Tuesday, October 5, 2010

Shale Gas in Québec: Lessons from tar sands exploitation in Alberta?


Since the provincial prime minister has made a mockery of the mandate given to the BAPE (see previous post) by declaring that shale gas exploitation was inevitable, one of the central issues identified by Le Devoir and the CQDE that is yet to be discussed is the apportionment of benefits between private interests and the general public.

As revealed this summer by La Presse (one article here from Charles Côté - in French), Québec is the Canadian jurisdiction where the legal framework for mining is the most industry-friendly and taxes or royalties are the lowest. Instead of increasing royalties on the industry, the Minister for natural resources has declared that fees for day-care nurseries would be increased if shale gas exploitation does not go forward as planned (article here from Alexander Shields, Le Devoir).

In this context, an article by Bernard Roth, «NAFTA, Alberta Oil Sands Royalties, and Change: Yes We Can?» (2009) Vol.46 Alberta Law Review 333, would send a clear warning signal to a political class more attuned to the general interest. The problem with initially low royalties is that it might be impossible to increase them for one class of investors without serious difficulties. Roth's conclusion reads as follows:

«The Alberta government has announced an intention to follow suit by increasing royalties on all oil sands production, irrespective of its vintage. This is the first time since Canada entered into the NAFTA that a Canadian government has tried to capture additional value in an attempt to get what it believes to be its fair share of oil production. The NAFTA has arguably created a form of quasi-constitutional property protection for American and Mexican investors in Canada, which does not allow Canadian governments and legislators to expropriate without compensation. It may still be possible to impose this type of expropriation on Canadian investors, just not their American and Mexican counterparts. Alberta's oil sands leasing practices may have been effective when Alberta exercised more or less complete sovereignty over its resources. Before the NAFTA, ambiguities could be clarified through subsequent legislation and responsibility for compensation could be expressly disclaimed. It appears that Alberta did not adapt its Crown leasing practices to make it clear that the grants it makes are subject to an absolute and unfettered right to increase royalties without compensation in a post-NAFTA world. In the absence of a clear reservation to this effect, it may well be reasonable for oil sands investors to demand compensation. Under the NAFTA, a very good case can be made for compensation to recover the loss in value to oil sands investments that would result from increased royalties proposed by the Government of Alberta. The answer to the multi-billion dollar question posed by this article is: Yes we can! But, if we do, the Government of Canada may have to pay very large NAFTA awards to a lot of American oil companies.»

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