Canada: Federal Regulatory Gaps Stall Project

On January 27, 2009 the federal-provincial Joint Review Panel for the EnCana Shallow Gas Infill Development Project issued its report outlining its conclusions and recommendations concerning the project. In its report, the panel concluded that development on the subject lands could only take place on the condition that Environment Canada fulfil its obligation under the federal Species At Risk Act by finalizing the identification of critical habitat for certain "at risk" species. Such a condition renders development of the project subject to federal regulators fulfilling their statutory obligations. Companies making investment decisions in Canada must now carefully consider the potential delay risk associated with unfulfilled obligations under federal legislation.

Background
EnCana proposed to drill up to 1275 new shallow gas infill wells in the Suffield National Wildlife Area (NWA) within the boundary of the Canadian Forces Base Suffield located in south-eastern Alberta. The EnCana Shallow Gas Infill Development Project (Project) would also include pipelines, access trails and other associated infrastructure. Since the 1970s, shallow gas production has occurred within the boundaries of the present-day NWA, with 1145 wells having been drilled prior to 2003 when the NWA was established. EnCana also applied to drill three specific additional wells.

The federal-provincial Joint Review Panel (Panel) is an independent body comprised of the former Alberta Energy and Utilities Board and the Canadian Environmental Assessment Agency. The Panel's mandate was to assess the environmental effects of the proposed Project. It held three weeks of public hearings for the application during the month of October 2008. In addition to participation of individuals and environmental groups, over 30 representatives from six federal departments of the Government of Canada attended the public hearings to oppose the Project. The Government of Canada's position was that there was insufficient information to determine whether the Project was likely to cause significant adverse environmental effects.

EnCana submitted that no major changes in land use in the NWA were anticipated as a result of the Project. EnCana also noted that the current high-quality state of the environment in the NWA was an indication of the care EnCana had taken to protect the environment over the course of 33 years of drilling and operating 1145 wells in the NWA. EnCana submitted that the Project was in the public interest and not likely to cause significant adverse environmental effects.

Panel's Findings
Although the Panel found that EnCana was proposing minimal disturbance techniques that are best industry practices for shallow gas drilling, the Panel concluded that the following requirements would need to be met before the proposed Project could proceed:

  • That Environment Canada fulfil its obligation under the federal Species At Risk Act (SARA) and finalize the identification of critical habitat for certain at risk species in the NWA. The Panel noted that an important component in finalizing the designation of critical habitat is consultation with parties directly affected by the recovery strategy, as well as notice and publication requirements to ensure the process is transparent. Once identification of this habitat is finalized by Environment Canada, the proposed Project can only be developed on those lands in accordance with SARA.
  • That an environmental advisory committee specific to the NWA be resourced adequately by the governments of Canada and Alberta to ensure proper regulatory oversight of the proposed Project. EnCana had proposed to the Panel that the federal and provincial governments fund this committee to fulfil its new duties should the Project proceed.

The Panel also found that it was not in the public interest to approve the three specific well applications since the pre-disturbance assessments (PDAs) were not complete or up-to-date for those locations. PDAs were conducted in 2008 for the proposed three wells and EnCana had committed to updating the PDAs before developing the three wells (if approved). However, since the Panel recommended that the Project not proceed until the two above-mentioned conditions were fulfilled by government, EnCana would be unable to fulfil this commitment and no permit could be issued for the three separate well applications.

Implications for Project Proponents
The Panel's recommended condition for finalizing the identification of critical habitat under SARA has important implications for proposed land use activities and any project in Canada where federal departments have unfulfilled obligations under SARA (and not just for projects in wildlife preservation areas or in respect of oil and gas activities). The Panel's recommended condition may also have implications for other pieces of federal legislation where federal departments have unfulfilled obligations that impact land use.

The identification of critical habitat for SARA species has been a mandate of Environment Canada since 2002 when SARA came into force. This issue was also highlighted in the March 2008 Status Report of the Commissioner of the Environment and Sustainable Development to the House of Commons. In that Report, the Commissioner stated that the federal Government had broken its own law under SARA by failing to finalize recovery strategies and identify critical habitat for SARA species. It is particularly noteworthy that Environment Canada has not completed its work under SARA for the Suffield NWA, a wildlife preservation area that has been in existence since 2003.

Effectively, the Project is now on hold until Environment Canada finalizes the identification of critical habitat for the NWA. Environment Canada has indicated that this could take up to two years to complete. As a result, companies making investment decisions in Canada now have to carefully consider the potential delay risk associated with unfulfilled obligations under federal legislation.

Ryan Rodier is an associate in the firm's Calgary office. His practice focuses on energy regulatory matters including the project approval and environmental assessment process, environmental law issues, and aboriginal law issues in the energy sector. JoAnn Jamieson is a senior associate in the firm's Calgary office. Her practice focuses on project-related issues in the energy sector with a specialization in regulatory, environmental and aboriginal law matters.

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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