Federal-Provincial Cooperation Modernizing Liability for Offshore Petroleum Drilling Operators

The Honourable Joe Oliver, Canada’s Minister of Natural Resources, with the Honourable Darrell Dexter, Premier of Nova Scotia, and the Honourable Tom Marshall, Minister of Natural Resources, Government of Newfoundland and Labrador, today announced plans to support jobs and enhance our world-class offshore petroleum drilling regime by raising the absolute liability for companies operating in the Atlantic offshore to $1 billion from $30 million. Minister Oliver also announced that offshore absolute liability would be increased from $40 million to $1 billion in the Arctic.

“Supporting jobs and long-term economic prosperity in Atlantic Canada and across our country demands a modern offshore liability regime that protects Canadian taxpayers,” said Minister Oliver. “Today’s $1 billion milestone in our plan for Responsible Resource Development will ensure that accountability for operators in the Atlantic offshore is updated and in line with international standards.”

Together, the federal and provincial governments have also agreed to make explicit the “polluter pays” principle in legislation. This is only implicit in current legislation. These changes will incentivise spill prevention by companies operating in the Atlantic offshore.

“Nova Scotia is facing unprecedented opportunities right now, including renewed interest and billions of dollars in new investments in the province’s offshore,” said Premier Dexter. “But that doesn’t justify throwing caution to the wind. Nova Scotians have seen the devastating effects of oil spills in other jurisdictions. Our government wants to ensure the safe extraction of Nova Scotia’s offshore resources while at the same time protecting the environment. Raising the absolute liability for companies operating in our province will certainly help achieve that goal.”

Other proposed changes include:

• Allowing governments to pursue financial compensation for environmental damages from operators responsible for spills;
• Requiring the public release of environmental and emergency preparedness plans;
• Providing the Offshore Boards with the authority to levy administrative and monetary penalties for non-compliance with laws, regulations or orders; and,
• Providing the Offshore Boards with the necessary tools to conduct environmental assessments under the Canadian Environmental Assessment Act 2012.

“Newfoundland and Labrador has an abundance of natural resources and is the centre for offshore oil development in Canada,” said Minister Marshall. “Our government takes the development and management of these resources seriously and we look forward to finalizing the proposed changes to legislation that will strengthen and improve our offshore regime.”

Through the Government of Canada’s plan for Responsible Resource Development, we are undertaking aggressive measures to create a world-class tanker safety system, increase oil and gas pipeline inspections, double comprehensive audits of pipelines and implement new safety measures for oil tankers to ensure the safe and reliable transport of energy resources through our waterways. The proposed changes to the offshore legislation will build upon these measures to ensure that Canada’s offshore regime is the strongest in the world.

Canada’s offshore petroleum resources are jointly managed by the federal and provincial governments. Over the coming months, the federal government will work closely with the Governments of Nova Scotia and Newfoundland and Labrador to finalize these changes. The Government of Canada will also work to finalize the proposed changes to the federal legislation for Canada’s other offshore areas.

By modernizing the offshore petroleum regime in concert with provincial partners, the Government of Canada is following through on its commitment to responsible resource development.

More information is available in the following backgrounder.

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BACKGROUNDER
Federal-Provincial Cooperation
Modernizing Liability for Offshore Oil and Gas Exploration and Operations

The Government of Canada is committed to protecting both the safety of Canadians and the environment. No development will proceed unless rigorous environment protection measures are in place. These goals are part of the government’s plan for Responsible Resource Development, which aims to create high-quality jobs, economic growth and long-term prosperity for all Canadians. While Canada's environmental record in the Atlantic offshore is strong, Canada, Nova Scotia and Newfoundland and Labrador are working together to update and expand the legislation to ensure that Canada’s offshore regime for oil and gas exploration and operations remains world-class. These changes will help to further strengthen incident prevention and ensure the appropriate response in the unlikely event of a spill.

The liability changes cover oil and gas exploration and operations: exploratory drilling, production operations and loading of tankers for transport. The liability and safety regime for tankers applies once the tanker has detached from the offshore rig or drilling platform. The National Energy Board Act applies for the natural gas pipeline that transports gas from Nova Scotia’s Sable Island to the mainland.

Management of Canada’s Offshore Oil and Gas Industry
The Government of Canada shares the responsibility for the management of the Canada-Nova Scotia Offshore Area with the Government of Nova Scotia and the management of the Canada-Newfoundland and Labrador Offshore Area with the Government of Newfoundland and Labrador.

Canada’s Atlantic offshore oil and gas industry is regulated by the Canada-Nova Scotia Offshore Petroleum Board and the Canada-Newfoundland and Labrador Offshore Petroleum Board. The focus of these boards is to ensure that operators and drilling contractors comply with the statutory and regulatory requirements of the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act and the Canada-Newfoundland Atlantic Accord Implementation Act and exercise due diligence to prevent spills in Canada’s offshore.

Current Liability Regime
Canada’s liability regime is founded on the “polluter pays” principle. Currently, there is unlimited liability should parties be found “at fault or negligent” for a spill. In addition, there is an absolute “no-fault liability” set at $30 million for the Atlantic and $40 million for the Arctic. This ensures that, regardless of fault or negligence, the operator has specific resources for clean-up costs and damages to others without requiring proof of fault or litigation.

Before any offshore drilling or production activity can take place, the proponent must provide evidence that it can cover the financial liabilities that may result from a spill. The financial capacity requirements typically range from $250 million to $500 million, of which $30 million is required as a deposit for working in the Atlantic offshore and $40 million in the Arctic. This deposit is held in trust by the offshore regulator as a letter of credit, guarantee or bond.

Strengthening Offshore Liability Legislation
The Governments of Canada, Nova Scotia and Newfoundland and Labrador are working together to update and expand legislation to further strengthen Canada’s offshore liability regime and improve transparency and clarity of operations. Legislation that will be amended includes the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act, Canada-Newfoundland Atlantic Accord Implementation Act, the Canada Oil and Gas Operations Act (COGOA) and the Canada Petroleum Resources Act (CPRA).

Highlights of the Proposed Changes

• Explicit reference to polluter pays as a foundation of the legislation.
  • The concept of the polluter pays principle will be enshrined in law as part of the Accord Acts and COGOA.
• Confirming that the at-fault liability of operators for damages is unlimited.
• Significantly increasing the absolute liability for the offshore to $1 billion.
  • The absolute portion of the offshore liability regime would be raised to $1 billion. This means that the operator of an activity where there is a spill would be liable for $1 billion in clean-up costs and compensation without any proof of fault or negligence.
• Increasing the proof of financial capacity for the offshore to at least $1 billion to match absolute liability.
  • As part of the assessment of whether an operator could fulfil its financial obligations in case of a spill, the regulator must be assured that the operator has financial assets of at least $1 billion, and the regulator may require more if deemed necessary. In cases of demonstrably lower risk, the regulator has the ability to recommend to Ministers that the absolute liability limit, financial capacity or deposit be reduced to reflect that lower risk. The final decision will rest with the Ministers. Such an adjustment will require the agreement of both Ministers.
  • Increasing the deposit provided to regulators for unfettered access to funds to address a spill to $100 million or a pooled fund of $250 million. These funds can be accessed immediately by the regulator if needed without having to ask the company.
  • Should regulators require funds to conduct clean-up activities or to assist with compensation, they are to be provided with direct, unfettered access to funds.
  • Operators will be required to make $100 million available individually to the regulator or may join with other operators and make a $250 million pool available to the regulator jointly. Operators are responsible for repaying any funds that are drawn by the regulator.
• Allowing governments to seek environmental damages as part of a claim under the liability regime.
  • Either the Attorney General of Canada or a provincial Attorney General would be able to seek compensation for environmental damages resulting from a spill (e.g. damage to national parks, uninhabited shorelines, species).
• Permitting the public release of emergency plans, safety plans and environmental effects monitoring reports.
  • The offshore boards will make documents filed public. These documents include emergency response plans and safety plans as well as environmental effects monitoring reports.
• Creating an administrative and monetary penalty regime.
  • As an additional method of ensuring compliance with laws, regulations and orders, the offshore boards will be provided with the authority to levy fines. These fines will be set in regulations that have not yet been developed. The work to establish these will be in cooperation with the provinces.
• Providing the offshore boards with the tools necessary to conduct environmental assessments under the Canadian Environmental Assessment Act 2012 (CEAA 2012).
  • The offshore boards will be provided with the requisite authorities to allow for designation as responsible authorities under CEAA 2012. This includes the authorities to establish a participant funding program and to conduct Aboriginal consultation.

2013 06 18                   11:20 a.m.