Background

The exploitation of offshore oil and gas fields in Canada combines activities that fall within the respective exclusive powers of the federal and provincial governments, and therefore requires a common federal-provincial legal framework. Accordingly, on March 24, 2011, the Federal and Québec governments reached an Accord in connection with the exploitation of the offshore resources of the portion located in Québec of oil and gas fields known as "Old Harry," lying on the maritime border of Québec and Newfoundland and Labrador (Accord Area).

Contents of the Accord

Exploitation of petroleum resources subject to the protection of fisheries and the environment

The primary objective of the Accord is to allow the development of oil and gas resources in the Accord Area. Both governments will work together to ensure the responsible and sustainable development of these resources for the "benefit of Canada as a whole and Québec in particular". The development is, however, subject to the protection of fisheries and of the environment.

The Accord provides that before the issuance of an exploration permit, strategic environment assessments (SEA) must be completed for both governments. This echoes a similar decision by the Québec government in connection with shale gas and shale oil, and means that all of Québec’s oil and gas operations, whether off-shore or on land, have now been made subject to the prior completion of SEAs.

Individual environment assessments will also have to be completed in connection with exploration or production projects, in compliance with both federal and provincial environmental protection legislations. Both governments have also agreed to coordinate their environmental protection activities in order to avoid overlaps. The Accord does not provide for any specific measure relating to the protection of fisheries.

Mirror legislation

The Accord provides for the adoption of federal and provincial legislation required for its implementation. Accordingly, each government will prepare mirror legislation, i.e., legislation containing similar provisions, in two stages. The governments will first table, as soon as possible, initial legislation dealing with the establishing of a transitional and joint management structure to allow the development activities in the Accord Area at the earliest opportunity. The governments will subsequently adopt a definitive legal framework within a two-year period after the declaration of any commercial discovery of petroleum in the Accord Area. Once that common framework is adopted, it may not be modified except by mutual consent of both governments.

Joint ministerial responsibilities

As part of this common framework, decisions relating to several key matters will require joint decisions from each of the federal and Québec ministers of natural resources. The matters subject to joint decisions include the launching of calls for bids and the issuance of, and amendment to, both exploration and production licences. A Joint Canada-Québec Secretariat will be created to advise the ministers on such matters.

Joint regulatory office

A Joint Canada-Québec Regulatory Office will also be created. This joint office will be governed jointly by the National Energy Board, and its Québec counterpart, the Régie de l’énergie. These two regulatory agencies will coordinate their respective regulatory functions through the joint office.

Changes in the issuance of permits

Québec exploration permits currently in effect will remain valid at least until one year after the implementing of the transitional and joint management structure described above. After this initial period, exploration permits will be issued in accordance with the Accord. New exploration permits are likely to contain additional conditions resulting from the Accord’s priority of protecting fisheries and the environment.

Recognition of Québec’s economic interests

The Accord states that Québec will benefit from all revenues derived from the development of oil and gas resources in the Accord Area, whether through royalties, licence fees or otherwise, as if these resources were located on land. Québec will be free to establish its royalty regime applicable for the Accord Area, and will be responsible for enforcing it. The Accord in effect confirms the exclusive legislative powers of Québec in that respect.

Additional agreements will be entered into by the governments regarding the following matters, which are formally excluded from the Accord: corporate income tax, sales tax and tax revenue sharing in connection with activities in the Accord Area.

Next Steps

The election of a new federal parliament on May 2nd will most likely postpone the beginning of any work on the mirror legislation required to implement the Accord. In the meantime, Québec’s own SEA on the Magdalen Basin (which includes the Accord Area), undertaken in March 2010, will continue. The final report should be ready in fall 2012.