Federal licence system discourages companies from investing, GN adviser says

Nunavut blames Ottawa for stalled energy development


Nunavut's vast oil and gas reserves are going untapped because the federal government's regulatory system for companies is outdated and unworkable, says the Gov­ern­­ment of Nunavut.

At least $1 trillion in gas, and $500 billion in oil, waits to be exploited beneath the territory's lands and waters.

Yet oil has only been extracted once in Canada's eastern Arctic, at Bent Horn on Cameron Island, where 3 million barrels of oil, worth $200 million, was pumped from the ground from 1985 to 1996. Some of that oil was burned unrefined in the diesel generators of the Polaris mine.

The price of oil is now four times higher than when Bent Horn closed. So why is it that other, larger, oil deposits in Nunavut remain un­touched?

The Cisco oil fields, about five miles southwest of Lougheed Island, has 100 times the oil of Bent Horn, with more than 300 million barrels of oil, worth $18.4 billion.

And the Drake natural gas fields on Melville Island are believed to be worth $40 billion.

But oil and gas companies face a big obstacle, said Peter Frampton, senior petroleum advisor for the Government of Nunavut, at the Nunavut Mining Symposium in Iqaluit on April 19. It's the way the federal government grants significant oil discovery licences to companies that forces them to work together in a single, unwieldy group.

Only three companies had a stake in Bent Horn, with Panarctic Oils holding more than 93 per cent of ownership, and British Petroleum and Texaco holding equal shares of the remainder.

In contrast, 18 different companies have a stake in the Drake natural gas fields. These companies are expected to work together to develop the deposit, under a single licence agreement.

So far, big companies with a large share, such as Petro-Canada, are reluctant to spend a lot of money to develop the deposits, to the profit of smaller companies, Frampton said. And no one seems to agree on how much oil and gas each company is entitled to.

That's a big reason why, despite having similar ice conditions, Bent Horn was exploited, while these much larger deposits sit idle, Frampton said.

Other jurisdictions, such as Newfoundland and Labrador, have far simpler ownership structures set up for oil companies, Frampton said.

As a solution, Nunavut proposes that each oil company with a stake in a large deposit, such as Drake, should receive its own licence to develop.

Another reason why oil companies are deterred from doing business in Nunavut, Frampton said, is the confusing overlap between jurisdictions.

A devolution agreement between the federal government and the territory would solve this, Frampton said, by ensuring that companies deal with a single regulator, rather than several layers of government.

Of course, another reason why Nunavut wants a devolution agreement is that the territory would then receive a slice of the oil profits, which would otherwise go directly to Ottawa.

That money could be then spent by Nunavut to create training programs to involve residents in the oil industry, Frampton said.

Nunavut is believed to hold at least 20 per cent of Canada's natural gas, and 11 per cent of the country's crude oil. That's only counting oil and gas that's been discovered. Only one of Nunavut's four major basins has been explored, so there's probably far more out there, Frampton said.

That's not considering unconventional forms of oil and gas, such as coal bed methane and tar sands.

And there is $2 trillion in coal.

Access to oil and gas will likely only become easier, if sea ice continues to shrink as the climate warms.

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