Natural Resources Committee on June 3rd, 2014

[Paul Barnes]

I would say that the most practical piece for us and the change for our industry would be the availability for use of dispersants. Their use has been restricted in Canada. In the event of a spill, the ability to use a dispersant has been a challenge in Canada as compared with the case in other countries around the world.

With this bill, our industry and our members are able to carry stockpiles of dispersants that can be used immediately upon an incident's happening at the offshore scene, rather than not being able to use it.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

If I'm summarizing this correctly, then, you would say that it gives you a better ability to protect the environment in the event of an accident.

[Paul Barnes]

Yes, that is correct. It provides another what we would refer to as a tool in a tool box to respond in the event of a spill.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Of course, one of the major interests in this bill, one that people are talking about, is the financial liability implications. As was said earlier, people are quite happy with the limit's being raised to a billion dollars.

What impact will that have on offshore drilling? Your companies are fairly large. A billion dollars sounds like a lot of money to most people, but these are not exactly small projects. Talk to me about the implications. How hard will it be to get insurance? Will this factor into any competitive decisions made by companies that are planning to drill offshore?

[Paul Barnes]

The vast majority of our members who are active in the offshore tend to be large multinational companies that have the ability to carry large amounts of insurance or even to self-insure, such that in the event of a major or any incident, they have the financial capacity to respond and to clean up the incident.

I think the area in which some challenge may occur is there are sometimes, in some areas of the offshore, in Canada, for instance, in offshore western Newfoundland, some small junior companies that want to explore and develop in the area, but which may find that the financial insurance instruments, such as insurance or other letters of credit or other financial instruments are more of a challenge for them than they would be for the majority of companies that work in the offshore.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

You raise an interesting point. I've been on this committee when we have dealt with effectively the other portion of the bill, the part dealing with nuclear power plants. Depending on the year we were dealing with it in the committee, there were mixed responses concerning the availability of insurance.

Is finding insurance going to be a problem for the juniors, or is it going to be a problem for the juniors to pay for insurance? Which will have the greater impact upon their business models for being offshore?

[Paul Barnes]

I think it may be more of a challenge to find insurance. Insurers these days want to ensure that the companies they sell policies to have a certain amount of financial capacity. Some of these junior companies do not have that capacity. I think that will be the biggest challenge for them.

What I suspect their business model will be is to look for a business partner, a major company that can be a partner in their activity and backstop some of the financial obligation.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you.

As everyone knows, you have the companies out there drilling, but on every platform you have subcontractors and contractors dealing with the situation. How do you think this legislation, the change in insurance, etc., will affect the way the majors deal with their contractors and with their subcontractors?

Safety standards are fairly high, and we see a very good record, but implications now can be greater. How will this impact upon dealings with the subcontractors we see in the oil patch offshore now?

[Paul Barnes]

I think there will be extra scrutiny applied to contractors at the time the contractor is hired to ensure that the contractor being hired has a reputation for good environmental practice and good safety performance. There will probably be an extra level of scrutiny to what we have seen in the past.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

I anticipate that when you have a subcontractor or contractor, you check to see whether they have appropriate levels of insurance. Is that a correct assumption? If it is, would changes in liability in this bill affect what they need to get by way of insurance?

[Paul Barnes]

No, I don't believe that changes in this bill will affect what contractors will be required to have by way of insurance, but I think there will be an extra audit scrutiny put on the contractors by the operator. The operator will require more documentation from them and will likely audit them more frequently than we have seen in the past.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

As was pointed out by the Department of Natural Resources officials, Canada has a very good record concerning spills. We have had one of 1,000, one of 38, and another of 28 barrels of oil; everything else has basically been immaterial.

With that in mind, though, how is the industry planning for the scenario that the public is I think most frightened of, a British Petroleum gulf type of incident? How is the industry incorporating this bill into their worst-case scenario plan for a major disaster?

[Paul Barnes]

Obviously, each operator has oil spill response plans in place and has always been required to have spill response plans in place, so this bill doesn't really affect that. What we have been seeing since the Gulf of Mexico incident is a greater need for having well containment equipment available at short notice to manage a major blow-out or catastrophe such as we saw in the gulf. All operators in Canada now have to have access to such equipment to handle a blow-out of that magnitude.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Barnes and Mr. Trost.

We go now to Mr. Cullen, for up to seven minutes, please.

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

Thank you to our witnesses.

Mr. Barnes, the notion of unlimited liability has been raised today. What would the concern coming from CAPP be under such a regime?

[Paul Barnes]

We have no concern over unlimited liability. We've been under unlimited liability ever since the offshore has opened up here in Canada. If there is an incident, we're totally—

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

Pardon me, I used the wrong term; it's absolute liability. The question is around whether there should be a cap at all in terms of absolute liability for accidents from an offshore platform. You believe there should be a limit on the liability held, if a company is able to prove it is not at fault. Is that true?

[Paul Barnes]

If the company is not at fault, then what the bill currently lays out is $1 billion of absolute liability. This lines up with most other countries around the world that have similar fields to Canada's offshore. It puts Canada—

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

I'm sorry.

Mr. Amos or Ms. McClenaghan, are there countries that have no limits on this type of liability?

[Theresa McClenaghan]

On the nuclear side I know there are. On the oil and gas side, Mr. Amos might be more familiar.

The difference—

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

I'm sorry; for today's purposes—I know there's a tendency to want to bring in the nuclear component, but we're going to be dealing with that a bit later—maybe I'll turn to Mr. Amos on the oil and gas side, please.

[Prof. William Amos]

There are other jurisdictions with unlimited absolute liability. Norway offers the prime example. I think, to be fair, that there is a distinction to be drawn, because Norway's oil and gas industry is a crown corporation, with Statoil engaged. There are distinctions to be drawn. However, I think by the same token that the industry in Norway is very clear in its mind that it's going to be paying the full shot, no matter what. That is a distinction.

I think the question is well posed to Mr. Barnes: why not more? What would be the problem with unlimited absolute liability?

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

Mr. Barnes, let me put that question to you. What would be the problem with unlimited absolute liability?

[Paul Barnes]

I think it would be a challenge to get that type of insurance for our members. We can get insurance if we're at fault, but to get insurers to insure us for not at fault, would, I think, pose a challenge.

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

Ms. McClenaghan, you said something about how under the current legislation one of your concerns was the minimum demonstration of insurance. Can you expand on that, please?