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Canada raises offshore liability

July 01, 2013

The federal government will increase the limit on their liability for environmental and other damage raise the bar for oil companies operating off the East Coast and in the Arctic, from a blowout or oil spill to $1-billion.

The government’s proposed $1-billion cap for offshore drilling would apply to “no fault” liability, while operators would continue to face unlimited liability should they be found to be at fault or negligent. Companies will also be required for the first time to demonstrate to the regulators their financial capacity to cover $1-billion in cleanup costs should it become necessary.

Canada’s liability regime is founded on the “polluter pays” principle. Currently, there is unlimited liability should parties be found “at fault or negligent” for a spill. In addition, there is an absolute “no-fault liability” set at $30 million for the Atlantic and $40 million for the Arctic. This ensures that, regardless of fault or negligence, the operator has specific resources for clean-up costs and damages to others without requiring proof of fault or litigation.

Although there is currently no offshore drilling in Canada’s Arctic waters and there are no applications for drilling before the NEB, a number of companies hold exploration licenses in the Beaufort Sea.

In 2007, Imperial Oil Ltd. and ExxonMobil Corp. jointly bid $585-million for a large Beaufort Sea parcel, followed by $1.2-billion in 2008 by BP and $103-million in 2010 from Chevron Corp. Development plans for those areas were put on hold after the BP spill, which triggered a lengthy review of Canada’s Arctic drilling policy. The return of Beaufort interest may be evidence that oil companies are comfortable with new rules the National Energy Board released last year that allow companies to depart from a rule that requires, in a disaster, that an emergency well be completed before winter – if they can show other means that provide equivalent safety measures.


It’s a good idea for the federal government to modernize its offshore drilling rules and regulations. Both Greenland and Alaska will have offshore drilling programs in 2014. In Canada drilling in the offshore arctic is not really happening.