Canada: Québec Government Introduces Framework For Oil And Gas Exploration

In the early morning of December 10, 2016, the Québec legislature adopted the contentious Bill 106: An Act to implement the 2030 Energy Policy and to amend various legislative provisions. The main purpose of Bill 106 was to enact the Act respecting Transition énergétique Québec and the Petroleum Resources Act, as well as to amend existing legislation affected by the new provisions.

Faced with considerable political resistance, this Bill was the subject of considerable debate and of several notable parliamentary manoeuvres, the purpose of which was to limit or delay the implementation of the measures contained in the Petroleum Resources Act. The opposition parties considered that the proposed acts were bundled into a single bill to increase the viability of passing the Petroleum Resources Act. Accordingly, the official opposition introduced a motion to divide the bill into four separate bills, which would allow each bill to progress independently and would sever the Petroleum Resources Act from the more politically palatable Act respecting Transition énergétique Québec. This motion ultimately failed.

Despite efforts to curtail the Petroleum Resources Act, the Bill passed, but not without the need for the Government to move for the introduction of exceptional procedures to force a vote before adjourning until February 2017.

The Petroleum Resources Act establishes the first legislative framework on petroleum resources in Québec. The stated purpose of the Act is to provide a governing framework for the development of petroleum resources.

As part of that framework, the Government has introduced specific licensing and authorisations for the exploration, production and storage of petroleum and brine. These licences and authorisations constitute an immovable real right for the holder, who has a right of access to the territory subject to the licence, and may seek to acquire said real rights or property of said territory. Holders of production and storage licences have the additional right to seek to acquire real rights or property by expropriation, failing an agreement.

An exploration licence gives its holder the right to explore for petroleum, defined in the Act as natural gas, crude oil and other hydrocarbons, except coal, whether produced at a well head, extracted from oil sands, and other types of subsoil deposits, or an underground reservoir. The exploration licence also provides the right to extract and dispose of petroleum for a trial period.

The exploration licence is awarded by auction for a period of five years, with the possibility of renewal, and confers an exclusive right on the applicable territory, defined by the Minister, but which right is subject to requests for consideration. It is possible for a single entity to hold more than one exploration licence.

The Act formalises the duty to consult and establishes a positive statutory obligation for the holder of an exploration licence to create a committee to engage the local community in the exploration project. The committee, formed 30 days after the award of the licence, must include a representative from a broad cross-section of the community, including a member of a Native community consulted by the Government with respect to the exploration project.

The holder of an exploration licence is subject to annual reporting requirements and the performance of minimum work, as determined by regulation, and from which there is the possibility of exemption, either by providing prior notice and reasons, or by paying a fee equal to double the value of the minimum work the holder was bound to perform or, if applicable, double the value of the difference of the work performed and the threshold value for minimum work.

Reporting requirements under an exploration licence extend to significant discoveries and commercial discoveries of petroleum. A significant discovery, within the meaning of the Act, refers to a discovery that by testing the first well on a geological feature demonstrates the existence of petroleum that would suggest a supply of petroleum with the potential for sustained production; by comparison, a commercial discovery is one that demonstrates sufficient petroleum reserves that would justify the capital investment and effort to bring it to production.

Upon a commercial discovery, the holder of an exploration licence must submit a production project to the Régie de l'énergie, or face partial or complete revocation of its exploration licence, which might lead to the award of the rights for production and storage to another entity.

This new framework for oil and gas exploration and production signals an endorsement of these projects by the Québec government, all the while creating measures to comply with more overarching environmental policy, including greenhouse gas emission reduction targets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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