A Regulator’s Perspective on Arctic Energy Development Roland George, Board Member National Energy Board Panel Session: Energy Development in the Arctic 32nd USAEE/IAEE North American Conference Anchorage, Alaska 29 July 2013 Good morning and thank you for the opportunity to talk about the National Energy Board’s (the Board or the NEB’s) role in the Arctic. I am pleased to be providing a Canadian regulator’s perspective on energy development in this unique and diverse area of the world. My presentation will focus on the NEB’s responsibilities in Canada’s Arctic. I will provide some context on how we got to where we are today and what can be expected going forward.  

NEB’s Role in the Arctic Exploration and Production Geophysical Surveys Transmission Exploration and Production [Note: Photos taken from the web] In Canada’s North, the Board has regulatory responsibilities for oil and gas exploration and production activities. Our responsibilities stretch for the entire lifecycle of the well, from the application stage, through exploration and production activities, and even after the well is eventually abandoned. Our role includes a number of specific responsibilities such as overseeing: Geophysical surveys (for example, seismic surveys); Exploration wells to see if oil or gas is present; Delineation wells to confirm the size of a potential oil or gas field; Development wells for producing oil and gas; Building and operating production and transportation facilities for oil and gas; and, Abandoning wells and facilities. The Board focuses on safety, protecting the environment and conservation of oil and gas resources, while land tenure or rights issues, benefits plans, and royalty management is administered by federal departments (Aboriginal Affairs and Northern Development and Natural Resources Canada). This ensures a clear separation between the physical side and the financial side. There is currently some conventional and unconventional activity taking place in the Central Mackenzie Valley region of Canada’s Northwest Territories. There are 13 exploration licenses, totaling over half a billion dollars in work bid commitments. It is worth noting that in May 2013, Aboriginal Affairs and Northern Development Canada launched a call for bids for exploratory licenses for six more parcels located in the Central Mackenzie Valley, this process will close in September 2013. While a number of companies have been issued exploration licences for the offshore - more specifically, 16 exploratory licenses totaling roughly $2 billion dollars in work bid commitments - no applications for operations authorizations have yet been submitted to the NEB for Arctic offshore drilling. On average, the Board receives about 15 applications for activities in the North per year – including applications for: operations authorization; drilling a new well; altering conditions of a current well; and geophysical/geological programs. It is important to understand that no work or activity proposed for the exploration of oil or gas under the NEB’s responsibility will occur unless we are satisfied that the company’s plans are safe for all and will protect the environment. Processes for environmental screening or assessment under various Aboriginal land claim agreements must also be respected. The NEB anticipates that the regulatory process for a deep offshore well in Canada’s Beaufort Sea will commence this summer, with a screening by the Inuvialuit Environmental Impact Screening Committee. 2

Arctic Offshore Drilling Review [Note: Photo from Review of Offshore Drilling in the Canadian Arctic] In response to the Deepwater Horizon incident in the Gulf of Mexico, the NEB initiated a review of the safety and environmental requirements for offshore drilling in Canada's Arctic environment. Through the Arctic Offshore Drilling Review (the Arctic Review), the Board examined the best information available on the hazards, risks and safety measures associated with offshore drilling in the Canadian Arctic. The objective was to gather information and knowledge through meaningful engagement and dialogue, as shown in the photo here, and resulted in the development of filing requirements for offshore drilling in the Canadian Arctic. I’d like to take a few moments to highlight some of the key findings and results coming out of the Arctic Review: First, it is important to recognize the community perspective. Throughout the Arctic Review, people in the North told us that they understood the importance of energy and were not opposed to development, but not necessarily anywhere or at any cost. They also said that, if companies are going to drill in the Canadian Arctic offshore, it must be done right. Second, in terms of safety culture, when we look at the root causes of many incidents, we found a common thread: a neglect of, or even an absence of, processes and procedures to identify, mitigate, or eliminate potential risks. Beneath that deficiency lies an even deeper pattern of organizational cultures that did not put safety first. Third, through the Arctic Review we re-affirmed our Same Season Relief Well Policy - that the applicant must demonstrate the capability to drill a relief well to kill an out of control well during the same drilling season. The intended outcome of this policy is to minimize harmful impacts on the environment. An applicant wishing to depart from our policy would have to demonstrate how they would meet or exceed the intended outcome. It would be up to us to determine, on a case-by-case basis, which tools are appropriate for meeting or exceeding the intended outcome of the Same Season Relief Well Policy. Fourth, the Board concluded that our regulatory regime has the tools we need to protect the safety of Northern residents, workers, and the Arctic environment. This includes the use of goal-oriented, risk-informed, management system-based regulations, which other regulators are evolving towards, allowing flexibility in terms of the means of achieving compliance while ensuring a consistent level of performance. We recognize that a regulators work is never done. Therefore, as noted during the Arctic Review, the NEB is committed to reviewing and strengthening its regulatory framework for the North to ensure that future decisions on applications will be made in a manner that addresses the safety of workers and the public and the protection of the environment. 3

Northern Regulatory Framework Clear and effective processes Meaningful engagement Clear expectations of companies Enforcement and compliance verification mechanisms to promote safety and protect the environment As we committed during the Arctic Review, we continue to work to improve our regulatory framework which results in future decisions on applications being made in a manner that addresses the safety of the public and workers and the protection of the environment. To achieve this, we are: First, working diligently to establish clear and effective regulatory processes; Second, committed to continuing to have meaningful engagement both domestically, with Northerners and Northern Institutions, and internationally, with our counterparts in other countries; Third, setting out clear expectations for companies; and, Finally, striving to ensure we have appropriate enforcement and compliance verification mechanisms to promote safety and protect the environment. 4

Clear and Effective Processes [note – photo is taken from the Arctic Review and is of Chevron staff] To maintain and promote regulatory efficiency, coordination and predictability, the NEB has established relationships with other regulators and agencies, both domestically and internationally, to deal with overlapping jurisdictions and common regulatory objectives. This includes, for example, a Memorandum of Understanding with the Bureau of Safety and Environmental Enforcement Department of the Interior of the United States (BSEE) that encourages information sharing and cooperation between the two regulators on regulatory development, specific energy projects and best practices. The Board has developed a Memorandum of Understanding with the Bureau of Minerals and Petroleum of Greenland to share information on regulatory approaches and current events, as well as to seek opportunities for cooperation. In addition, we continue to work with coast guard partners to build spill preparedness capacity in transboundary waters through activities like the CANUSNORTH Table Top Exercises. Domestically, we have Memorandums of Understanding in place with most land claim institutions, with environmental impact assessment responsibilities in Canada’s North, to cooperate on our respective assessments and to share technical expertise. We also continue to work with our other fellow Arctic States, besides the United States, to address issues of common concern. This includes, for example, work through the Arctic Council which Canada is currently chairing. One of the three sub-themes during Canada’s two-year term as Chair is “Responsible Arctic Resource Development”. It is expected that, through this area of work, there will be enhanced industry engagement and work on oil pollution prevention. 5

Meaningful Engagement The NEB is committed to continuing meaningful engagement with Northerners, Northern Institutions, and other domestic as well as international boards, regulators and agencies. In contrast to the level of activity off the coast of Alaska, there has been very little activity in Canada’s Arctic during the last thirty years. As such, there exists a tremendous need to reach out to Northerners and Northern Institutions to ensure they have an understanding of the NEB’s mandate and opportunities to participate in our proceedings and share their concerns regarding future development. This year alone, our staff and Board Members held over 50 meetings across the North to continue to listen to those who will be most affected by oil and gas activities in the future (this slide shows the locations of those meetings). These meetings have included, for example, numerous discussions to identify the key concerns around oil and gas exploration and development, to explain our role, and get feedback on how we can best design our future engagement activities to better facilitate participation of Northerners. In addition, we have an expectation that companies seeking to explore and develop northern oil and gas will work collaboratively with Northerners and Northern institutions. By listening to one another, respecting one another and sharing knowledge and expertise, improved safety and environmental protection outcomes can be achieved. 6

Clear Expectations of Companies Filing requirements and guidance documents are produced by the Board with the intent of providing clarity to industry and the public regarding our expectations for applications. The Filing Requirements for Arctic Offshore Drilling in the Canadian Arctic were developed based on the input we received during the Arctic Review. They provide relatively high level guidance to industry on what information is required when they submit an application. This provides the Board with the flexibility to be able to determine, on a case by case basis, what specific information is required in order to assess that particular project on its merits. To complement these Filing Requirements, we are developing more specific guidance documents which set out clear expectations for companies. This includes the May 2013 release of Draft Financial Viability and Financial Responsibility Guidelines. These guidelines describe what an applicant must do to demonstrate they have the financial resources to conduct the proposed activity safely and the financial resources to address a ‘Worst Case Scenario’. In other words, the applicant must provide an estimate of all costs associated with the applied-for project and with a worst case scenario, including containing the event, environmental clean-up and compensation to affected parties, and provide demonstration of their ability to pay for these. Additional guidance documents, expected to be released in the Fall of 2013, include: Filing Requirements for Geophysical Operations; and, Filing Requirements for Drilling Operations involving Hydraulic Fracturing to inform future applications to explore and produce from the shale oil plays in Canada’s Central Mackenzie Valley. 7

Enforcement to Promote Safety and Protect the Environment The Board puts safety and environmental protection at the forefront of its responsibilities in protecting Canadians and requires the oil and gas industry to continually improve its performance. We achieve this through strong compliance verification and enforcement processes, our 40 plus years of environmental assessment expertise, and by taking leadership to drive fundamental change when and where it is needed. In June of this year, the Board hosted a Safety Forum. Key issues at the forum included corporate leadership’s role in building and maintaining a safety culture, effective management systems and safety performance measurement. A broad consensus emerged at the forum that: management systems, safety culture, and measuring and reporting publicly on performance are key; our target must be zero incidents; and we need to regain trust from the public in the safe operation of pipelines.   8

Looking to the future In Canada, our regulatory framework for energy development in the Arctic is based on: past experience, such as the lessons learned from accidents such as the Deepwater Horizon spill in the Gulf of Mexico; present needs, which includes the increasing interest from industry; and, consideration of the future, which includes promoting safety, protecting the environment and conserving oil and gas resources in Canada’s Arctic. Going forward, the NEB plans on building on what we have learned and continuing the dialogue with individuals, industry, governments in Canada and with people and institutions in the Arctic. I look forward to hearing your questions and comments. 9