The six conditions that must be satisfied for Quebec to become an oil and gas producer: an update

18 septembre 2015

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It is time to update an article I wrote in May 2013. In that article I listed the following six conditions for Quebec to become an oil producer. This update applies to oil as well as gas.

1. Oil and Gas. Two juniors, Junex Inc.and Petrolia Inc., continue to explore. Press releases recently issued by them regarding their activities in the Gaspé Peninsula are positive. The Gaspé oil and gas play has one great advantage: it involves naturally fractured rock and does not require fracking. Status: More work required but recent findings are encouraging and both Junex and Petrolia hope to commence some commercial production at the end of 2016.

2. Political Will. The Quebec government remains publicly in favour of oil and gas exploration and production within the province. Investissement Québec recently increased its investment in exploration carried out by Junex and Petrolia. Pierre Arcand, Quebec’s Minister of Natural Resources, will be the keynote speaker on November 9, 2015 at the annual conference of the Quebec Oil and Gas Association in Montreal. Moreover, gas production in the Gaspé Peninsula dovetails nicely with Quebec’s “Plan Nord” strategy, inasmuch as Quebec wants LNG to replace diesel in mining and aluminum smelting within the Plan Nord territory as well as in electricity production in remote and isolated northern communities. Status: Ready.

3. Adequate Laws. Quebec’s Ministry of Natural Resources has commissioned an inter-ministerial strategic environmental study of hydrocarbons. The study is expected to be completed shortly and its findings will be referred to in the drafting of Quebec’s hydrocarbon law, which is expected to come into force early 2016. Status: In progress.

4. Environmental Approvals. In the last two years,Quebec has adopted a number of technical regulations and directives aimed at oil and gas exploration and production. The purpose of the regulations and directives is, among other things, generally to remind industry of its environmental obligations, protect water sources, and identify hazardous drilling residues. Status: The current interim regime is able to authorize exploration activities, but will be finalized when the Hydrocarbon Law comes into force.

5. Oil and Gas Prices. Oil and gas prices are relatively low. But Junex and Petrolia are confident that production costs in the Gaspé Peninsula are well below current prices. Both juniors estimate their per barrel oil production costs to be $25 or less. Status: Ready but to be confirmed once production begins.

6. Third Party Agreements. Quebec’s Ministry of Natural Resources should be putting the final touches to its guidelines regarding social acceptability. It is widely anticipated that one of the cornerstones of such guidelines will be to ensure that local communities and First Nations directly benefit from projects. To date, this has been achieved contractually, a practice that is expected to continue. Most of these agreements are likely to be made public and are subject to certain minimum requirements imposed by Quebec. Status: Ready but subject to “improvements.”

Careful not to repeat past mistakes, Quebec wants to proceed step by step and in a focused fashion. Current projects being favoured by Quebec and its investee companies (i) do not involve fracking, (ii) are located away from population centres, and (iii) provide demonstrable benefits for local communities. The purpose here is to demonstrate that oil and gas can be developed responsibly. Quebec hopes that, over time, industry will be able to create a constituency for further and more diverse oil and gas development.

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