Seismic Shift

Changes sought to legislation that ‘suppresses’ exploration

It is a piece of legislation aimed at supporting the domestic shipping industry. But those involved in the local oil patch say the Coasting Trade Act has unfairly hindered seismic work crucial to building the foundation for further exploration, and potential development, off Canada’s East Coast.

While Ottawa is aware of those worries, federal officials have not committed to the legislative changes necessary to address them. Meanwhile, the company which owns the sole Canadian-flagged seismic vessel — the target of many industry complaints — is vehemently opposed to any changes, calling such potential action “completely unfair” and laying out a laundry list of grievances (see related story on page 3 of this article). Back in Atlantic Canada, the industry and provincial governments continue to fret about lost opportunities.

The concerns of Newfoundland and Labrador’s Crown-owned Nalcor Energy – Oil and Gas Inc. are representative of the industry’s standpoint.

“Canada is at a distinct disadvantage in attracting offshore exploration investment due to the limited availability of high quality seismic data,” Nalcor Oil and Gas vice-president James Keating wrote in a Feb. 26, 2010, letter to the Canadian Transportation Agency (CTA), which oversees the Coasting Trade Act.

“The intent of the Coasting Trade process is to protect Canadian interests. We believe that in the case of the importation of foreign seismic vessels, the process is inadvertently working against Canadian interests by reducing our global competitiveness in exploration. If there was a readily available, sizeable fleet of Canadian-flagged seismic vessels, the impact of the Coasting Trade process would be somewhat mitigated as operating companies and non-exclusive seismic vendors would have a significant choice in selecting suitable Canadian-flagged vessels. This is clearly not the case — there is presently one Canadian-f lagged seismic vessel in the world compared to a global fleet of approximately 100 seismic vessels.”

In late June, Nalcor officials indicated they plan to carry out a $6-million 2-D seismic program in partnership with a Norwegian seismic research company next year.

The Coasting Trade Act supports domestic marine interests by giving priority to Canadian-flagged vessels for work in Canadian waters. There are only limited exemptions.

But East Coast industry players say the rules don’t make sense when applied to offshore seismic work.

“It’s my belief, as the minister, that the Coasting Trade Act suppresses seismic and exploration activity because of the requirements to have a Canadian-registered vessel do the work,” Newfoundland and Labrador Natural Resources Minister Shawn Skinner said.

Those concerns are echoed by the Newfoundland and Labrador Oil and Gas Industries Association. NOIA is the country’s largest offshore petroleum association, representing 500 members in Atlantic Canada and worldwide. The association has been sharply critical of the company which owns the sole Canadian-flagged seismic ship.

Speculative seismic work is “all but non-existent in Canada’s offshore,” NOIA president and CEO Bob Cadigan wrote in a Feb. 19, 2010, letter to the CTA. Such speculative data is collected at the seismic company’s cost and offered for sale to oil and gas companies. But current legislation, Cadigan noted, requires international seismic companies to apply for permission to operate in Canadian waters.

“International seismic companies are being challenged and blocked by a single Canadian seismic company that has one Canadian-flagged seismic vessel,” Cadigan wrote. “This company is using the current legislation to retain a monopoly in Canada and as a result directly hinders the growth in the offshore oil and gas sector. It is industry’s view that the recent year over year decline of offshore seismic programs is directly attributable to the Coasting Trade Act regulatory barriers. This was not the original intent of the Coasting Trade Act.”

In an interview, Cadigan pointed to a jurisdiction without those hurdles — Greenland, where an “extreme amount” of publicly-available seismic work was done by the national oil company Nunaoil and a seismic provider. “So any potential explorer had a wealth of seismic data that they could take, they could process, they could interpret and they could make decisions about whether or not they’d want to invest in an exploration agreement.”

In Canada, according to Cadigan, the Coasting Trade Act actually discourages the collection of spec seismic. He said vessels transiting Newfoundland waters on their voyages between the Gulf of Mexico and the North Sea could, for example, simply grab data on their way, and offer it for sale to anybody who wants to buy it. But the lengthy approval process means that isn’t happening.

The problems began a decade ago, with the flagging of the only seismic vessel to fly the Maple Leaf, according to Kim Himmelman, manager of regulatory innovation with the Nova Scotia Department of Energy. The result? Project delays, restrictions on competition, increased costs, and quality concerns.

“In many cases, particularly with the more sophisticated 3-D seismic, they have very specific technical requirements they want in a vessel,” Himmelman said. “And if that vessel is prevented from entering Canada because there is potentially another vessel available, it really inhibits the ability of the person who’s procuring the seismic to control the quality of it.”

Himmelman noted that the application of Coasting Trade rules has coincided with a dramatic reduction in the level of speculative seismic, in particular, since 2001.

Efforts to address the issue date back as far as 2004, she noted. At the time, the Atlantic Energy Roundtable (a group comprised of provincial governments, federal departments and offshore petroleum industry reps) convened to discuss a suite of issues. Himmelman said the group was very successful in addressing a number of them. But not the Coasting Trade Act.

In late 2009 and early 2010, the Canadian Transportation Agency reviewed potential modifications to the guidelines respecting Coasting Trade licence applications. A wide swath of East Coast oil industry players wrote CTA expressing their concerns. But according to Himmelman, there have been no industry-friendly changes since the issue was first broached with Ottawa seven years ago.

Which begs the simple question: why not?

“I don’t know if I have the answer to that,” Himmelman acknowledged. “It’s a complicated issue. It’s a trade-related issue, and I understand the Coasting Trade Act is in place to provide protection to Canadian companies that are engaged in the transportation of goods between Canadian ports, and I understand the reason for it. It’s the application to seismic vessels and mobile offshore drilling units that really is the problem.”

There are two potential solutions, she said. The first, and preferred, option would be to simply exempt large seismic vessels and mobile offshore drilling units from Coasting Trade requirements. The second would be to foster a closer working relationship between the CTA and the offshore petroleum boards in determining suitability of a vessel for the work, to hopefully speed up the process.

Federal officials indicated they are aware of industry concerns.

Removing Coasting Trade Act requirements from seismic vessels does not actually fall under the jurisdiction of the Canadian Transportation Agency, according to CTA spokesman Alexandre Robertson. Robertson steered inquiries over to Transport Canada.

Officials there acknowledge receiving a number of representations on the issue in recent years, including:

• proposals in late 2008 and early 2009 by the Canadian Association of Petroleum Producers (CAPP) to enact regulations exempting certain offshore activities from the act;

• a February 2009 meeting with the Oil and Gas Administration Advisory Council, which outlined its views on the application of the Coasting Trade Act on seismic activities.

• an April 2010 meeting with a Norwegian geological company on the issue.

In 2009, Transport Canada did carry out what it calls a “broad interdepartmental assessment” of Canada’s Coasting Trade regime “to examine issues of concern that could potentially be solved within the existing framework,” according to spokeswoman Melanie Quesnel.

But that review concluded there is no administrative or regulatory option that would address the concerns of the offshore industry, Quesnel noted. Instead, the only option to exclude the seismic vessels from the act is through a legislative amendment.

Quesnel said industry concerns are currently being “carefully considered” by the department. Those comments “will help define whether potential improvements could be made, via legislative amendments, to the Coasting Trade Act.”

She indicated, however, there is no time frame for any decision to be made. “(Transport Canada) will continue to work with interested parties to find the best option to address this issue to maximize benefits for Canadians and the offshore industry,” Quesnel noted.

“(Transport Canada) understands the important economic contribution that the offshore industry makes to the Canadian economy and is also aware of the challenges that certain proponents have experienced in obtaining a Coasting Trade licence for proposed seismic activities in eastern Canadian waters.”

But for now, the status quo remains in effect.

Newfoundland and Labrador Natural Resources Minister Shawn Skinner believes the feds are “acutely aware” of industry and provincial concerns. But he does not think that will necessarily translate into action.

“I have to be honest with you — I don’t get any sense they’re prepared to do anything about it at this point,” Skinner said. “We keep pressing, we keep advocating, we keep explaining why we believe it’s a deterrent, but I’ve not been given any sense that the federal government is considering changing anything at this point.”

Meanwhile, Nova Scotia’s Himmelman said any changes, if implemented, could provide “a very attractive boost for the industry.” Nova Scotia recently wrapped up its $15-million Play Fairway initiative to promote local hydrocarbon prospectivity. Interested industry players will want to validate that data — most likely, Himmelman noted, with their own spec seismic work.

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