will discover an additional six billion barrels of oil and over 60 trillion cubic feet of natural gas.

Additionally, the province boasts over 18,000 megawatts of developed and potential renewable hydro and wind resources. With respect to renewable electricity generation, our contribution to national energy security is potentially even greater. We currently produce over 5,000 megawatts at the Churchill Falls generating station in Labrador, one of the largest underground powerhouses in the world.

Last November the province's energy corporation, Nalcor Energy, announced a partnership with Emera Inc. of Nova Scotia to launch the development of the Lower Churchill River via the 824 megawatt Muskrat Falls generating station—a transmission link to the island portion of the province and a subsea maritime link that will connect the province to Nova Scotia.

The Muskrat Falls phase of the Lower Churchill project will facilitate the development of additional renewable energy in the whole of the Atlantic region, including the estimated 5,000 megawatts of wind potential in Newfoundland and Labrador alone. Developing these vast renewable energy resources will be an essential element of Canada's national energy security in the future.

In closing, I hope that I've adequately described the importance of the petroleum industry in our province and the tremendous economic and employment benefit that it has brought to our people. I also want to reiterate my confidence in the regulatory oversight provided by the Canada-Newfoundland and Labrador Offshore Petroleum Board with respect to deepwater drilling and the need to continue exploring for petroleum in deeper waters. Continued exploration is critical to adding to the scientific knowledge of our basins and unlocking the significant potential that is awaiting. The contribution of our province to Canada's energy security, both now and into the future, cannot be underestimated.

I hope my remarks have been helpful for the committee's deliberations and I thank you for the opportunity to address you. I would be pleased to answer any questions you may have.

Thank you for your time.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Minister, for your presentation.

We'll now go directly to the questions, starting with the official opposition.

Mr. Andrews, for up to seven minutes, please.

[Scott Andrews, Liberal, Avalon, NL]

Thank you, Mr. Chair.

The first of my questions is for you, Jeff. You mentioned that the C-NLOPB were a witness to your exercise. How often were they on board the rig during the drilling of the deep well at Lona 0-55?

[Jeff Lehrmann, President, Chevron Canada Resources]

In the past, inspections by the regulator would happen anywhere from every two to three months. With the incremental oversight, that happened about every two to three weeks.

[Scott Andrews, Liberal, Avalon, NL]

Okay.

Would you be opposed to the C-NLOPB being there as an independent observer more often or more frequently?

[Jeff Lehrmann]

Our commitment is to ensuring that we execute every operation that we have in our portfolio incident-free. We call upon all of the personnel on site to help us ensure that we do that. Having an extra set of eyes and expertise is a valuable contribution in that endeavour.

[Scott Andrews, Liberal, Avalon, NL]

So you wouldn't be opposed to them being there more often as an independent observer?

[Jeff Lehrmann]

No, absolutely not.

[Scott Andrews, Liberal, Avalon, NL]

A question to both you and Minister Skinner.... As we are studying our energy security and we're looking at exploration off Canada's east coast, how can we foster more exploration off the east coast of our country? It's my understanding right now that exploration has slowed down somewhat on the east coast. What recommendations could we make as a committee to foster more exploration off the east coast? This question is for both Jeff and Minister Skinner.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Lehrmann.

[Jeff Lehrmann]

As far as access to the resources there, first of all, ensure that we have clarity on the regulations. It is critical that we have support and that the regulator is enabled to execute those regulations efficiently and effectively. That's what we expect of all of our partnerships, whether that be setting policy from the government or setting the regulations from the regulator there. Speed and efficiency of that relationship and of the executing of those regulations are very important.

[The Chair, Conservative, Leon Benoit]

Minister Skinner, if you'd like to answer that question as well....

[Shawn Skinner]

Yes, thank you very much.

We're working with a group here in Newfoundland and Labrador to help us look at being able to do more exploration, especially in deep water, and it's called the offshore continental working group. That group would consist of ourselves as a government, Chevron, Exxon Mobil, Suncor, Husky, and Statoil. We sit around the table and look at ways we can help facilitate the regulatory or other ways, and facilitate more exploration in offshore areas.

[The Chair, Conservative, Leon Benoit]

Thank you.

Go ahead, Mr. Andrews.

[Scott Andrews, Liberal, Avalon, NL]

I have a couple of questions.

Right now the province is commissioning a study, as you mentioned in your statement. When will that study be available?

[Shawn Skinner]

I believe what you're referring to, Mr. Andrews, is the Turner report, and the Turner report has been received by government. We are currently reviewing it, and I would expect that within a matter of a few weeks we would have our response on that document out to the public.