Saturday, June 19, 2010

It’s a Matter of Safety

With oil leaking in the Gulf of Mexico, Canada is well-positioned to deal with the heightened risks - and reap the bountiful rewards - of frontier exploration.

Photo: Chevron Canada, which is drilling the ultra-deepwater Lona O-55 well in the Orphan Basin off Newfoundland with the Stena Carron Drillship, must meet several new requirements stemming from the Deepwater Horizon tragedy.

This article appears in the July issue of Oilweek.

By Peter McKenzie-Brown

As the United States administration and BP plc struggled to deal with what could turn out to be the largest-ever offshore oil spill, the Canadian oil and gas industry could look back in admiration at a frontier drilling history that has been relatively free of stains.

Oil and gas continues to be pumped from fields off the East Coast. Crude oil has been produced and shipped from the Arctic Islands. And natural gas from the Mackenzie Delta region is poised to supply southern markets, pending completion of a long-awaited natural gas pipeline from Inuvik. And in the Queen Charlotte basin, off the coast of British Columbia, where a moratorium has barred drilling since 1971, there lies a “new, rich petroleum province waiting to be explored,” says widely-respected petroleum geologist Henry Lyatsky.

He has been actively promoting lifting the moratorium even while the media were buzzing about the Gulf of Mexico blowout, believes there are excellent prospects in Canada’s west coast basins. Opening them up for drilling would reward the industry for decades of nearly incident-free frontier exploration.

Those sentiments would alarm most people outside the oilpatch, and they would alarm Canadian environmental activists to the point of apoplexy. That, however, is exactly the point: There is widespread concern around Canada that rapid growth in the petroleum sector would pose environment, health and safety (EHS) dangers. Those concerns illustrate how profoundly EHS has become part of our national DNA. And that is a very good thing.

The Three-legged Stool
The EHS stool has three legs: customs and social attitudes; regulatory and industrial codes; technical skills and operating environments. If the legs aren’t the same length, the stool wobbles. Since the three legs of the Canadian stool are level and strong, there are good reasons to encourage the industry to reach out to new operating environments.

Consider reality in much of the developing world, for example. “We do a lot of work out of Third World countries where clearly life is cheaper,” says Mike Miller, the chairman of Calgary-based Safety Boss Inc. “We were doing safety management on a huge construction project in Iran, and we just had a hell of a time to get people on board with it. One of the comments we heard was that if they killed someone it would just cost fifteen hundred bucks. You’d take $1500 to the family and that would be the end of it. So how much money are you going to spend on safety? Our contract was about enforcing Canadian safety standards, and we found so much resistance that at the end of the day we just said ‘This isn’t going to work, guys, because you aren’t going to stand behind us.’” In the end, Safety Boss got out of its contract.

Miller’s example illustrates the social attitude leg of the stool in much of the Third World. By contrast, in Canada the legal resources applied to safety and safe working environments are huge. Apart from representing personal tragedy, injury and loss of life are expensive propositions.

On the matter of the second leg of the stool, regulation, rich countries like Canada are increasingly focused on stringent EHS rules. The Canadian experience illustrates how regulation has saturated public opinion so deeply that environment, health and safety have become essential parts of the social fabric. According to Dale Dusterhoft, the chief executive officer of well service company Trican, there is a “continued focus on safety, environment and hazard issues and it comes from all levels, it comes from government, it comes from our customers who are the oil companies, it comes from the public at large and it comes internally from within the service industry. It now affects everything we do, and it is helping us make real progress.”

Operating environments represent the third leg of the stool, and they reflect the industry’s collective experience. The sector has a wealth of experience in the Western Canada Basin and is increasingly knowledgeable about the frontiers. The industry’s technical knowledge and skill-sets are formidable.

Safety Costs
Although serious industrial incidents have become rare, as long as there is an oil industry there will probably be kicks and blowouts. The story of Canada’s oil patch is full of these events, some of which have become legend: Royalite #4 at Turner Valley (1924); Atlantic Leduc #3 (1948); Amoco’s second sour gas blowout at Lodgepole (1982-83). The most blowout-prone exploration program in Canadian history was probably Panarctic’s 1969-70 effort in the High Arctic. Of 17 holes, two were spectacular gas blowouts and three were relief wells drilled to bring those blowouts under control.

To some extent because of the disasters of its cowboy years, Canada’s safety record is now excellent– especially since the high-profile Lodgepole event. In years of high drilling activity the industry now sinks three times as many wells as it did in ’82 and drills four times as many metres, yet blowout rates have substantially declined. In 2008, for example, the ERCB recorded 0.118 blowouts per 1,000 non-abandoned wells.

This partly reflects technological advance. “Almost all blowouts occur because of human error,” says Mike Miller of Safety Boss. “Fewer than 5% occur because of corrosion. It’s almost always when there’s a rig over the hole – whether it’s a drilling rig, a service rig or a snubbing unit. That’s where the human error takes place. Today we can put holes down in half to a quarter of the time it used to take so there’s less exposure of time to risk. That’s one reason we have fewer blowouts: we can drill wells so much faster.”

Miller also commends the ERCB’s strict regulations for sour gas drilling. “We now classify wells with significant sour gas content as critical wells, for which a whole new set of rules apply, including the requirement for emergency response plans. That’s made a huge difference.” So big, reports the Energy Resources Conservation Board’s Bob Cullan, that “there hasn’t been a single sour gas blowout since Lodgepole. That’s because we have the toughest sour gas drilling regulations in the world.”

The cost of safety is huge, and it has meant big changes in operating procedures. Mike Miller describes dramatic changes in the safety business since his father founded the company. “People (doing safety turnarounds at gas plants) now have fall-arrest equipment. They don’t do anything without fire protection and breathing air equipment. A friend of mine tells me that at the plant he works at, the safety bill used to be $20,000. Now it’s like $300,000 to $400,000. Every time someone goes into a vessel someone has to be there to watch. They may need to have specialized safety equipment or even specially trained personnel to watch that person in the vessel.”

He adds, “I appreciate the safer work environment, but the paperwork can be simply overwhelming. Now on blowouts we have to take a safety certified officer, and their job is simply to do the safety recording – to record every detail of the safety meetings we have. ‘We met at such-and-such a time, these are the hazards we discussed, people have to wear such-and-such protection equipment, here’s what we said and did.’”

To put costs in perspective it is worth noting that, according to an ERCB report, the direct costs of the 1982 Lodgepole disaster (lost production, lost drilling rig, operations and remediation) totalled $200 million. In a technical presentation nearly ten years ago, Mike Miller estimated that indirect costs – more stringent critical sour gas well procedures, equipment and emergency response planning, which can amount to a quarter to a half million dollars for a deep test – had been in the order of $1 billion. The cost of EHS is high, but Canadians are clearly prepared to pay it.

So is Canadian business. Chief executive officer Dale Dusterhoft of Trican, which is a key player in hydraulic well fraccing, describes the safety issues his employees face as long-distance driving (often over rough terrain); controlling high-pressures and chemicals; and working with moving parts and equipment. “Whenever you have those elements, you have safety issues,” he says. While he acknowledges that there is more paperwork than ten years ago, he says “It’s just part of the process. It doesn’t hinder our operations. We have a safety meeting prior to each job, and we have to document every one. What’s more, every individual there has to sign off that they were in attendance and heard it and understood it. But these are just good business practices. They take a bit more time, but they save money in the long run because you don’t have as many incidents.”

High Arctic
Canada’s early experience in the High Arctic – a 17-well drilling program that included three relief wells to control two major blowouts – illustrates how bad things can be when you don’t properly prepare for drilling in new exploration territory. The stool becomes wobbly, and the risk of an uncontrolled release of hydrocarbons – the fancy phrase for blowout – becomes greater.

In that context consider that the EHS stool is shaky in most Third World countries, yet there are big increases in deep water drilling off the shores of Africa, Brazil, China and India. “Aside from the oil sands,” ARC Energy’s Peter Tertzakian pointed out in a recent research note, “offshore drilling is where most of the world’s incremental oil barrels now come from, and it’s those higher-cost marginal barrels that set price. Indeed, a large fraction of the world’s growing oil needs since the early 1990s has come from the discovery of new, deep offshore reservoirs.” In North America, much of that oil has come from the American sector of the Gulf of Mexico.

Notwithstanding the BP-operated Macondo well disaster, it is rich-world companies that are best suited to drilling the world’s offshore petroleum basins. Because of our national attitudes and far-flung technical expertise, environment, health and safety are well served when Canada-based companies drill offshore fields. This reality applies as much to basins in Canada as to those in the Third World.

The Beaufort Sea and the East Coast Offshore
In Canada’s Beaufort and East Coast basins there have been important EHS developments in recent months.

Going to the ends of the earth is nothing new for the Canadian oil and gas industry. Beginning in 1976, drilling expeditions in the Beaufort Sea were innovative and daring and continued for nearly a decade. The wells were in shallow water, however – often using equipment that sat on the sea floor.

Last fall the National Energy Board began a safety inquiry in anticipation of a revival of drilling in the Beaufort Sea. The review was triggered by a proposal from Imperial and Exxon Mobil to start deeper Beaufort drilling, using a new vessel built on the scale of a battleship. The Board is investigating serious concerns about opening up deeper northern waters for drilling. The previous generation of regulations assumed that in the event of a blowout the operator could drill a relief well in the same season.

The Board began developing its new regulatory approach because the Arctic work season is too short to follow the old rules for the next wave of bigger wells. After the Macondo disaster began, the Board announced that it would review Arctic drilling requirements in light of findings from the American inquiries into that event. “We need to learn from what happened in the Gulf,” NEB Chair Gaétan Caron said in a statement. “The information taken from this unfortunate situation will enhance our safety and environmental oversight.” The regulator is making sure all three legs of the EHS stool are the right size for deep Beaufort drilling.

Off the east coast, the Gulf debacle created consternation for a different reason: a new, deep well was being spudded. In May, Chevron began drilling Canada’s deepest offshore oil well 430 kilometres northeast of St. John’s in the offshore Orphan Basin in the North Atlantic. Lona 0-55 was spudded in 2,500 metres of water (compared to Macondo’s 1,500 metres). Despite political calls for postponement because of the risk of an ultra-deep-water blowout, Newfoundland defended the project as critical to its economic development. The gist of the government’s argument was that oil is too crucial to the economy to call off exploration. That sounds quite a bit like damning with faint praise.

In response to public criticism, the government of Newfoundland appointed master mariner Mark Turner, an expert in marine safety and environmental management, to review the province’s ability to prevent and respond to an offshore oil spill.

It isn’t surprising that environmentalists and the political opposition sounded their respective horns on the remote prospect of a North Atlantic blowout. Serious offshore oil blowouts always attract attention, and rightly so. Injuries and fatalities are more common. They pollute, they’re hard to clean up and contamination can last for years. When dispersants are appropriate at all, they are the least bad of the available tools. And offshore oil blowouts have a disproportionate impact on wildlife: a deer can walk past a puddle of oil, but fish, whales and seals have nowhere else to go.

However, crucial facts were lost in the conversation about Lona O-55. One is that there has never been a crude oil blowout offshore Canada. Another is that only hundreds of wells have been drilled in Canada’s vast east coast, compared to tens of thousands in the much smaller US segment of the Gulf. Also lost in the debate is that all Canadian offshore wells have recently become governed by a more robust regulatory regime – one which offers greater EHS flexibility as a carrot, but bigger sticks for those who fail to perform. That means better safety and environmental protection rather than less, as the knee-jerk critics protest.

The new rules governing offshore drilling were posted in the Canada Gazette last December, and took effect at the beginning of this year. They are performance-based rather than prescriptive regulations, and the industry certainly believes that is a good thing.

According to Patrick Delaney of the Petroleum Services Association of Canada, the trend in regulation is undergoing a fundamental shift to performance-based regulation from prescriptive rules. As he explains, under the new approach the regulator essentially says, “The journey is from A to Z” – Z being a plan which meets the regulator’s EH&S goals. “We aren’t going to tell you how to get there. But before you start it’s up to you to prove that you can do it safely. This is a safer approach.”

For offshore operators, the days are now over when agencies of government specify the safety equipment the industry should use. “A lot of governments are making this shift,” adds Delaney. “Alberta recently announced that it is doing a complete review of its regulations, and that it will move away from prescriptive to performance-based regulation.”

Paul Barnes, who is Atlantic Canada manager for the Canadian Association of Petroleum Producers, is another advocate of performance-based regulation. It’s more “modern,” he says. Britain, Norway, Australia – all the advanced countries with offshore petroleum operations are adopting it. “It is part of a robust regulatory system in Canada,” he adds. “We have a strong track record of safety and environmental performance. Canada needs energy and the world needs energy, and oil’s going to be a big part of the energy mix for a long time to come. Let’s get on with it.”
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