Petronas’ Canadian unit hits snag
F Saad 
A dam being drained. Progress Energy has been ordered by Canadian regulators to drain water from two of its dams which were built without approval

PETROLIAM Nasional Bhd’s (Petronas) Canadian business operations have hit another snag with its wholly-owned subsidiary Progress Energy being slapped with an order from the Canadian British Columbia’s Environmental Assessment Office (EAO) to drain water from its two dams.

On Nov 16, news broke in Canada that the dams were built without obtaining approval from the EAO due to a regulatory oversight.

Upon the discovery, Progress Energy applied to retroactively exempt the two dams from environmental assessment.

Although the application is still being considered, the company has been instructed by the EAO to drain 90% of the water in two of its largest dams, Town and Lily.

It is learnt that the instruction to drain water from the two dams would have a financial impact on Progress Energy, although the total cost is yet to be ascertained.

The company has 60 freshwater earthen structures of varying sizes in North Montney, where the two dams are located.

“The [application for] exemptions should have been filed before the dams were built. It will be costly now but this is necessary for the longer term,” says an oil and gas (O&G) observer.

In its defence, Progress Energy says it had duly informed the authorities about the oversight.

“Upon discovery, the company disclosed the oversight to the regulator,” says the company to email queries from FocusM. It says it had earlier obtained approvals for short-term water use.

“All the dams received short-term water use authorisations from the British Columbia Oil & Gas Commission – the regulator in the British Columbian province.

“The authorisations were in place before any water was drawn from the dams for use in our operations,” says the company.

In 2015, Progress Energy partnered with an independent engineering firm and regulators to carry out a review of its water structures.

The review revealed that a number of water structures should have had long-term licences rather than short-term water use authorisations.

The study also revealed that the Town and Lily dams should have had an EAO review.

The two dams are both taller qualify as reviewable projects by the provincial EAO and should have been assessed by that office prior to any construction taking place.

Town was built in 2012, and Lily in 2014. Progress Energy has since submitted all applications for long-term water licences.

One dam in the area is being decommissioned as it is no longer required, although sources say its water was emptied last year after the Commission concluded the structure, located upstream from a gas processing facility, could fail.

The O&G industry observer says Progress Energy should follow the EAO’s recommendation to drain the dams and wait for official approval.

“I don’t see any reason why it should get an exemption for the two dams as they [the dams] have been operational for years. Money was also made from the activities.

“If there are no [environmental] issues, obtaining approval should not be a problem. Progress Energy should drain the dams as instructed, get the environmental assessment done and the licences in place, and then resume business as usual,” says an observer.


Focus of investments

The dams are used in fracking or hydraulic fracturing. This is a method used to extract natural gas from rock formations.

In fracking, well completion fluids (gel, foam, water, or other proppants) are pumped into the ground to fracture rock formations containing natural gas.

Sand is then added to the fluids to fill in the gaps in the fractured rocks, which allows the gas to flow up the wellbore for processing.

The North Montney area, where the dams are located, is where Progress Energy plans to focus its future investments, after Petronas’ US$29 bil proposed Pacific Northwest LNG (liquefied natural gas) terminal near Port Edward, British Columbia, was scrapped in July.

Petronas cited weak global oil prices as the main reason to scrap its Canadian LNG ambitions.

Since then, Progress Energy put up its Deep Basin assets in the province of Alberta for sale to allow it to focus on the North Montney area instead.

Progress Energy has the largest natural gas reserve in Canada. The company was acquired by Petronas in 2012 for C$6 bil (RM19.4 bil), becoming a wholly-owned subsidiary.

The supply of natural gas from Progress Energy’s assets was supposed to be fed to Petronas’ proposed Pacific Northwest LNG terminal near Port Edward, British Columbia.

This article first appeared in Focus Malaysia Issue 260.