December 18, 2009

Dear Ms. Nera:

The Canadian Association of Petroleum Producers (CAPP) represents companies, large and small, that explore for, develop and produce natural gas and crude oil throughout Canada. CAPP's member companies produce about 90 per cent of Canada's natural gas and crude oil. CAPP's associate members provide a wide range of services that support the upstream crude oil and natural gas industry. Together CAPP's members and associate members are an important part of a $110-billion-a-year national industry that provides essential energy products. CAPP's mission is to enhance the economic sustainability of the Canadian upstream petroleum industry in a safe and environmentally and socially responsible manner, through constructive engagement and communication with governments, the public and stakeholders in the communities in which we operate.

In response to the Canadian Transportation Agency's open invitation on its website for comments on the proposed modifications to the Coasting Trade Licence Application Guidelines, CAPP is pleased to offer the specific comments below.

1. Advance Notice for Applications

a. Elimination of the 15 business day notice requirement: The draft Guidelines are proposing the elimination of the present 15 business day notice requirement. Effectively, this adds a further 15 business days to the notice period as the draft guidelines stipulate a 30 business day notice period. This lengthens and further complicates the process of obtaining necessary vessels to conduct activities in Canada offshore oil and gas industry. CAPP recommends the 15 business day notice period for short term applications not be eliminated. Moreover, it is CAPP's strong preference to see the 15 business day requirement reduced to 10 business days to more closely align with oil and gas business practices.

b. Fast track and urgent application processing: While there is a clear need to expedite the pace of application processing, the use of the fast track and urgent application processing provisions can, in some instances, actually result in significantly longer processing periods. CAPP recommends that the guidelines further set out specific requirements that ensure fast track and urgent application processing provisions do indeed proceed with rapidity.

c. 30 business day notice requirement: There are various types of specialized vessels such as mobile offshore drilling units, heavy lift crane vessels, semi-submersible barges and semi-submersible transport vessels that are periodically required by the offshore oil and gas industry. However, at present none of the above-mentioned specialized vessel types are Canadian flagged. In these instances, it is completely unnecessary for the Canadian Transportation Agency to maintain a 30 business day notification period. CAPP recommends that the guidelines adopt provisions with much shorter notification requirement to reflect these circumstances.

2. Content of Applications

Typically most initial offers from Canadian operators provide only specifications of the vessel they have available. The offers seldom contain any information on how the operator intends to conduct and complete proposed activity. CAPP recommends that the content of the offers be expanded to encompass requirements for a clear and substantive plan of action that address how the Canadian vessel operator intends to carry out the proposed activity.

3. Time Limits for Pleading

The time period of 120 days to make a decision is excessive. This length of time combined with the proposed 30 business day notice period will in effect require applicants to submit applications a minimum of six months before the proposed activity in virtually all cases. The only exceptions would pertain to oil tankers and whatever is deemed acceptable under the proposed fast track and urgent application processing guidance provisions. In many circumstances the exact vessel may not be nominated six months in advance and this will result in more "Unnamed Vessel" applications. CAPP recommends that the Canadian Transportation Agency broadly revisit and take steps to shorten and realign the regulatory timeframes to reflect and support the industry's business requirements and practices. In this regard, CAPP believes that a greater level of resourcing for the Canadian Transportation Agency would contribute to improvement of performance.

4. E-Mail and Internet Access

CAPP supports the increased use of Email Notices and website postings as a method of providing notice of applications.

5. Offeror's Role

Clearer guidance is provided regarding the role of the offeror and, in particular, the evidentiary burden on the offeror. While this guidance aligns and is consistent with past decisions of the Canadian Transportation Agency, it will nevertheless be of benefit to both applicants and offerors.

6. Administrative Matters: Resourcing of the Canadian Transportation Agency

During the past summer the processing of applications and issuance of decisions were delayed due expressly to shortages of available staff. Regulatory delay, even short ones, can be extremely costly to industry. It is unacceptable for major industrial projects in Canada to be held up due to inadequate staff resources in a government agency. CAPP recommends that measures be taken by the Canadian Transportation Agency to remedy staffing shortfalls and ensure the necessary resources available to meet demands of industry. In this regard, CAPP supports the Canadian Transportation Agency use of technical and operational expertise of other federal agencies such as the petroleum regulatory boards as a constructive and expedient means of determining vessel suitability.

Notwithstanding the above comments on the draft Coasting Trade Licence Application Guidelines, industry widely believes that the Coasting Trade Act is having a detrimental impact on the development of Canada's offshore oil and gas resources. Oil and gas companies wishing to pursue offshore seismic programs have no certainty with respect to the outcome of Coasting Trade Act process. The combination of the potential for regulatory delay, restrictions on competition, increased program costs, the likelihood of sub-optimal technical results and possibility of program cancelation is directly impeding offshore exploration in Canada. It is industry's view that the recent year over year decline of offshore seismic programs is directly attributable to the Coasting Trade Act regulatory barriers.

More compelling, all non-exclusive seismic activity has ceased in Canada's offshore. Non-exclusive seismic activity is a fundamental and integral aspect of the oil and gas exploration process particularly in frontier regions as it is an accepted industry mechanism for oil and gas companies to share exploration risk. International offshore seismic companies view the Coasting Trade Act as a significant barrier to entry to Canada. They have been effectively ‘shut-out' of the Canadian market and are no longer able to further build and expand their Canadian libraries of non-exclusive seismic data for resale to multiple oil and gas company clients. The fact that new non-exclusive seismic data is no longer coming to market for purchase by oil and gas companies has long-lasting consequences for progress for future development of Canada's offshore resources.

After nearly 20 years of experience operating under an amended Coasting Trade Act, the underlying rationale for including offshore resource activities is arguably having opposite effects of those originally envisioned; inhibiting exploration and exploitation activities, limiting employment and ship building, and impacting sovereignty-assertion opportunities. Furthermore, much of the intent of including offshore resource activities in the Coasting Trade Act is redundant given the federal government's more substantive legislative requirements for offshore operators to negotiate benefit agreements that secure direct project employment and business opportunities for Canadians.

Sincerely,
Paul Barnes
Manager, Atlantic Canada

John Masterson
Manager, Federal Regulatory & Technology