Bill 106, An Act to implement the 2030 Energy Policy and to amend various legislative provisions, tabled on June 7, 2016 by the Minister of Energy and Natural Resources, Mr. Pierre Arcand ("MENR"), provides for the introduction in the body of Québec laws of the Petroleum Resources Act (these provisions of Bill 106 referred to below as the "Petroleum Resources Act"), the first such law wholly devoted to exploration and production of petroleum resources, as well as to the storage of such products and the junction, by means of a pipeline, of petroleum production sites to a distribution or transmission network.[1] Thus, the provisions of Quebec's Mining Act concerning exploration and production of petroleum, natural gas and underground reservoirs rights shall cease to apply to such activities. This paradigm shift will have a significant impact on the realization of petroleum resources exploration and production projects due to the even greater importance given to involvement of the public in the process for the awarding of required licences and authorizations by the Petroleum Resources Act and the submission of petroleum resources exploration and production projects to an examination by Quebec's Régie de l'énergie and to the scrutiny of the environmental impact assessment and review procedure.

At this juncture, whereas the Petroleum Resources Act lays down the general principles that will apply to petroleum resources exploration and production activities, this legislative framework provides that it will also be completed by a series of regulations of the Government of Quebec, such that measuring the full extent of the obligations and conditions which developers will be facing in exploration and production projects will have to wait until such regulations can be reviewed.

The Protection of the Environment and the Fight Against Climate Change Take Precedence over the Development of Petroleum Resources

From the outset, Bill 106 provides in section 1 of the Petroleum Resources Act that its purpose "is to govern the development of petroleum resources while ensuring the safety of persons and property, environmental protection and optimal recovery of the resource, in compliance with the greenhouse gas emission reduction targets set by the Government". Hence, along with Bill 102 (An Act to amend the Environment Quality Act to modernize the environmental authorization scheme and to amend other legislative provisions, in particular to reform the governance of the Green Fund), Québec reiterates its intention to prioritize the achievement of its greenhouse gas emissions reduction targets by integrating "climate change" in the project analysis grid.

Indeed, Bill 106 makes the award of certain licences and authorizations required pursuant to the Petroleum Resources Act, specifically production licences, drilling authorizations and junction pipeline authorizations, subordinate to obtaining required authorizations pursuant to the Environment Quality Act. Hence, the MENR will not issue these licences and authorizations unless the applicant has secured the required authorizations pursuant to the Environment Quality Act beforehand. The same goes for a permanent well closure and site restoration plan, which must be submitted along with the application for drilling authorization and which can only be approved by the MENR after having obtained a favourable decision from the Minister of Sustainable Development, the Environment and the Fight against Climate Change ("MSDEFCC").

Furthermore, at the very end of a project, after the performance of the work set out in the permanent well closure and site restoration plan, the MENR will not return the financial guarantee filed along with the application for the drilling authorization and the permanent well closure and site restoration plan without having obtained a favourable decision from the MSDEFCC.

Awarding of Exploration, Production and Underground Reservoir Licences Process

We note that several of the provisions of the new legislative framework repeat certain of the existing equivalent provisions of the Mining Act as they apply to exploration and production of petroleum, natural gas and underground reservoirs. Thus, several of the principles already found in the Mining Act, for example, the legal qualification of certain rights as real and immovable mining rights are repeated, but often with modifications. The following therefore highlights some of the applicable provisions of the Petroleum Resources Act without always expressing whether they are entirely new in reference to those of the Mining Act.

Exploration Licence

As is the case in other jurisdictions, for example in the Province of Newfoundland and Labrador, exploration licences are awarded by auction following a regulated auction process. An exploration licence, which is valid for an initial term of 5 years and renewable for the terms and subject to the conditions prescribed by government regulations, entitles the holder thereof (i) to explore for petroleum resources or an underground reservoir in the territory covered by the licence; and (ii) to extract petroleum resources and to dispose of it (extraction tests) or to use and underground reservoir for a trial period.

The holder of an exploration licence who makes a significant discovery or a commercial discovery, as these expressions are defined in the Petroleum Resources Act, must notify the MENR of such a discovery.[2]

Production or Storage Licence

The holder of an exploration licence who makes a commercial discovery must, within 4 years following the discovery, submit a petroleum production or storage project to the Régie de l'énergie and apply to the MENR for a production or storage licence.

Before being authorized to proceed with the project, the developer will be required:

  • to obtain a favourable decision from the Régie de l'énergie;
  • to obtain an authorization from the Government of Québec pursuant to the Environment Quality Act following the environmental impact assessment and review procedure;
  • to obtain a production or storage licence.

The MENR reserves the right to award by way of auction a production or storage licence in a territory that is no longer subject to an exploration, production or storage licence if the MENR considers that such territory presents, as the case may be, an economically workable deposit or an economically usable underground reservoir. Bill 106 does not, however, provide a definition of what is considered an "economically workable deposit" and an "economically usable underground reservoir", possibly meaning the decision to auction off such a licence may be at the entire discretion of the MENR.

A production licence, which is valid for an initial term of 20 years and renewable for the terms and subject to the conditions prescribed by government regulations, gives the holder thereof the right to produce petroleum. A storage licence, which is valid for an initial term of 20 years and renewable for the terms and subject to the conditions prescribed by government regulations, entitles the holder thereof to use an underground reservoir to store materials the Government determines by regulation.

Other Required Authorizations

In addition, activities related to petroleum resources exploration and production activities are subject to authorizations or licences, for instance geophysical or geochemical surveying, stratigraphic surveying, drilling, or completion activities, as well as major maintenance work on a well (workover and reconditioning).

Temporary or Permanent Closure

The cessation of activities at a well triggers a duty on the part of the holder of a licence to obtain an authorization for temporary or permanent closure. A government regulation will determine under what circumstances a temporary discontinuation will be deemed to be permanent, which will contribute to the predictability of projects. Please note however that a temporary closure cannot exceed a period of 4 years.

A permanent closure authorization triggers a duty to perform the work set out in the permanent well closure and site restoration plan, which must be submitted along with the application for the drilling authorization, as well as any other work that may be prescribed by regulation.

Greater Participation by the Public and More Transparency Required of the Industry

Monitoring Committee to Foster the Involvement of the Local Community

As of the exploration phase, the Petroleum Resources Act requires that an exploration licence holder establish a monitoring committee, to foster the local community's involvement in the exploration project as a whole.

Committee members are selected in accordance with the process determined by the licence holder. A majority of the committee members must be independent from the licence holder and the committee must include at least one member representing the municipal sector, one member representing the economic sector, one member of the public and, if applicable, one member representing a Native community consulted by the Government with respect to the project. All members of the committee must be from the region in which the territory subject to the licence is located. Should the project move to the production phase, this same monitoring committee will remain in place.

It is to be noted that such a committee is already a requirement of the Mining Act, but for projects that have reached the production phase.

Bill 106 provides for other measures seeking to enhance transparency and foster participation by the public. For example, when an exploration licence is awarded on private land or land leased by the State, the exploration licence holder will have to notify the owner or lessee and the local municipality of the licence obtained within 30 days after the licence is registered in the public register of real and immovable rights concerning petroleum resources rights.

Information Provided to the MENR

Among the information that the holder of an exploration or production licence is required to provide to the MENR, we would mention the following:

  • the annual report of the Monitoring Committee;
  • the annual activities report, that can also be sent to the Autorité des marchés financiers at the same time as the statement required under section 6 of the Act respecting transparency measures in the mining, oil and gas industries, in this latter case, the Autorité des marchés financiers having the obligation to forward the report to the MENR (exploration and production phases);
  • the monthly report detailing the amount of petroleum extracted during the previous month (production phase).

Public Register of Real and Immovable Petroleum Rights and Land Register

The Petroleum Resources Act provides for the creation at the MENR of a public register of real and immovable rights concerning petroleum resources, whose purpose and use will be substantially equivalent to those applicable to the register presently existing pursuant to the Mining Act. Thus, this latter register will cease to apply to petroleum resources rights. In addition to equivalent recordings to those presently made at the present register, additional recordings are provided for in the case of the new register concerning petroleum resources rights, for example:

  • certain authorizations granted (geophysical or geochemical surveying authorization, stratigraphic surveying authorization, drilling authorization);
  • certain notices given (notice of a significant discovery, notice of a commercial discovery, notice of the commencement of drilling work, well completion authorization, workover and reconditioning authorization, temporary or permanent closure authorization);
  • permanent well closure and site restoration plan;
  • the MENR's declaration of satisfaction confirming that the permanent well closure and site restoration work was completed to its satisfaction.

The Petroleum Resources Act therefore broadens the ambit of the register, thus adding to the quantity of information available to the public.

It is also worth mentioning that the Petroleum Resources Act provides for the entry of certain declarations in the land register, for example, in the case of a drilling authorization, a declaration of the well's location, within 30 days after the work begins.

Public Nature of the Information

Bill 106 also provides that some information transmitted to the MENR in the context of exploration and production activities will be made public. Taking into account the nature of some of the information and the commercial interests involved, such information will, however, remain confidential for a period of time; for instance, two years after the permanent closure of a well in the event of documents or information provided following the drilling of a well and five years after the completion of the work in the case of geophysical or geochemical or stratigraphic surveys.

Increased Liability for Petroleum Exploration and Production Project Developers and Enhanced Protective Measures

Special Liability Scheme

A special liability scheme is set for a holder of an exploration, production or storage licence, as well as in the case of the holder of a junction pipeline authorization. Thus, The developer's liability will be considered engaged without regard to actual fault for an amount per event up to an amount prescribed by government regulations. The holder will be required to provide the government with evidence of their solvency in respect of such amount. Beyond such amount, the Petroleum Resources Act provides that a holder may be required to make reparation for the injury caused by its fault or that of its subcontractors or of its employees in the performance of their duties. The holder also retains its right to remedy, for the entire injury, against the person who committed the fault.

The type of injury to which this liability scheme applies includes injury caused by or in the course of the activities carried on by the developer, including the loss of non-use value relating to public resources, in particular due to emanations or migrations of gas or spills of petroleum or other liquids.

Please note that the developer cannot escape liability by proving that the injury was caused by an event of force majeure.

Remediation Order

The MENR may require the developer to remedy the situation in the event of a spill of a liquid, or an emanation or migration of gas from a well or junction pipeline if it poses a risk for human health or safety or the safety of property. If there is no other solution, the MENR may also order the developer to seal off the source of the spill, emanation or migration. Should the developer fail to comply with such an order from the MENR, the MENR may cause the remedial or sealing work to be performed at the developer's expense.

Protective Measures to be Defined

The Petroleum Resources Act provides that specific protective and safety measures must be implemented by licence holders, junction pipeline authorization holders or any other person in charge of a well or pipeline. Failing compliance by such holder or person to such a protective or safety measure, the MENR may cause the required work to be performed at the holder's or person's expense.

Transitional Measures

Finally, the Petroleum Resources Act sets out transitional provisions that will ensure the continued application of the rights granted under the Mining Act, in particular with respect to exploration licences and authorizations issued prior to the eventual coming into force of the Petroleum Resources Act. However, Bill 106 does not stipulate any specific provisions regarding rights granted in the Saint-Lawrence River or An Act to limit oil and gas activities[3] which prohibits any petroleum and gas activities in that part of the St-Lawrence River upstream of Île d'Anticosti and on the islands situated in that part of the river (except for an underground reservoir production lease bearing number 1990BR301) and exempts any holder of a licence to explore for petroleum, natural gas and underground reservoirs from performing the exploration work required pursuant to the Mining Act until a date to be determined by the government.

Final Comments

It appears from our analysis of the provisions of the Petroleum Resources Act as it is proposed in Bill 106 that Québec intends to revisit and to strengthen the legal framework applicable to petroleum resources exploration and production projects, from the very beginning of any such project. As well, as already mentioned, the legal framework that will be established by the Petroleum Resources Act will ultimately be supplemented by a certain number of regulations that will follow. It will only be once the Petroleum Resources Act has been passed and be in force the regulations have been enacted that it will be possible to more completely assess the true ambit of this paradigm shift, which will definitely have significant repercussions for the development of any Quebec petroleum resources project.