CALGARY • Ottawa is boosting the liability cap on oil companies with plans to drill in Atlantic and Arctic waters as it looks to rekindle interest in Canada’s offshore.

In changes announced Tuesday, Natural Resources Minister Joe Oliver said companies operating in the Atlantic would be on the hook for a maximum of $1-billion in the event of a spill, up from $30-million previously. Arctic drillers, who face high costs and harsh operating conditions in the Canadian Beaufort Sea, would also be responsible for a $1-billion liability limit, up from $40-million under existing rules.

The changes come amid renewed interest from companies such as BP Plc, Royal Dutch Shell Plc, Imperial Oil Ltd. and the Canadian unit of Chevron Corp. in tapping offshore Atlantic and Arctic crude, and with new seismic work uncovering three large but highly prospective oil fields in the Labrador Sea.

“There still will be unlimited liability in the event the operator is negligent or at fault,” Mr. Oliver said in an interview from Halifax where he made the announcement. “But we need to have a larger absolute amount so that there is no issue about responsibility.”

What to do — and who pays — in the event of a disaster has emerged as a major issue as companies step up offshore exploration efforts in the Beaufort Sea and in the Atlantic Ocean. Similar concerns have also dogged plans to connect growing oil sands production in Alberta to Canada’s West Coast by pipeline.


Enbridge Inc., which is making the final case for its controversial Northern Gateway pipeline this week in Terrace, B.C., has balked at conditions that would compel the company to set aside nearly $1-billion in liability coverage.

One of nearly 200 conditions proposed by the three-member Joint Review Panel assessing the $6.6-billion project compels the Calgary-based pipeline giant to have total coverage of $950-million for costs and liabilities associated with a potential rupture, including $100-million on hand within 10 days of an incident.

Enbridge has rejected the condition, suggesting instead an industry-bankrolled spill fund.

The company estimates the maximum cost of a land-based oil spill in the rugged B.C. interior at roughly $200 million. It plans to obtain at least $250-million in third-party liability insurance for the project, it said in final written submissions to the review panel.

Current liability limits for ship-source oil spills, including oil tankers, top out at roughly $1.3-billion.

John Carruthers, president of the Northern Gateway project, said the worst pipeline spill in Canada cost $70-million to clean up, while his own company, Enbridge, spent more than $800-million to clean up its spill in Michigan in 2010, where costs tend to be higher.

Tuesday’s changes deal only with offshore activity, which is poised to accelerate as companies begin assessing prospective new fields on the East and Arctic coasts.

BP last year spent $1.05-billion on four exploration blocks offshore Nova Scotia. Exxon Mobil Corp. is moving ahead with its $14-billion Hebron development offshore Newfoundland and Labrador. The company is also hunting for oil in the Canadian Beaufort Sea through subsidiary Imperial Oil Ltd.

Imperial spokesman Pius Rolheiser said it’s too early to comment on the new liability limits.

“No business investment decisions have been made to drill a well” in the Beaufort, he said in an emailed message, adding the company was still assessing the “financial, operational and regulatory complexities” stemming from a sweeping review of Arctic drilling conducted by Canada’s National Energy Board in the wake of BP’s Macodo blowout in the Gulf of Mexico.

Under the new rules, companies must now provide a deposit of $100-million or a “pooled” fund of $250-million that regulators can access immediately in the event of a spill.

The amount pales in comparison to the $42-billion allocated by BP to cover cleanup, fines and other costs associated with the Deepwater Horizon tragedy.

The changes are “a step in the right direction, but certainly this is not best practice in comparison to other parts of the world,” said Shauna Morgan, an analyst with the Pembina Institute based in Yellowknife, N.W.T.

Norway, she noted, has unlimited absolute liability in which companies are required to pay for all cleanup costs in the event of a spill.

“Canada is at least moving in the right direction but we’re not at a point yet where we can say that we’re following best practices or a world leader in offshore liability issues,” she said.

With files from Claudia Cattaneo