Drilling in Deep Canadian Waters

In recent days, there have been three noteworthy developments regarding oil industry drilling in the waters of Eastern Canada.

In the first development, Corridor Resources, a publicly traded junior oil company with market capitalization of about $410 million, is applying for approval from the National Energy Board (NEB) to drill a well in the Gulf of St. Lawrence. Corridor is headquartered in Halifax and has existing natural gas production in the McCully Field near Sussex, New Brunswick. As well, Corridor is exploring for petroleum and natural gas onshore in New Brunswick, Prince Edward Island and Quebec. Corridor holds exploration licences covering nearly 252,000 acres over the "Old Harry" prospect in the Gulf of St. Lawrence; the prospect is located in water depths of 460 metres. Approximately two-thirds of the prospect lies in the Quebec portion of the Gulf with the remaining one-third lying in Newfoundland and Labrador waters. The Old Harry prospect covers more than 20,000 hectares and Corridor's seismic interpretation shows that the closure is one of the largest undrilled prospects in Eastern Canada with potential reserves of 1.5 to 2 billion barrels of oil or 4 to 5 Tcf of natural gas.

According to this article in the Charlottetown Guardian from June 2nd, 2010, the Prince Edward Island government is concerned about possible environmental impact from drilling of the prospect and rightly so. Although the prospective area lies outside Prince Edward Island jurisdiction, an oil spill or blowout would have a marked impact on the North Shore of the Island, home to the majority of the Island's fishing and aquaculture economic activity. P.E.I. Environment Minister Richard Brown has sent notice to the federal government requesting input on approval of any offshore drilling that Corridor may undertake.

On the second front, Chevron Canada (with partners Exxon Mobil, Shell Canada and Imperial Oil Ventures Limited) has commenced exploratory drilling in the remote Orphan Basin off the coast of Newfoundland and Labrador this month. The Lona O-55 well is drilling in water depths of 2600 metres, far deeper than existing production at White Rose (water depth averages 120 metres), Terra Nova (95 metres of water) and Hibernia (80 metres of water) and is setting a record for drilling in the deepest water in Canada. By comparison, the BP well currently blowing out in the Gulf of Mexico is in 1500 metres of water.

The map following this paragraph can be found on the Chevron Canada website; it shows just how remote the Orphan Basin is. The basin is located approximately 370 kilometres northeast of St. John's. The map also shows the locations of the current producing fields of White Rose, Terra Nova and Hibernia.

An environmental assessment of the Lona o-55 well completed by Chevron in 2005 stated that there was a very small chance (.0086%) of a spill of 150,000 barrels or greater however, the report admitted that if a large spill were to take place, the company would find it very difficult to clean it up even with state-of-the-art equipment. Rough water conditions would make containment and recovery of spilled oil far more difficult; Chevron estimates that only 2 to 12 percent of an offshore spill could be retrieved under "typical wind and wave conditions".

In response to the recent debacle in the Gulf of Mexico, on May 20th, 2010, the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) announced special oversight measures for the Orphan Basin drilling program currently underway. Here's a quote from the Report:

"... in light of the situation unfolding in the Gulf of Mexico...Chevron is required to provide the C-NLOPB’s Well Operations Engineer with copies of the field reports prepared in respect of the following: testing of the blowout preventer (BOP) stack; function test of the acoustic control system; function test of the Remotely Operated Vehicle (ROV) intervention capability and function test of the automode function (AMF) system, together with an assessment of the readiness of the ROV system in terms of equipment, procedures and spare parts.

Prior to penetrating any of the targets, Chevron must hold an operations time-out to review and verify, to the satisfaction of the Chief Safety Officer and the Chief Conservation Officer, that all appropriate equipment, systems and procedures are in place to allow operations to proceed safely and without polluting the environment." (my bold)

As well, audits and inspections of the drill ship will take place every three to four weeks rather than every three to four months as had been the case. Most importantly, since the casing cement job may have failed on the BP well, Chevron must allow a representative of the C-NLOPB to be onboard the drill ship to observe the cementing operations of the casing, witness BOP testing and pressure testing of the cement job.

I'm rather impressed by their thoroughness, especially considering that their experience is limited to the drilling of only 355 wells offshore Newfoundland and Labrador compared to nearly 4000 (3858) producing platforms alone offshore in the Gulf of Mexico. What is frightening though is that any accident that could take place would be nearly impossible to clean up. Since 1997, it is estimated that 2700 barrels of oil have been spilled into the ocean off Newfoundland's coast in 340 incidences. These are all very small spills in comparison to the current spill in the Gulf of Mexico; the largest spill of 1040 barrels of oil took place in November 2004 in the Terra Nova field.

Thirdly, on June 8th, 2010, the Premier of Newfoundland and Labrador, Danny Williams, commented that drilling a same season relief well (drilled simultaneously with an exploratory well) would dramatically increase the costs of the well that Chevron is currently drilling in the Orphan Basin. He said that the requirement of an additional well could terminate further exploration in the deep waters of the Orphan Basin with the potential result that billions of dollars that could flow into provincial coffers to fund social programs would be lost. I noticed right away that he neglected to mention anything about the cost to Newfoundland and Labrador should a blowout occur.

Because it has not yet been determined what caused the blowout in the Gulf of Mexico, there is a great deal of uncertainty regarding the safety of drilling in and recovery of huge volumes of spilled oil from medium and ultra deep offshore wells. Until it is known exactly what caused the BP well to blowout, prudence is in order from all Canadian regulatory agencies. Well approvals in both offshore Newfoundland and Labrador and the Gulf of St. Lawrence must include safety measures that go beyond what would normally be expected of operators at least until the factors that created the Gulf of Mexico debacle are known and a solution to future deep water blowouts is provided by industry.