Energy Bulletin

Bill 49 An Act to implement the Accord Between the Government of Canada and the Government of Quebec for the Joint Management of Petroleum Resources in the Gulf of St. Lawrence (“Bill 49) was tabled in the National Assembly on June 11, 2015 following the signing on March 24, 2011 of the Canada-Quebec Gulf of St. Lawrence Petroleum Resources Accord Implementation Act (the “Accord”). The federal government tabled Bill C-74  An Act to implement the accord between the Government of Canada and the Government of Quebec for the joint management of petroleum resources in the Gulf of St. Lawrence and to make consequential amendments to other Acts (“Bill C-74”) in the House of Commons for first reading on June 18, 2015 for the purpose of having the federal government implement the Accord. The governance regime proposed by the Accord is consistent with that set up by the Province of Newfoundland and Labrador and the federal government concerning the offshore management of petroleum resources over the past several years.

The Accord states that the Quebec government is the principal beneficiary of activities related to the development of petroleum resources included in the Joint Management Area and that it will benefit from all revenues derived from those resources, reiterating Quebec’s position on the constitutional status of the Gulf of St. Lawrence, which is incorporated into Bill 49.

Bill 49 and Bill C-74 provide for the setting up of a transitional regime for the joint management of petroleum resources located in the defined submarine area (the “Joint Management Area”) and the establishment of a joint (federal-provincial) independent board. Through Bill 49 and Bill C-74, the governments aim to provide a framework for all aspects of managing the chain of petroleum resources in the Joint Management Area, including the issuance of petroleum exploration and production licences in the Joint Management Area, the safety of exploration and production activities, production royalties, environmental protection and the transmission of petroleum resources.

This bulletin will discuss some of the highlights of Bill 49 and Bill C-74 (together the “Bill”).  

The joint management of petroleum resources

a) Joint management by the Ministers

The Bill provides that the minister responsible for the management of natural resources, who is currently the Quebec Minister of Energy and Natural Resources (the “Minister”) and the federal minister in charge of natural resources (the “Federal Minister”) (together the “Ministers”), jointly manage the petroleum resources in the Gulf of St. Lawrence.

b) Joint management by specialized organizations

The Régie de l’énergie (Quebec) (the “Régie”) and the National Energy Board (federal) (the “Board”) jointly exercise the powers and perform the duties that are attributed to them under the Bill. The Bill also provides that the Régie and the Board have the power to conduct public hearings in relation to the exercise of any of their powers or the performance of any of their duties and functions under the Bill.

c) The Oil and Gas Committee

Bill provides that the Ministers may establish an Oil and Gas Committee consisting of not more than five members, at least two of whom must have specialized or expert knowledge of petroleum. Among other things, the Committee must hold hearings when a person directly affected by an action by the Ministers so requires (ex. a drilling order or development order) and advise the Ministers on issues relating to petroleum exploration and production.

Interests

The Bill provides that the Ministers issue interests in petroleum properties. A bid procedure is established for the issuance of interests regarding Crown reserve areas, i.e. the portions of the Joint Management Area in respect of which no interest is in force.

The Bill provides for three interests relating to petroleum resources: a) exploration licences; b) significant discovery licences; and c) production licences. The main criteria for obtaining and the attributes of such interests are summarized below.

a) Exploration licence

An exploration licence is obtained following the bid procedure and gives its holder, with respect to the portions of the Joint Management Area to which the licence applies, the right to explore, and the exclusive right to drill and test, for petroleum, the exclusive right to develop them in order to produce petroleum, and the exclusive right to obtain a production licence, subject to certain conditions. The term of an exploration licence is limited to 9 years and may not be renewed.

We note that the Bill contains transitional provisions pursuant to which licences to explore for petroleum, natural gas and underground reservoirs issued under the Mining Act will be replaced, one year after the coming into force of the new regime, by exploration licences issued by the Ministers under Bill 55 for the corresponding portion of the petroleum resources located in the Joint Management Area.

b) Significant discovery licence

On application by the holder of an exploration licence or on their own initiative, the Régie and the Board make a written declaration of significant discovery if there are reasonable grounds to believe that the significant discovery may extend over any portion of the Joint Management Area[1].

Once the declaration of significant discovery is made, the holder of the exploration licence may apply for and obtain a significant discovery licence. This type of licence confers, with respect to the portions of the Joint Management Area to which the licence applies, the exclusive right to explore, and the exclusive right to drill and test, for petroleum, the exclusive right to develop those portions in order to produce petroleum, and the exclusive right to obtain a production licence, subject to certain conditions.

c) Production licence

The Bill provides for two procedures for granting a production licence:

  1. On the application of a holder of an exploration licence or on their own initiative, the Régie and the Board make a written declaration of commercial discovery if there are reasonable grounds to believe that the commercial discovery may extend to a portion of the Joint Management Area covered by an exploration licence[2]. The Ministers must issue a production licence to the holder of a declaration of commercial discovery for all or part of the commercial discovery area.
  2. In the absence of a declaration of commercial discovery, the Ministers may, upon the application of the holder of an exploration licence or the holder of a significant discovery licence, issue a production licence with respect to all or part of the area covered by the licence.

A production licence so granted confers, with respect to the portions of the Joint Management Area to which the licence applies, the right to explore and the exclusive right to drill and test for petroleum, the exclusive right to develop those portions of the Joint Management Area in order to produce petroleum and the exclusive right to produce petroleum from them, and the title to petroleum so produced.

The term of a production licence is 25 years and it may be extended on certain conditions.

Registration of interests in new register

The Bill provides for the keeping of a new public register in which only interests and instruments accepted for registration may be registered (the “Register”). The Bill expressly provides that the registration of an instrument constitutes actual notice of the instrument to all persons as of the time the instrument is registered.

Production royalties

The Bill provides for the payment of royalties on the production of petroleum from the Joint Management Area, pursuant to the Mining Act (CQLR c. M-13.1) or any replacement Act for the purpose of the management of petroleum resources.

Safety, environmental protection and financial liability

In general, the work and activities carried out by holders of interests are subject to a regime of licences and authorizations which are issued by the Régie and the Board.

a) Operational safety

To oversee oil and gas operations, the Bill provides that the Ministers jointly designate a safety and conservation officer in charge of ensuring compliance with safety standards at the location where the activities in question are being carried out.

b) Environmental assessment

The Régie and the Board may only issue the authorizations required for the exploration and production of petroleum once the project has been the subject of an environmental assessment pursuant to the Canadian Environmental Assessment Act, 2012 (SC, 2012, c. 19, s. 52) or the environmental assessment and review procedure pursuant to the Environment Quality Act (CQLR c. Q-2), as the case may be, when the project is subject to such an environmental assessment.

c) No-fault financial liability - $1 billion

The Bill sets up a no-fault liability scheme for authorization holders regarding spills, discharges, emissions or escapes in the environment.

As a condition for being granted an authorization for the drilling for, or the development or production of petroleum (or any higher amount prescribed by regulation), a person must submit proof that he has the necessary financial resources to pay the $1 billion limit of liability as well as a letter of credit, guarantee or indemnity bond in an amount of at least $100 million.

d) Development plan

As a condition for being granted approval for the authorization in relation to the development of a pool, the legislation provides that a person must also submit a plan for developing the pool or field in question for approval by the Régie and the Board.

Amending provisions

Among the legislation that would be amended by the Bill, a new section 31.8.2 would be added to the Environment Quality Act (CQLR c. Q-2) (the “EQA”) to subject any activity prescribed by regulation and governed by the Act to the environmental impact assessment and review procedure, subject to certain specific rules. Among other things, if an impact study is considered satisfactory, the MDDELCC would submit it to the Régie and recommend that the Régie authorize the activity in question. However, if the MDDELCC believes that carrying on the activity involves unacceptable risks or impacts for the environment or the social milieu, it would submit to the Government a question as to whether those risks or impacts are justifiable in the circumstances. If the Government deems them not justifiable, it could decide that the activity will not be authorized.

Similarities with Newfoundland/federal government regime

The Bill contains several similarities with the regime in place between the federal government and the Province of Newfoundland and Labrador, which also involves the implementation of an agreement between the federal and provincial governments called the Canada-Newfoundland Atlantic Accord, which was entered intobetween the two governments in 1985[3]. This joint offshore management regime set up by the federal government and Newfoundland and Labrador sets out an exhaustive legal framework relating to the management of petroleum resources, from the management of petroleum exploration and production interests to the safety of facilities, environmental protection and production royalties.

Other aspects covered by Bill 49 and Bill C-74

Some of the other aspects of the exploration and production of petroleum resources covered by Bill 49 and Bill C-74 include provisions involving the regulation by the Régie and the Board of the transmission of oil by pipeline, and in particular with respect to the establishment of transmission tariffs and obligations of the carrier; the pooling of interests and the rights of various interest holders, by order of the Ministers or voluntarily by interest holders, with a view to the conservation of petroleum resources; the administrative monetary penalties (“AMP”) which are added to the penal proceedings and other prescribed administrative measures (maximum AMP of $25,000 in the case of individuals and $100,000 in other cases); and the provisions concerning the implementation of a mechanism for settling disputes which occur on the limits of the Joint Management Area between Quebec and any other province which has entered into an accord with the government of Canada respecting the management of petroleum resources, including mediation and arbitration.

Next steps

When Bill 49 was tabled in the National Assembly, the discussions among MNAs indicated an intention to hold very broad consultations on Bill 49 due to the issues raised which are of interest to the various stakeholders, including industry players and environmental groups.