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Oil drillers willing to accept liability for accidents in Arctic

Oil drillers willing to accept liability for accidents in Arctic


Companies hoping to drill for oil in Canada's Arctic waters say they are happy to shoulder an unlimited liability for accidents – but don't want to put up money as a financial guarantee.

The future of oil exploration in Canada's far North has been scrutinized by the National Energy Board for more than a year now, as part of an Arctic offshore drilling review launched soon after the BP PLC Macondo spill in the Gulf of Mexico. This week, the issue has returned to the fore in the North, amid a five-day roundtable discussion in Inuvik, the small Northwest Territories town not far from the Beaufort Sea waters that could be affected by drilling.

On Tuesday, executives from Imperial Oil Ltd. , ConocoPhillips , Chevron Corp and the Canadian Association of Petroleum Producers sought to assure both the NEB and northerners that they will operate safely – and clean up any mess they make.

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Michael Peacock, exploration manager for Imperial, pointed to requirements under the Inuvialuit Final Agreement, the land claim that covers the area industry intends to drill. That agreement requires companies to have a "wildlife compensation process in place for timely and effective reimbursement for loss of wildlife harvest. It also provides for unlimited financial liability," Mr. Peacock said.

"We believe that there's no additional mechanisms required apart from that. We're going to honour the IFA. And if we can afford to drill in this environment, then we should have the financial strength to fund any cleanup."

But the extent of liability under the Inuvialuit agreement is questionable. It applies to costs related to "harvest loss" and "future harvest loss" – and it's unclear whether all spill costs would be covered. It also does not cover work in the eastern Arctic, where cleanup is governed by the Arctic Water Pollution Prevention Act, which specifies a $40-million upper liability limit. That limit is far below the more than $40-billion in estimated cleanup costs for the Macondo disaster.

Imperial's assurances also prompted questions from those in the audience about the willingness of ExxonMobil to pay claims related to the Exxon Valdez spill in Alaska. Imperial is 70 per cent owned by Exxon, which spent 19 years fighting a reduction in punitive damages from that spill. It eventually succeeded in whittling down from $5-billion (U.S.) to $507-million.

And Mr. Peacock made clear that industry opposes any requirement that it put up money to ensure it can pay spill-related costs.

"We believe that financial guarantees, such as letters of credit or bonds create little benefit for the public while adding to the cost of the operation," he said.

There is little doubt that the possibility of a spill, in particular following the BP disaster, is a primary focus for northerners amid the renewed possibility of Arctic drilling.

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In a presentation made Monday, Nellie Cournoyea, the chief executive of the Inuvialuit Regional Corp., said her people "need a level of comfort that we do not currently have" with industry's spill capabilities, in particular "the prevention of a blow-out, the timely stoppage of a blow-out if it occurs and the containment and cleanup of hydrocarbons from a blow-out."

In the BP case, "industry failed on all three accounts. At this time we simply cannot take the chance that any one or more of these failures will be repeated to the detriment of the health of the Beaufort Sea ecosystems," she said.

Industry, however, says lessons learned from Macondo will allow it to better prevent a disaster – and better respond if one happens. Still, companies took pains to distance themselves from BP. Mr. Peacock, for example, spelled out how, through a joint venture agreement, Imperial is now running BP's deepwater Beaufort assets.

"Imperial is responsible for conducting all the operations in a safe and environmentally responsible manner," Mr. Peacock said. Then he added: "Just to be clear, Imperial Oil is the operator."

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About the Author
Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

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