We verify that operators have, or have access up to, $1 billion. This is a requirement to be able to work in the Canada-Nova Scotia offshore area.
Petroleum-Related Activity Financial Requirements
We verify that operators have, or have access up to, $1 billion. This is a requirement to be able to work in the Canada-Nova Scotia offshore area.
The Accord Acts establish that operators undertaking work or activities 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 for petroleum-related activities 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 unfettered financial documents, in the amount required depending on he applied work or activity (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 pay the absolute liability limit applicable to the work or activity 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.
Monitoring
It’s also our job to make sure the financial requirements are met for the lifecycle of the proposed petroleum-related 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.
