Prescriptive regime lays out framework for oil and gas exploration

Several weeks after Quebec’s new Liberal government pledged a measured and responsible development of the hydrocarbon industry, the Minister of Energy and Natural Resources discreetly issued a Ministerial Order that establishes a prescriptive regime for oil and gas exploration on the province’s biggest island, sending a clear signal to the business world that the province is open for business in the energy sector.

Adopted in late June under the Quebec Mining Act, the prescriptive regime spells out the rules and conditions for oil and gas exploration work on the remote and sparsely populated Anticosti Island, which is owned almost entirely by the Quebec government except for a small village of 240 people. Core analysis taken from the Macasty shale formation on Anticosti Island revealed that it potentially holds between 30 billion and 50 billion barrels of oil, making it the largest oil resource in Quebec. The oil reserves, however, can be untapped only through hydraulic fracturing, which blasts chemically laced water to break rock containing oil or gas.

The prescriptive regime, which came as a surprise to industry legal experts, will likely prove to be the precursor of a wider framework that will apply to any oil and gas exploration activities that may be carried out in the future elsewhere in Quebec, according to Jean Piette, a senior partner and chair of the environmental law group at Norton Rose Fulbright Canada LLP.

“The prescriptive regime came out of nowhere,” noted Piette, widely described as the father of environmental law in Quebec. “The government clearly intends to enforce tight controls on these activities, and not the give the industry a free pass. The regime seeks to assure the public concerned about this new industrial activity, and ensure that its environment and its resources will be protected through the measures included in the regime.”

Quebec has been wary about exploiting its unproven oil and natural gas resources. Public fears about hydraulic fracturing led to a moratorium on shale gas drilling and fracturing in 2011 in the Lowlands of the St. Lawrence River. But when former Parti Quebecois Premier Pauline Marois announced this past February that the provincial government would move ahead with oil exploration on Anticosti island, with the province pledging $115 million to finance drilling for two separate joint ventures in exchange for rights to 50% of the licences and 60% of any commercial profit, it signalled a shift of the province’s energy strategy and highlighted its contradictory stance: fracking for oil on Anticosti is allowed even though it is banned for natural gas in the St. Lawrence lowlands.

While the new Liberal government recently announced that it would honour the separate exploration deals struck between the previous Parti Québécois government and oil juniors Pétrolia Inc., Junex Inc., and Corridor Resources, it is expected to wade through its incongruous energy position by adopting a cautious approach to oil and gas development that hinges on new studies and legislation before any production takes place. The provincial government said it will conduct a strategic environmental assessment on Anticosti and the rest of the province that will lay the groundwork for an industry-wide framework expected to be sanctioned by a new law specifically tailored to the hydrocarbon industry. The prescriptive regime is a positive first step, says Daniel Bénay, a partner in business law group with McCarthy Tétrault LLP in Montreal.

“When the Quebec government published the order in council, they wanted to say that this is a new game,” remarked Bénay. “The government is saying we have resources and are open for business but we have to do it in a respectful and thoughtful way, and that explains the prescriptive nature of the regime. That’s what this is all about.”

Under the prescriptive regime, ostensibly based on industry best practices, only stratigraphic surveys may be conducted on the Anticosti Island. A holder of an exploration license will be required to provide to the Ministry a detailed outline of the work planned, certified by an engineer, at least 15 days before beginning work. The program must include a cost estimate, a site rehabilitation and restoration plan as well as a mitigation plan, an emergency measures plan, and a plan to protect forests against fire. The licensee will also be required to prove that the work takes into account the region’s geology, and must provide a performance guarantee equal to 10 per cent of the estimated cost of the work.

“The conditions are not more onerous than other conditions regarding exploration work,” said Bénay. “Some of the players are not happy but most of them are. In all of the United States and the States where they have shale gas exploration, governments are setting up basic rules and minimal standards. The idea behind it is very simple: you can’t always let industry to determine its own rules and policing its own rules.” In short, Quebec is following in the footsteps of a broader North American trend, according to Bénay.

But not everyone is convinced that the prescriptive regime is a step in the right direction. The Ministerial Order was issued under the Mining Act, which was designed to provide the Minister of Energy and Natural Resources with administrative control over the extractive industry — and not to protect the environment which is governed by the Quebec Environmental Quality Act, pointed out Hugo Tremblay, a law professor at the Université de Montréal. Both laws have different aims and approach issues differently, added Tremblay. “I can’t say that the Ministerial Order responds to the environmental concerns that might be present,” said Tremblay, a legal environmental expert.

The Ministerial Order represents in some ways the ad hoc approach taken by jurisdictions across the country, added Tremblay. “Environmental law and natural resources law in general and at the moment, and in Quebec particularly, is a regulatory law that changes very quickly depending on the big projects that are at the table,” noted Tremblay. “ It’s law but when you think about it, if you change a rule to fit your purpose every time something new comes up, then does it really provide some rule of conduct that you have to abide by?”

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