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Protecting the Arctic

Written evidence submitted by Cairn Energy PLC

Overview

1.0
Cairn Energy PLC ("Cairn") is an Edinburgh-based oil and gas exploration and production company listed on the London Stock Exchange. There are two separate parts of the business:
Capricorn Oil Limited, a wholly owned subsidiary of Cairn focused on exploration, with interests in Greenland, Nepal, Albania and Spain; and Cairn India Limited, which is listed on the Bombay Stock Exchange and the National Stock Exchange of India and has interests in India and Sri Lanka. Having sold its majority ownership position in late 2011, Cairn has an ongoing investment in Cairn India with a shareholding of approximately 22%. Cairn India is one of the top twenty companies in the country based on market capitalisation. [1]

1.1 Cairn Energy PLC has discovered and developed oil and gas reserves in a variety of locations around the world; in recent years, this has included Bangladesh and India. In Rajasthan in India, the company made one of the world’s biggest ever discoveries in 2004 and this project will ultimately be responsible for 30 per cent of India’s domestic crude oil production. [2]

1.2 Cairn welcomes the Committee’s inquiry and looks forward to discussing how best to meet the energy and economic challenges ahead while protecting the environment and ecosystems of all the areas it operates in, including the Arctic.

1.3 Faced with the challenge of tackling rising energy demand and an awareness of climate change, companies and governments around the world are investing heavily to develop renewable and low-carbon sources of energy. Despite technological advances and increase in supply in renewable energy, it is unlikely to meet the gap in energy in short to medium term. [3]

1.4
As a result, hydrocarbons will remain an important source of energy for many years if global social and economic developments are to continue. The imperative to find new sources of oil and gas remains urgent. What is crucial is that the exploration and development of these resources is handled safely and to the highest safety and environmental standards.

1.5 Cairn supports a mixed energy policy, and the company also supports the right to self-determination by sovereign countries and communities who may be economically restricted. Cairn can play its part in helping to meet energy and economic challenges in a way that minimises and mitigates the impact on the environment in the Arctic.

1.6 Petroleum exploration in the wider Arctic Region has taken place since the 1920s when onshore production commenced, offshore production commenced in the 1970s. [4] In that time over 10,000 onshore and offshore wells have been drilled. [5] The area encompasses frontier geography as far west as Canada and East Coast Alaska to the East at Sakhalin Island, offshore Russia and Japan.

1.7 The Greenlandic Bureau of Minerals and Petroleum (BMP) have established some of the most stringent regulations globally [6] ; Greenlandic policies are modelled on those of the Norwegian and UK continental shelf. [7] These processes have been not only been approved by the Greenland Government and also the Danish Centre for Environment & Energy (DCE). [8]

1.8 Working closely with the Greenland authorities, and using specialist expertise of the international oil spill management organisation Oil Spill Response Limited (OSRL), Cairn developed an extensive oil spill response plan and tiered response capability. This plan was published at the discretion of the Greenlandic Government and is available publically on both their and Cairn’s website. [9]

Greenland

2.0 The Greenlandic Government first granted licences for offshore hydrocarbon exploration in the 1970s when five offshore wells were drilled by Statoil and Total. One further well was drilled in 2000. More recently, in 2007, the Greenland Government held a bid round for offshore licences and invited international oil and gas companies to once again explore for hydrocarbons. In 2010, more international companies became involved. The Government’s rationale was clear; with increasingly limited global energy resources, a potential new source of hydrocarbons could benefit the country, its people and communities with valuable revenues. [10]

2.1 The US Geological Survey estimates the basins offshore Greenland could hold up to 17.5 billion barrels of oil and c150 billion cubic feet of natural gas. As such, they suggest that the area offshore Greenland is one of the top ten "yet to find" hydrocarbon locations globally (although it should be noted that there has been no commercial oil and gas field discovery to date). [11] Hydrocarbon discoveries can provide opportunities for economic development as well as providing increased energy security. Most Greenlanders support the investment of companies in hydrocarbon and mineral exploration and the opportunities such new business can bring.

2.2
With only 14 wells drilled to date (8 by Cairn) offshore Greenland, the country is prospective and highly underexplored. It is politically stable and both open to and positive to foreign investment, provided companies meet stringent international operating and financial capabilities.

2.3
Greenland is a self-governing part of the Kingdom of Denmark; it has sovereignty and administration over finance, industry, domestic affairs, housing and infrastructure, education, health, environment, trade and natural resources. Their oil and gas HSE guidance and permitting is one of the most stringent in the world. [12]

2.4 Governments across the Arctic set policy in their interests and as each prevailing Government perceives them. Oil and Gas companies operate in this context and require a licence to operate and to be awarded blocks for exploration.

2.5 Cairn does not dispute the eco-system issues and oil and gas companies are one of the principal funders of research in the Arctic areas in which they operate. Greenland has tied licence conditions to research funding which each operator is obliged to meet. This includes funding of significant research into primary production, birds, fish, mammals and specific habitats. [13]


Cairn in Greenland

3.0 As a company with a proven track record of successfully exploring for hydrocarbons in challenging environments around the world, Cairn was one of many companies to register an interest in Greenland exploration. Cairn operates in Greenland at the invitation of the Greenlandic Government. [14] In addition, Cairn has taken a lead role in creating the Greenland Oil Industry Association (GOIA) and currently chairs this industry group which is committed to sharing industry expertise, working together with all stakeholders and developing an oil industry in Greenland safely and responsibly. [15] The companies who are members of GOIA are Shell, ConocoPhillips, Dong E+P, PA Resources, Statoil, Maersk, ExxonMobil, Chevron, Husky Energy, GDF Suez, PA Resources and Nunaoil.

3.1 Cairn’s entrepreneurial exploration focus has allowed it to build a strategic and leading early entry position in multiple frontier basins offshore Greenland, a country which Cairn believes has the necessary geological ingredients for exploration success. Since 2007, Cairn has safely conducted extensive seismic surveys across its acreage offshore west, north-west and south Greenland.

3.2 Cairn has been operating in Greenland since 2007 and currently operates 11 blocks, with a combined area of 102,000 km2, which is equivalent to 13 quadrants or 450 blocks in the UK North Sea.

3.3 In 2010, Cairn drilled three wells and a further five in 2011. For operational prudence purposes and in agreement with the Greenland Government, this exploration activity took place during a restricted drilling window when weather conditions are relatively benign.

3.4 The first phase of Cairn’s exploration programme in Greenland has encountered oil and gas shows across multiple basins and identified reservoir quality sands. [16] Whilst Cairn has yet to make a commercial discovery the company remains encouraged that all the ingredients for success are in evidence. Having drilled eight of the fourteen total wells to date, Cairn’s multi-year, multi-basin campaign in this frontier location ensures that Cairn has a considerable amount of knowledge of operating in this environment.

3.5
The timing of the next stage of drilling will be dependent on the results of comprehensive data analysis, which is currently ongoing as well as the availability of rigs and equipment which is influenced by the global market. Cairn will not be drilling this year due to the ongoing data analysis.

Safety and Environment

4.0
Throughout its operations around the world, Cairn is a prudent operator and very aware of its responsibilities and obligations towards people, communities and environment. Cairn has operated in a variety of countries and environments from the North Sea to the Bay of Bengal and the deserts of India. Consequently, from the point of expressing interest in Greenland and receiving approval to conduct seismic exploration and to drill, Cairn has spent the last five years working closely with the Greenland Government and other stakeholders to ensure Cairn’s and our contractors’ procedures place the highest possible priority and delivery of safety and environmental protection. [17]

4.1 The Greenland Government and Cairn believe they have put a comprehensive and robust plan in place with HSE placed first on the operational and planning agenda. [18] At all times, Cairn focus on prevention of health, safety, environmental and social issues in a proactive manner, in simple terms making sure incidents don’t happen by avoiding hazards and risks where possible. Just as important, where this is not possible applying controls to mitigate them to an acceptable level.
(This is known as the ALARP approach – as low as reasonably practicable – and is well accepted in UK legislation and a stipulated requirement of the Greenland Government). Whilst it is accepted that the risks in some areas are higher, such as icebergs which require greater control in terms of ice management that does not mean that activities cannot be conducted safely.

4.2 In addition, Cairn carried out extensive Environmental and Social Impact Assessments to identify how potential environmental and social impacts of the drilling programme can be avoided or mitigated, these were published and consulted on extensively with stakeholders. [19]

Drilling management

5.0 In 2010 and 2011, Cairn used two rigs for its drilling and exploration programme. Up to fourteen further vessels were used to support the drilling programme to provide cover for re-supply, rig stand-by, ice management, and emergency and oil spill response. Cairn deployed specialist aviation to support activities including extensive Search and Rescue (SAR) capability. [20]

5.1 In order to ensure that any lessons learnt from the Gulf of Mexico incident were captured, the Government and Cairn reviewed the planned programme. The programme put in place included [21] :

· Hiring a team of experts to manage the programme for Cairn with 1000 years of experience across the team of managing successful oil exploration campaigns in challenging environments including extreme arctic conditions

· Deploying a dual rig strategy by contracting two, harsh environment, state of the art ‘dynamically positioned’ fifth and sixth generation drilling vessels to explore together, thereby allowing rapid deployment for drilling a relief well, the locations of which were all pre-planned and government approved

· The capabilities of the fifth and sixth generation vessels far exceeded the drilling and water depth requirements of Cairn’s offshore Greenland conventional exploration drilling programme.

· Designing the drilling schedule so that only one rig would enter a hydrocarbon-bearing section at any given time

· A well design with multiple barriers to minimise the possibility of an uncontrolled release of hydrocarbons, which was reviewed and technically assured by an independent external expert in accordance with North Sea best practice

· Fully testing the blowout prevention equipment, including a mechanical test by independent authorities, prior to operations commencing and subsequently testing the equipment fortnightly

· The blow-out preventer used by each rig had two shear rams; could be remotely activated; and should the blow-out preventer fail, each vessel had a remotely operated vehicle to use to close the well

5.2 Ice management – operating in such an environment has meant that Cairn, with some of the world’s leading ice management companies, has developed a comprehensive ice management strategy. [22] The strategy capitalises on skills and techniques learnt from working in similar climates, in the area offshore eastern Canada, where oil and gas exploration and production have thrived safely for 30 years. Based on the data gathered from ten years of satellite information, six iceberg and ice management vessels were hired to provide ice management support. Cairn’s ice management strategy has been very successful – 2011 saw considerably more icebergs than 2010 and in neither year has their presence compromised the company’s ability to operate safely in the designated drilling window. The rigs used are ice rated and winterisations HAZID was performed and winterisation mitigation measures applied.

Tiered response system

6.0
Cairn recognises that in addition to robust preventative measures, it is necessary to have a comprehensive emergency planning and response system. It is a requirement to have a measured response to a number of possible well control incidents. At the most extreme case, this includes an oil spill response plan.

6.1 Oil spill is an inherent hazard across the industry and prevention must remain the main control. However, this is not to underplay the importance of response capability. It is important to recognise that there is no single comprehensive method of clean up of oil spill in any location in the world and a variety of strategies must be deployed depending on circumstances. [23] It is accepted that a potential spill in ice infested conditions is problematic.

6.2 Cairn’s comprehensive oil spill response plan has been in place throughout operations and was made available publically by the Greenland Government in August 2011. [24] The plan includes predictive modelling on a range of spill scenarios and describes a range of response strategies and techniques, none of which should be regarded in isolation but taken as part of a series of possible approaches depending upon the nature and location of any spill. Substantial levels of equipment to manage an oil spill were available onboard support and standby vessels and onshore Greenland. In addition, international response personnel and equipment was available via Oil Spill Response Ltd [25] and their extended agreements with partners worldwide; and if necessary under international governmental agreements. There are two principal agreements which the Greenland Government (Danish Government) can draw on for assistance from other states for oil spill. These are under the Copenhagen (or Nordic) Agreement (Nordic States) and the CANDEN Agreement for Canada.

6.3 The oil spill response equipment stored onboard the standby and support vessels (tier one) included: containment and protection booms, skimmers, vacuum recovery systems, boat spray systems and dispersant. A substantial stockpile of similar inshore and offshore (tier 2) equipment was placed at the Cairn logistics hub in Kangerlussuaq for dispatch quickly to point of need with additional dispersant and heli-buckets at advanced locations onshore to enable rapid mobilisation. OSRL provided international tier 3 response capabilities from their base in the UK. This included a wide range of inshore and offshore recovery and dispersant systems such as the Airborne Dispersant Delivery System (ADDs) using Hercules aircraft and in-situ burning booms among other systems.

Oil spill response training was carried out in conjunction with relevant vessel, helicopter and onshore teams for Cairn employees, contractors and representatives from the Greenlandic fire and police services.

6.4
Throughout its operating history, Cairn has demonstrated the ability to develop and manage complex exploration and drilling projects successfully, often in challenging environments. It is only by working in such a way that Cairn is granted a licence to operate.

5 March 2012


[1] http://www.cairnenergy.com

[2] http://www.cairnenergy.com/operations/india/

[2] http://www.cairnindia.com

[3] International Association of Oil & Gas Producers – ‘Natural resources management’ fact sheet; http://www.ogp.org.uk/fact-sheets/

[4] International Association of Oil & Gas Producers – ‘Natural resources management’ fact sheet; http://www.ogp.org.uk/fact-sheets/

[5] IHS – ‘Arctic Circle Exploration’

[6] http://www.bmp.gl/petroleum/health-a-safety

[7] http://uk.nanoq.gl/sitecore/content/Websites/uk,-d-,nanoq/Emner/News/News_from_Government/2011/08/hoeje_sikkerhedskrav.aspx

[8] http://www.bmp.gl/images/stories/petroleum/110502_Drilling_Guidelines.pdf (p.2)

[9] http://uk.nanoq.gl/sitecore/content/Websites/uk,-d-,nanoq/Emner/News/News_from_Government/2011/08/~/media/981EC2BD18474A028F11DEF6A20B0D31.ashx

[10] http://uk.nanoq.gl/emner/news/news_from_government/2011/09/joining_forces_ove_karl_b.aspx

[10] http://uk.nanoq.gl/~/media/29CF0C2543B344ED901646A228C5BEE8.ashx (p.25)

[11] http://www.usgs.gov/

[11] http://europe.aapg.org/wp-content/uploads/2010/12/AAPG_Newsletter-March_2011-Final.pdf (p.4)

[12] http://uk.nanoq.gl/~/media/29CF0C2543B344ED901646A228C5BEE8.ashx (p.26)

[13] http://www.bmp.gl/petroleum/environment/environmental-regulation

[14] http://uk.nanoq.gl/~/media/99724dc9401642058ac66178e7b731db.ashx (p.6)

[14] http://uk.nanoq.gl/~/media/29CF0C2543B344ED901646A228C5BEE8.ashx (p.26)

[15] http://www.goia.gl/

[16] http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11048121

[17] http://www.cairnenergy.com/crr2010/ (p.42)

[18] http://uk.nanoq.gl/sitecore/content/websites/uk,-d-,nanoq/emner/news/news_from_government/2011/08/hoeje_sikkerhedskrav.aspx

[19] http://www.cairnenergy.com/crr2010/ (p.43, 64, 117)

[19] http://dk.nanoq.gl/Emner/Landsstyre/Departementer/R%C3%A5stofdirektoratet/H%C3%B8ringer/Offentlig%20h%C3%B8ring%20af%20ans%C3%B8gning%20om%20efterforskningsboringer%20i%20havet%20vest%20for%20Gr%C3%B8nland%20(VVM%20og%20VSB)/~/media/74CC87D139CA4ECE88F02946AF7329C3.ashx

[20] http://www.cairnenergy.com/crr2010/ (p.55)

[21] http://www.cairnenergy.com/crr2010/ (p.46)

[22] http://www.cairnenergy.com/crr2010/ (p.58)

[23] http://www.sintef.no/home/Materials-and-Chemistry/Marine-Environmental-Technology/Oil-Spills/

[23] International Association of Oil & Gas Producers – ‘Arctic oil spill response’ fact sheet; http://www.ogp.org.uk/files/3713/2801/1612/OilSpill.pdf

[24] http://uk.nanoq.gl/sitecore/content/Websites/uk,-d ,nanoq/Emner/News/News_from_Government/2011/08/~/media/981EC2BD18474A028F11DEF6A20B0D31.ashx

[25] http://www.oilspillresponse.com/

[25]

Prepared 20th March 2012