Canada reviews Arctic drilling plan as industry seeks concessions

By Mike De Souza

CALGARY, Alberta, July 29 (Reuters) - Canada's Conservative government is studying whether to extend Arctic drilling licenses, a move that could open the door to relinquishing millions of dollars in deposits paid by major energy companies.

The right-leaning government is considering the change in law in response to oil industry lobbying to extend licenses that expire in 2020 for seven years due to the challenges of drilling in harsh conditions while meeting safety requirements.

Environmentalists oppose the extension, saying it would cost public coffers hundreds of millions of dollars in lost deposits and prolong risky drilling projects. The government, facing a tight election in October, said it wants to protect and promote development of offshore resources with safe and effective regulations.

The government review began after Imperial Oil Ltd said last month it and partners Exxon Mobil Corp and BP Plc needed more time before they can drill an exploratory well in the Beaufort Sea, a section of the Arctic Ocean that could hold more than 1.36 billion barrels of oil.

Under the existing law, the companies stand to lose a portion of a C$441 million($341.23 million) deposit if they fail to proceed with an estimated C$1.77 billion drilling proposal. Imperial Oil declined to say how much the group could lose in total.

"We are focused on securing a lease extension, not contemplating a potential penalty," said Imperial Oil spokeswoman Belinda De Wolde.

Canada's aboriginal affairs and northern development agency said its minister, Bernard Valcourt, appointed a special adviser to consult with industry and local communities on "a comprehensive review" of options, including changing the law, known as the Canada Petroleum Resources Act.

Valcourt's office confirmed the minister was lobbied on the issue by Imperial in June. It declined to speculate on the outcome of the review, but said the corporation that manages business interests of the Inuit in the western Canadian Arctic also asked for a review of exploratory licenses.

Rob Powell, a spokesman at environmental group WWF-Canada, said the Canadian government should keep what is left of the deposit, which he estimates could add up to C$400 million.

Changes to the law would not likely be possible until Canada's Parliament resumes sitting after an October election. The latest polls show the Conservatives running neck-and-neck with the left-leaning New Democrats, with the Liberals in third place.

($1 = 1.2924 Canadian dollars)