The Accord Acts establish that operators undertaking work or activities in relation to the drilling for, or development or production of oil and gas resources in the Canada-Nova Scotia offshore area are liable for the loss or damage that they may cause as a result of an incident (i.e. spill or debris). If a spill or debris is the result of a contractor’s fault or negligence, the operator is jointly and severally liable with the contractor.
The basic objectives of the financial requirements are to:
- Confirm that an operator has the ability to pay for all actual losses or damages incurred by any person as a result of any spill or debris, which includes loss of income, future loss of income and with respect to any Aboriginal peoples of Canada, loss of hunting, fishing and gathering opportunities
- Require an operator to pay any costs and expenses reasonably incurred by any person respecting spills or debris
Financial requirements are based on a polluter pays principle and can be broken down into three categories:
- Absolute Liability - Operators are liable, regardless of negligence or fault, for damages up to $1 billion. If an operator is liable, liability is unlimited
- Financial Responsibility - Operators provide $100 million to us in a form of unfettered financial documents (i.e. a deposit allowing us direct access to funds). For example, we typically accept letters of credit from an operator that list us as a beneficiary. These letters of credit are issued by a Canadian chartered banks as set out in Schedule I of the Bank Act
- Financial Resources - Operators demonstrate they have assets or the capacity to obtain $1 billion through the submission of financial documents to us. For example, we require operators to submit a yearly statement of net assets and funding arrangements, and also request to see quarterly and annual financial statements and credit ratings. Some operators can also provide other forms of proof in the form of insurance, a letter of credit, guarantee agreement, etc.
Our Oversight Role
Application Review
As part of our application review, we determine if the submission for financial requirements is in compliance with the legislation and meets our expectations as laid out in the Guidelines Respecting Financial Requirements. We work collaboratively across our organization to determine if the financial requirements application is acceptable for the type of activity being applied for. In some cases, we may increase the amount that has to be submitted for financial requirements to greater than $1 billion if the activity is deemed to present higher risk. If the proposed activity poses significantly less risk, an operator may request financial requirements be lowered below the legislated amounts. If that is the case, we ask for a risk assessment to help guide our review. We, through our Board members, may recommend to the federal Minister of Natural Resources and the provincial Minister of Energy and Mines to decrease the amount based on things such as our knowledge of the area, the application and risk assessment submitted by an operator. It is the Ministers’ responsibility to make the ultimate decision to lower the amount of financial requirements.
Monitoring
It’s also our job to make sure the financial requirements are met for the lifecycle of the proposed activity and for a period of time after the activity is completed. We monitor an operator’s financials by reviewing their yearly statements of net assets and funding arrangements, annual and quarterly financials and credit ratings. This is completed to confirm that an operator continues to be able to meet the legislated requirements and our expectations once they have been authorized to work in the Canada-Nova Scotia offshore area.
We have developed guidance for operators to follow to meet our expectations. View our Guidelines Respecting Financial Requirements here.