Important Changes to Canada’s Offshore Oil and Gas Regime

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Background

The Minister of Natural Resources introduced legislation on Thursday, January 30, 2014 that would see important changes to Canada’s offshore oil and gas regime. The Energy Safety and Security Act (the Act) contains amendments to the Canada Oil and Gas Operations Act and the Canada Petroleum Resources Act, along with the federal Accord Acts governing exploration and production offshore Nova Scotia and Newfoundland and Labrador.

Polluter-Pays

The amendments specifically introduce a ‘polluter-pays’ principle into the federal government’s offshore oil and gas regime. This principle is supported by increasing the amount of security an operator will have to post in advance of drilling, as well as an increase to operators’ liability.

The current regime allows regulators to determine the amount of security, with no set minimum, that an operator will be required to post in order to undertake exploration activities. The amendments set a minimum $100 million of security, which the regulator may exceed at its discretion.

The Act raises to $1 billion the cap on liability, without proof of fault or negligence, for damages caused by a spill. Previously, these caps had been $30-million offshore in Newfoundland and Labrador and Nova Scotia and $40 million in the Arctic. Unlimited liability in the case of fault or negligence remains. In addition, an operator seeking authorization to drill offshore must demonstrate that it has the financial resources to meet the greatest of the liability obligations it will assume.

Under current legislation, regulators must appeal to the courts in order to impose fines and penalties on parties that contravene the statutes and regulations. The amendments empower regulators to impose fines of up to $25,000 on individuals and up to $100,000 on corporations or other entities for regulatory contraventions.

Transboundary Pools and Fields

The Act includes new provisions that will apply to pools or fields that are within the jurisdiction of both the National Energy Board (the NEB) and another regulator. These provisions include processes to determine which regulator will have jurisdiction over the pool or field and processes to unitize such a field, including pursuant to an order from a regulator.

The NEB exercises jurisdiction over oil and gas production onshore in the Northwest Territories and Nunavut. Offshore, both the Canada-Newfoundland Offshore Petroleum Board (the CNLOPB) and the Canada-Nova Scotia Offshore Petroleum Board (the CNLOPB) govern oil and gas operations in the waters off their respective coasts. The NEB has jurisdiction over Canada’s remaining offshore waters. As such, the transboundary rules would apply to offshore pools that underlay both NEB and CNLOPB or CNSOPB jurisdiction, such as in the Gulf of St. Lawrence or off the northern coast of Quebec and Labrador.

Environmental Assessments

The Act will also harmonize the environmental assessment process of the regulators, in particular to provide that the CNLOPB and the CNSOPB can be responsible for conducting environmental assessments pursuant to the Canadian Environmental Assessment Act, 2012.  The Act also establishes timelines for environmental assessments and creates participant funding programs.

Conclusions

The amendments to be made pursuant to the Act will require operators to post more security up front, and be exposed to greater environmental liability in the event of a spill. The new provisions relating to transboundary pools and fields could have a significant impact on affected resources, particularly in the Gulf of St. Lawrence where there are many competing jurisdictions. The amendments relating to environmental assessments are consistent with the federal government’s earlier amendments intended to streamline the process and to ensure that environmental assessments are being conducted by the most appropriate regulator.   

Topics:  Canada, Offshore Drilling, Oil & Gas

Published In: Energy & Utilities Updates, Environmental Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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