Nova Scotia is potentially on the hook for millions of dollars in decommissioning costs as ExxonMobil prematurely winds down production at a massive offshore gas project near Sable Island.
In 1997 the province’s Liberal government negotiated a deal with Exxon to get the Sable Offshore Energy Project, about 190 kilometres off the coast of Nova Scotia, up and running. As part of that arrangement, Nova Scotia promised to pay a portion of decommissioning costs at the end of the project’s life.
The costs, expected to be in the millions, will be deducted from the $1.7 billion in royalties collected by the province since operations began in 1999.
Nova Scotia Energy Minister Michel Samson said a portion of the royalties have been set aside to pay the province’s contracted share of the decommissioning, but added he “[didn’t] have the exact numbers.”
“Knowing this was a potential liability for the province, the moneys have been set aside,” Samson told a press conference last Thursday.
Mark Butler, policy director for the Ecology Action Centre in Halifax, attended the initial assessment hearings for the project in the late 1990s.
“Back when I went through the hearings, we were critical of the royalty arrangements, but the government was keen to get some activity off our coast. I think they thought the Sable project would be the start of many more projects, so they were willing to give the industry a pretty nice deal.”
Butler told DeSmog Canada the Ecology Action Centre fought against the agreement from the beginning, advising the Nova Scotia government to reject the deal. Nearly 20 years later, Butler said he and others are saying we told you so.
“It was a bad deal,” he said. “Royalties for offshore hydrocarbon projects should be separate from the development costs of the company.”
“I am totally perplexed as to why this should be a government responsibility,” he added. “It’s a private project.”
Exxon said the exact date of decommission — which will include capping underwater wells and dismantling five offshore platforms — won’t be known for another year. Exxon is interested in providing commercial access to the offshore infrastructure to another company, but so far has been unable to generate interest.
Gas production from the Sable project has been steadily declining for seven years.
Nova Scotia has only one other offshore petroleum project — operated by Encana — but renewed interest in oil production off Canada’s east coast in the last year could mean more to come.
Butler said Nova Scotia should avoid disadvantaging itself in future offshore deals.
“Oil companies go around the world and bargain for a living whereas with Nova Scotia it’s a once in a lifetime thing they do when they’re hungry for the business.”
Given that other companies like Shell and BP are now seriously considering further offshore projects, Butler believes the Nova Scotia government should learn a valuable lesson from the experience with Exxon.
He added that, while the Ecology Action Centre is opposed to further petroleum production off the coast, if development does go ahead “the current royalty regime should not be replicated for this non-renewable resource.”