Canada Arctic drilling rules may stifle development, gov't told

By Mike De Souza
CALGARY, Sept 9 (Reuters) - Canada's offshore Arctic
drilling rules could "stifle" development since they do not
provide incentives for companies to proceed with production
after discovering oil, the government was told in a
newly-released internal briefing note.
The advice was prepared for the government's point man on
the issue, Aboriginal Affairs and Northern Development Minister
Bernard Valcourt, before Imperial Oil Ltd IMO.TO lobbied him
privately in June, seeking concessions on existing legislation.
The right-leaning Conservative government said in July it
would review the legislation, known as the Canada Petroleum
Resources Act.
To drill in the Canadian Arctic, companies need an
exploratory licence, awarded with a fixed term. If they make a
significant discovery, they can then get an indefinite licence,
before seeking a production licence.
Valcourt's department told him in the briefing that the
indefinite discovery licence "has the potential, however, to
stifle activity with the absence of an incentive to do further
work."
It also gave him options for changing the law to extend
licences, while recommending a comprehensive review of existing
rules led by an independent expert.
Companies are struggling to finance oil exploration in harsh
Arctic conditions and meet new safety requirements introduced
following BP 's Deepwater Horizon disaster, said the briefing
note released through Canada's access to information
legislation.
The note said Imperial, its partners Exxon Mobil Corp (NYSE:XOM)
XOM.N , and BP Plc BP.L requested extensions on two existing
licences last December, explaining that they needed more time to
drill an exploratory well in the Beaufort Sea, a section of the
Arctic Ocean that could hold more than 1.36 billion barrels of
oil.
Environmentalists oppose extensions, saying it would cost
public coffers hundreds of millions of dollars in lost deposits
and prolong risky drilling projects. The government, facing a
tight election in October, has said it wants to protect and
promote development of offshore resources with safe and
effective regulations.
The briefing note said that the Imperial consortium and
Chevron Corp (NYSE:CVX) CVX.N were both seeking changes to the law after
collectively paying about C$500 million ($378.07 million) in
deposits to obtain exploratory licences. While Imperial's
licences will expire by 2020, Chevron's licence is due to expire
in 2021.
The department said the independent review it recommended
was "time-sensitive" and must be completed before 2016 so that
the Imperial partnership has enough time to secure a drillship
to proceed with exploration.
($1 = 1.3225 Canadian dollars)