Canadian Senate: No Offshore Drilling Ban Needed

The risk of an oil spill in Canadian waters similar to the disaster in the Gulf of Mexico is low enough that the government shouldn't ban offshore drilling, the Canadian Senate said Wednesday.

The Senate's Committee on Energy, the Environment and Natural Resources released a report of its findings on the safety of Canada's offshore oil and gas drilling after conducting six weeks of hearings.

"We wanted to find out if there was any imminent danger, and we found that there was not," said Sen. David Angus, who chairs the committee, during a press conference in Ottawa. "We were satisfied that the safety precautions and oversight of the operations were adequate."

Angus said there is only one offshore well being drilled in Canada, by Chevron Corp. (CVX) 420 kilometers off the coast of Newfoundland.

Chevron's well is being drilled in even deeper waters than in the Macondo field where a rig leased by BP Plc (BP, BP.LN) exploded in April, leaking hundreds of thousands of barrels of oil into the Gulf. But the committee said in its report that Chevron was operating safely and recommended that the "Chevron operation continue as planned."

The senators also said safety precautions for Canada's existing offshore oil and gas operations off the east coast were robust, and in some cases stronger than U.S. regulations.

"There is a much stronger chain of command [in Canada] for when the government can take over a spill than there was in the BP Macondo incident," said Sen. Grant Mitchell, a liberal lawmaker from Alberta who was the deputy chair of the bipartisan committee.

However, the committee did not investigate the potential safety issues of deep-water drilling in Canada's arctic, saying it was up to the National Energy Board, Canada's federal energy regulator, to investigate those issues. Drilling relief wells and other disaster relief efforts would be more difficult in the arctic due to the remote location and extreme weather.

Canada has sold leases for offshore arctic exploration to BP Plc, Exxon Mobil Corp. (XOM) and Imperial Oil Ltd. (IMO, IMO.T), but the companies aren't allowed to begin actual exploration until they get NEB approval.

The Senate committee's report issued two notable recommendations for future study. It said that the potential for conflicts of interest at provincial energy regulators that both regulate and promote offshore oil and gas development should be studied.

It also recommended that guidelines be established for when producers should be required to drill relief wells as a safety precaution.

About 12% of Canada's conventional oil comes from offshore drilling in the country's east coast, and it has revitalized the economies of Newfoundland and Nova Scotia. About one in every 20 jobs in Newfoundland comes from the oil and gas industry, Mitchell said.

-By Edward Welsch, Dow Jones Newswires; 403-229-9095; edward.welsch@dowjones.com

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