Chevron puts Arctic drilling plans on hold indefinitely

Chevron Canada says it's put its Arctic drilling plan on hold indefinitely, in part due to ‘the level of economic uncertainty in the industry.’

Company cites 'economic uncertainty in the industry'

Chevron Canada, in a letter to the National Energy Board, has announced it's put its Arctic drilling plan on hold "indefinitely," in part due to “the level of economic uncertainty in the industry.”

The company bid $103 million to explore a parcel of deep water in the Beaufort Sea about 250 kilometres northwest of Tuktoyaktuk, N.W.T.

In the letter, sent yesterday, Chevron announced it's withdrawing from a process whereby the NEB would evaluate the company's proposed blowout response plan. A ruling on Chevron's blowout response plan would have been followed by an actual application to drill, according to a two-phased approach recommended by Chevron. 

The company's postponement does not come as a shock to Doug Matthews, an analyst and former oil and gas director with the Northwest Territories government. 

With the price of oil down by 40 per cent since June, "Companies all over the world are starting to pull in their horns," he says. 

"They have to conserve their cash. So we're seeing delays everywhere."

Chevron initially declined to comment beyond its letter. But it later sent this statement, via email: "Chevron can confirm that it is not proceeding with advance regulatory approval associated with exploration drilling in the Beaufort Sea at this time. All Chevron’s exploration activities must be competitive in our global exploration portfolio, which is regularly reviewed against a range of criteria." 

Other Beaufort players

Imperial Oil and BP bid substantially more than Chevron to explore parcels of their own in the Beaufort Sea — $585 million and $1.2 billion, respectively. The companies have since decided to collaborate on drilling. The earliest that could happen is the summer of 2020, according to Imperial Oil.

"[We] have not altered our exploration plans," said Pius Rolheiser, a spokesperson for Imperial Oil. "We've not made investment decisions to this point. But we are continuing to pursue the regulatory and other work that's required to progress us to a decision point."

Imperial and BP expect to submit their own proposal for how to respond to a blowout to the NEB sometime between July and September 2015, Rolheiser says.

Companies that bid for the rights to explore offshore parcels must give the federal government a deposit equalling one quarter of their work bid. For every four dollars they then spend — whether on drilling or other types of work, including seismic data collection — a dollar is returned to them from the work deposit.

If the companies don't drill by the time their licences expire, they forfeit any remaining balance in their deposit. 

"I think it was much easier for Chevron to back off," said Matthews. "It would be, I think, much more expensive for [Imperial Oil] and BP to do the same given the size of their work program bids."

Rethinking oil and gas

Greenpeace has already welcomed news of Chevron's postponement.

“Chevron's decision to indefinitely halt its Arctic oil drilling plans is further proof that technical challenges of drilling in icy waters, where a spill is all but inevitable, push costs far too high to be viable, especially with volatile oil prices,” says Arctic campaigner Farrah Khan in a news release.

“This announcement is good news for Canada's Arctic and the Harper government should now recognize the instability of the oil industry and put an end to seismic testing in Baffin Bay and Davis Strait.”

Matthews says with Beaufort Sea drilling having come to a halt in the 1980s, and the more recent delay of the Mackenzie Gas Project, some reflection may be in order.

"I think it's a very good time for the Inuvik, Mackenzie Delta region to maybe rethink its relationship with the oil and gas industry," he said. "This is a very tough industry. It comes, it goes."