Order Prohibiting Certain Activities in Arctic Offshore Waters: SOR/2019-280

Canada Gazette, Part II, Volume 153, Number 17

Registration

SOR/2019-280 July 30, 2019

CANADA PETROLEUM RESOURCES ACT

P.C. 2019-1121 July 28, 2019

Whereas Her Majesty in right of Canada as represented by the Minister of Northern Affairs (the Minister) has, relating to frontier lands in respect of which the Minister has administrative responsibility for natural resources, the right to dispose of or to exploit those natural resources;

Whereas Canada, as part of the United States-Canada Joint Arctic Leaders’ Statement announced December 20, 2016, has designated all Canadian Arctic waters as indefinitely off limits to future offshore Arctic oil and gas licensing, and that the designation is to be re-examined every five years on the basis of a review that will consider Canadian Arctic waters climate and marine science-based life-cycle assessments, Indigenous knowledge and the socio-economic effects of developing or further prohibiting the development of Arctic offshore resources;

Whereas Canada, the Inuvialuit Regional Corporation, Nunavut Tunngavik Incorporated and the governments of the Northwest Territories, Yukon and Nunavut are jointly developing the assessments, which are expected to be completed in 2021;

And whereas the Governor in Council considers that it is in the national interest of Canada to prohibit any person, including an interest owner of a licence set out in the schedule to this Order, from commencing or continuing any work or activity authorized under the Canada Oil and Gas Operations Act on the frontier lands that are situated in Canadian Arctic offshore waters and in respect of which the Minister has administrative responsibility for natural resources, until such time as that review is complete;

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Crown-Indigenous Relations, pursuant to subsection 12(1) footnote a of the Canada Petroleum Resources Act footnote b, makes the annexed Order Prohibiting Certain Activities in Arctic Offshore Waters.

Order Prohibiting Certain Activities in Arctic Offshore Waters

Prohibition

1 It is prohibited for any person, including an interest owner of a licence set out in the schedule, to commence or continue any work or activity authorized under the Canada Oil and Gas Operations Act on the frontier lands that are situated in Canadian Arctic offshore waters and in respect of which the Minister of Northern Affairs has administrative responsibility for natural resources.

Coming into force

2 This Order comes into force on the day on which it is registered and expires on December 31, 2021.

SCHEDULE

Licence number

EL476

EL477

EL478

EL479

EL481

EL483

EL485

EL488

EL489

EL491

EL496

SDL005

SDL014-CAN

SDL025-CAN

SDL026-CAN

SDL028

SDL037

SDL038

SDL039

SDL040

SDL041

SDL043

SDL044

SDL045

SDL046

SDL047

SDL048

SDL049

SDL050-CAN

SDL051

SDL053

SDL054

SDL055

SDL058

SDL061

SDL065

SDL066

SDL067

SDL068

SDL069

SDL070

SDL071

SDL072

SDL073

SDL074

SDL075

SDL076

SDL077

SDL078

SDL079-CAN

SDL080

SDL081

SDL083

SDL084

SDL085

SDL086

SDL087

SDL088

SDL089

SDL091

SDL092-CAN

SDL095

SDL096

SDL097

SDL110

SDL111

SDL112

SDL113

SDL114

SDL115

SDL116

SDL117

SDL126

SDL130

SDL132-CAN

SDL133-CAN

SDL134-CAN

SDL135

SDL136-CAN

SDL146-CAN

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issues

The December 2016 Arctic offshore moratorium designated all Canadian Arctic waters as indefinitely off limits to future oil and gas licencing, to be reviewed every five years through a climate and marine science-based life-cycle assessment. The moratorium did not suspend the terms of the 80 existing oil and gas licences in the Arctic offshore. A number of these existing licences will begin to expire July 31, 2019, before the completion of the five-year life-cycle assessment of the moratorium. To ensure that the Government of Canada is able to fulfill the moratorium review commitment, an order prohibiting certain activities in Arctic offshore waters, which also triggers a concurrent suspension to the terms of the existing licences is required before July 31, 2019, when the first of the licences begin to expire.

Background

The Minister of Northern Affairs (the Minister) is granted the authority under the Canada Petroleum Resources Act (the Act) to issue oil and gas licences on frontier lands north of the 60th parallel, including the Arctic offshore, and is responsible for the disposition of federal lands for oil and gas exploration and development. The Minister of Crown-Indigenous Relations has temporarily assumed responsibilities related to northern affairs and, as such, is the responsible Minister on this matter.

On December 20, 2016, the Government of Canada announced as part of the Joint Arctic Leaders Statement, a moratorium in the Arctic offshore to be reviewed every five years through a climate and science-based review, and a commitment to consult with companies and Northerners on their future interests in offshore oil and gas development. The moratorium acknowledges the important balance between the historic value of the Arctic waters for Indigenous peoples and value of establishing a strong, sustainable Arctic economy and ecosystem supported by science-based management and offshore oil and gas capacity. While the moratorium suspends the issuance of new oil and gas licences in the Arctic offshore — marking a shift in oil and gas policy in the North — it does not affect the rights of licence holders to explore for or develop oil and gas resources in relation to the 80 existing oil and gas licences in the western and eastern Arctic offshore.

There are currently 11 active exploration licences in the Beaufort Sea each with fixed, non-renewable, nine-year terms. The terms of these licences were not suspended when the Arctic offshore moratorium was announced and the licences will begin to expire on July 31, 2019. While the terms of the 69 active significant discovery licences in the Arctic offshore are also not suspended during the moratorium, their terms are indefinite and without risk of expiry during the moratorium.

During consultations, the 80 oil and gas licence holders, territorial governments, and Northern Indigenous leaders broadly supported future development of oil and gas in the Arctic offshore, and called on Canada to take action to “freeze” the existing rights in the Arctic offshore and to preserve and prevent expiry while the moratorium remains in place.

Following consultations, Canada committed to next steps for future Arctic oil and gas development, including “freezing” the terms of existing licences and suspending oil and gas activities for the duration of the moratorium.

In October 2018, Canada announced next steps on future Arctic oil and gas development, including measures to “freeze” the terms of the existing licences in the Arctic offshore to preserve existing rights, and to remit to licence holders the balance of the work deposits associated with the amount of money they agreed to spend to explore for oil and gas. Other announced measures included working with Northerners to co-develop a strategy for the five-year science-based review and negotiation of co-management and revenue sharing of Beaufort Sea oil and gas.

On May 11, 2019, a Notice of Intent was published in the Canada Gazette, Part I, proposing to issue 11 amended exploration licences with extended terms in exchange for the existing exploration licences, thereby preventing the existing licences from expiring before an order could be issued to freeze the terms of the existing licences. The notice was published before An Act to amend the Mackenzie Valley Resource Management Act and the Canada Petroleum Resources Act and to make consequential amendments to other Acts (Bill C-88) received royal assent on June 21, 2019. Bill C-88 amended the Canada Petroleum Resources Act to provide authority to the Governor in Council by Order to prohibit any oil and gas activities in the Arctic offshore in the national interest. An order would also trigger a suspension to the terms of the existing exploration licences. An order as proposed would replace the decision pursuant to the Notice of Intent.

When the Order is revoked, the term of the licence would be extended for a period equal to the time the Order was in force. This authority will allow Canada to honour its commitment “to freeze the terms of existing licences” as announced as part of the next steps for future Arctic oil and gas development.

An order by Governor in Council to prohibit any oil and gas activities in the national interest on the 80 active oil and gas licences in the Arctic offshore complements the intent of the Arctic offshore moratorium to suspend development until the impacts of oil and gas activities are better understood.

The Arctic Ocean is the largest body of water bordering Canada and is a very fragile ecosystem. It has significant potential for oil and gas development and contains a substantial portion of the world’s untapped petroleum resources. Therefore, it is of national importance for the future of Canada. At the same time, due to the prevailing extreme climate and unique ecosystem of the area, the exploration for and development of petroleum resources must be evidence-based and supported by research to prevent harm to the environment.

Objective

The main objectives of the Order prohibiting activities for the existing 80 existing oil and gas licences in the national interest are to

Description

Bill C-88 amended the portion of subsection 12(1) of the Canada Petroleum Resources Act before paragraph (a) to authorize the Governor in Council by Order to prohibit activities in certain circumstances if it is considered in the national interest to do so or if it is necessary under certain circumstances. When the Governor in Council issues an order under subsection 12(1) of the Act prohibiting an interest subject to the Order from commencing or continuing any work or activity on the frontier lands, any requirement in relation to an interest in the Order that cannot be complied with while the Order is in force is concurrently suspended pursuant to subsection 12(2) of the Act until the Order is revoked. The term of the interest that is subject to the Order, and the period provided for compliance with any requirement in relation to the interest, would be extended per subsection 12(3) of the Act for a period equal to the period that the Order was in force.

An order prohibiting offshore activity and suspending the requirements of existing licences and freezing their terms prevents the licences from expiring for the duration of the Order and allows Canada to move forward with a strategic review of marine and climate science in the Arctic offshore. The Order will be in effect from the date it is signed and remains in effect until December 31, 2021, unless rescinded or extended before that time.

When the Order is withdrawn, licence holders will be required to fulfill the requirements of the licences and the terms of the licences will be activated.

Regulatory development

Consultation

Following the announcement of the Arctic offshore moratorium, Canada initiated consultations to clarify the interests and plans of stakeholders concerning the future of oil and gas exploration and development in the Arctic offshore.

The goal of these consultations was to gather input and feedback from Indigenous partners and Arctic stakeholders to assist in the development of a future policy for the region.

Industry

Consultations with industry stakeholders included discussions with existing licence holders. These licence holders have been operating in the Beaufort Sea for several decades and view their investments as strategic long-term assets to their companies. Industry stakeholders stated that they are unwilling to relinquish the existing oil and gas licences due to the future economic potential of oil and gas development in the Arctic offshore.

Throughout the consultations, industry stakeholders raised concerns that the ongoing moratorium has affected their ability to invest in the region as they are uncertain of the federal government’s intent with Arctic offshore oil and gas development. Industry stakeholders requested that the federal government freeze licence expiry terms and return work deposits. Industry also commented that if the federal government’s intent is to have stakeholders relinquish their exploration permits, stakeholders will require compensation for the loss of opportunity and a waiver for the remaining work commitments on their licences.

Territorial governments

Throughout the consultation period, the territorial governments expressed concern over the federal government’s decision to implement a moratorium of offshore Arctic oil and gas exploration. It is the position of the territorial governments that the moratorium was a unilateral decision which has adversely affected the investment climate in the region and each government’s ability to exercise jurisdictional authority over resource development. Consequently, the territorial governments have requested that industry be granted relief from their work commitments and all licence expiry dates be suspended until the completion of the five-year science-based review.

Indigenous partners

Indigenous partners have expressed that they should be viewed as rights holders throughout the consultation process and that they should receive compensation for the loss of economic opportunity related to the moratorium. Furthermore, Indigenous partners commented that Canada’s decision to implement a moratorium was a fundamental challenge to Indigenous rights and represented a focus on national and international priority setting over local treaties and land claim agreements.

Modern treaty obligations and Indigenous engagement and consultation

The Government acknowledges the irreplaceable value of the Arctic offshore to Indigenous traditional lifestyles and the unique marine ecosystem. The proposal to prohibit oil and gas activities in the Arctic offshore was informed through broad consultations with Inuvialuit and Inuit peoples, pursuant to their respective modern treaties, the Inuvialuit Final Agreement and the Nunavut Land Claim Agreement.

The consultation with northern treaty organizations in relation to this proposal represents an ongoing journey toward meaningful reconciliation with Indigenous peoples of the North and the protection of Arctic lands and waters. The Government is continuing to foster economic opportunities and growth across Northern Indigenous communities and protect the marine ecosystem for future generations. In this way, the proposal supports the Government’s commitments to respect the rights and interests of Indigenous peoples and is an important step toward reconciliation.

In further recognition of Indigenous treaty rights in the North, section 3 of the Canada Petroleum Resources Act explicitly provides that nothing in the Act shall be construed as to abrogate or derogate from any existing Indigenous or treaty rights of Indigenous peoples of Canada under section 35 of the Constitution Act, 1982.

Instrument choice

Status quo

Without the issuance of the Order, existing licences will begin expiring on July 31, 2019. In this scenario, Canada would not be able to meet the commitment to freeze the terms of existing licences nor meet the moratorium review commitment.

Administrative option

An administrative option was considered to prevent the existing licence rights from expiring, i.e. the 11 existing exploration licences would be exchanged for new licences with extended terms. This option was considered to mitigate the risk of having the existing licences begin to expire at the end of July 2019 in the absence of the authority for the Governor in Council to issue an order. With royal assent of Bill C-88, it was determined that this administrative option does not address the issue as concretely or effectively as the authority provided by the legislation for the Governor in Council to issue an order.

Prohibition Order (preferred option)

An order prohibiting Arctic offshore oil and gas work and activities and freezing the terms of the existing exploration licences before their expiry, complements the intent of the moratorium and will allow Canada to work with and consult territorial and Northern Indigenous governments on future decisions in relation to Arctic offshore oil and gas development.

Regulatory analysis

The proposal for a Governor in Council order to prohibit the licence holders of the 11 exploration licences in the Arctic offshore from continuing any work or activity that is considered to be in the national interest is anticipated to result in a deferred benefit to the licence holders. There is no anticipated quantitative cost of this proposal for the licence holders, though there may be a qualitative cost associated with a licence holder’s lost opportunity to pursue exploration activities in the licence area.

The existing licence holders have invested significant capital and time to exercise their right to explore for oil and gas in the Arctic offshore. The licence holders have made 69 significant discoveries of oil and gas in the western and eastern Arctic offshore areas, and may proceed to develop these licences when market conditions and technical capacity converge to support the viable development of these resources for the benefit of licence holders as well as territorial governments and Northern Indigenous communities.

The Order will result in two important benefits. First, the Order will ensure the protection of the Arctic waters and the marine environment. Second, the Order will result in the concurrent suspension of the terms of the existing licence. However, there are some potential costs to licence holders. The current licence holders who may have elected otherwise to proceed with exploration and drilling in the Arctic offshore would have to temporarily forgo the early collection of profits from this investment. This cost —delayed realization of potential revenues and profits —would be proportional to the duration of the Order.

Small business lens

The small business lens does not apply to this Order, as there are no associated impacts on small businesses.

“One-for-One” Rule

The “One-for-One” Rule does not apply, as there is no incremental change in administrative burden on business.

Strategic environmental assessment

In accordance with The Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required. The ongoing five-year science-based review associated with the Arctic offshore moratorium will include a strategic environmental assessment in the western and eastern Arctic offshore areas.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for this proposal.

Implementation

The Order comes into force on the date on which it is registered.

Contact

Michel Chenier
Director
Petroleum and Mineral Resources Management Directorate
Northern Affairs
Crown-Indigenous Relations and Northern Affairs Canada
25 Eddy Street, 10th Floor
Gatineau, Quebec
K1A 0H4
Telephone: 819‑934‑9181
Email: michel.chenier@canada.ca