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By Mike De Souza
CALGARY, Alberta, July 29 (Reuters) - Canada's Conservativegovernment is studying whether to extend Arctic drillinglicenses, a move that could open the door to relinquishingmillions of dollars in deposits paid by major energy companies.
The right-leaning government is considering the change inlaw in response to oil industry lobbying to extend licenses thatexpire in 2020 for seven years due to the challenges of drillingin harsh conditions while meeting safety requirements.
Environmentalists oppose the extension, saying it would costpublic coffers hundreds of millions of dollars in lost depositsand prolong risky drilling projects. The government, facing atight election in October, said it wants to protect and promotedevelopment of offshore resources with safe and effectiveregulations.
The government review began after Imperial Oil Ltd said last month it and partners Exxon Mobil Corp and BPPlc needed more time before they can drill an exploratorywell in the Beaufort Sea, a section of the Arctic Ocean thatcould hold more than 1.36 billion barrels of oil.
Under the existing law, the companies stand to lose aportion of a C$441 million($341.23 million) deposit if they failto proceed with an estimated C$1.77 billion drilling proposal.Imperial Oil declined to say how much the group could lose intotal.
"We are focused on securing a lease extension, notcontemplating a potential penalty," said Imperial Oilspokeswoman Belinda De Wolde.
Canada's aboriginal affairs and northern development agencysaid its minister, Bernard Valcourt, appointed a special adviserto consult with industry and local communities on "acomprehensive review" of options, including changing the law,known as the Canada Petroleum Resources Act.
Valcourt's office confirmed the minister was lobbied on theissue by Imperial in June. It declined to speculate on theoutcome of the review, but said the corporation that managesbusiness interests of the Inuit in the western Canadian Arcticalso 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 thedeposit, which he estimates could add up to C$400 million.
Changes to the law would not likely be possible untilCanada's Parliament resumes sitting after an October election.The latest polls show the Conservatives running neck-and-neckwith the left-leaning New Democrats, with the Liberals in thirdplace.
($1 = 1.2924 Canadian dollars) (Editing by Jeffrey Hodgson and Andrew Hay)
