1. Background

The development of Quebec’s oil and gas industry in the last decade has been quite a saga. First, a good portion of its hydrocarbon reserves must be obtained through controversial methods like hydraulic fracturing and horizontal drilling. Second, Quebec adheres to the principle of eminent domain under which, regardless of who holds the land, the State has ownership of mining resources¹ and can approve mining activities in an area. The mining sector and its regulatory framework have been roundly criticized on many fronts (e.g., private property rights, public awareness and participation, environmental protection [water sources in particular], corporate responsibility, royalties, and the pre-eminence of mining over these other concerns).

In February 2011, the Bureau d’audiences publiques sur l’environnement (hereinafter called BAPE), an arm’s-length body tasked with advising the government, issued a draft report² that cited a lack of scientific data on which to base a reasoned conclusion. BAPE proposed to carry out “a strategic environmental assessment in which hydraulic fracturing would be authorized only for assessment-related activity. Exploration could continue but without the use of hydraulic fracturing.”³ The government endorsed the report by passing the Act to limit oil and gas activities,⁴ which prohibits hydraulic fracturing during a strategic environmental assessment.

After winning a minority in the September 2012 provincial election, Quebec’s new Parti Québécois government imposed a de facto moratorium on shale gas exploration and development. In December 2013, in response to public criticism, it amended the Mining Act⁵ that defined oil and gas as “mineral substances.” A few months after the Liberals returned to power in April 2014, a second BAPE report found there were major risks to communities from air, water, and noise pollution, as well as insufficient royalties “to offset costs and externalities for society and the environment or to keep the industry profitable. […] Shale gas exploration […] was also a long way from becoming socially acceptable.”⁶ The Liberals responded to the report by agreeing to uphold the suspension until a new regulatory framework was adopted.⁷

2. Energy Policy and Petroleum Resources Act

In December 2016, the National Assembly passed the Act to implement the 2030 Energy Policy and to amend various legislative provisions.⁸ The Act had two framework statutes: the Act respecting Transition énergétique Québec, and the Petroleum Resources Act.

The key aim of the Petroleum Resources Act (hereinafter called “the Act”) is to remove gas and oil from the purview of the Mining Act, which now applies only to solid minerals.⁹ The regulatory framework is maintained, but with some necessary changes. The Mining Act’s prospecting licence will be deemed an exploration licence¹⁰ that gives holders the right to extract and dispose of oil and gas or use an underground reservoir for a trial period.” The exploration licence is valid for a renewable five-year term. Production and storage licences are valid for renewable 20-year terms. The new Act continues to apply to other licences (geophysical and geochemical surveying, stratigraphic survey, drilling, completion, reconditioning, temporary or permanent closure, etc.).¹¹ Compared with the Mining Act, the legislative changes are largely adaptable to consistently reflect the new legal framework.

The aim and intent of the Petroleum Resources Act suggests that the government has listened to people’s concerns. The Act’s preamble states 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 […],” a purpose evident in certain measures worth highlighting.

First, the Act requires anyone who discovers an uninterrupted flow of gas on their land to notify the Minister.¹² Citizens and farmers who fail to comply may face fines ranging from $10,000 to $100,000 ($30,000 to $600,000 for municipalities).¹³ The Act incorporates the 2013 Mining Act amendment, granting exploration licences by auction.¹⁴ The Régie de l’énergie (hereinafter called the Régie) must make a favourable ruling before a production or storage licence is issued.¹⁵ Lastly, the Act creates a no-fault liability system for holders of exploration, production or storage licences or pipeline authorizations, which expressly includes damage “caused by an emanation or migration of gas or a spill of petroleum or other liquid.” Coverage is limited to a certain amount (determined by regulation) and determined for each event, and holders may not be relieved of liability by proving an injury resulted from force majeure.¹⁶ Earlier mining rights were unclear about an operator’s responsibility for the land, consisting of a simple summary of landowner rights and obligations.¹⁷ The transitional provisions do not clarify whether current operators will be bound by the no-fault system.

However, these legislative changes have not effectively addressed issues and objections, and have drawn criticism for leaving the mining system largely the same whether for solid, liquid or gas extraction.

Community Involvement

Despite the need for a licence for any mining activity,¹⁸ the principle of eminent domain still applies.¹⁹ Citizens oppose the industry’s right of access to the territory subject to the licence.²⁰ They also object to the right of expropriation (failing an agreement),²¹ which takes away most of their negotiating power. Citizens and municipalities will be informed but not consulted when exploration and operating licences are granted.²² Mining rights also still take precedence over urban planning and development decisions.²³ Lastly, the licence holder must form a follow-up committee that includes “at least one member representing the municipal sector.” This is not an additional requirement, however,²⁴ and committee members are selected by the licence holder.²⁵

Environmental Concerns

Though the Petroleum Resources Act requires a restoration plan prior to authorization,²⁶ it has no specific framework for hydraulic fracturing. For water protection, it states that “Any part of a watercourse with a natural force equal to or greater than 225 kilowatts together with a strip of land 20 metres in width is excluded from the territory subject to a licence.”²⁷ The Minister has discretion to suspend or halt mining activity (including drinking water production) if doing so is deemed to be in the public interest. The Mining Act also provides this discretion.²⁸ Section 250 of the Petroleum Resources Act specifically provides for the exemption of oil and gas activity from the Water Withdrawal and Protection Regulation (as under the old system).

The main criticism was the number (more than 100) of provisions still to be determined by regulation (or order), many of which concern the most controversial aspects of the oil and gas sector.

3. Draft Regulations

On September 20, 2017, the Minister will issue four draft regulations. The first three will maintain the terms of the Regulation respecting petroleum, natural gas and underground reservoirs,²⁹ which will soon be revoked by the fourth.³⁰ The regulations serve first to determine licence granting conditions and then to define their conditions of use.

The Regulation respecting petroleum exploration, production and storage licences, and the pipeline construction or use authorization³¹ gives an initial response by listing a series of criteria to gauge the independence of arm’s-length committee members. Among other things, these members cannot have direct or indirect “financial or business interests or dealings with the licence holder” or be employed by affected departments or the Régie.³² The Regulation also sets out the exploration licence auction mechanism, where one criteria for inclusion on the list is proof of financial solvency for a specified amount (between $10 million and $1 billion based on activity location).³³

As noted, to get a production or storage licence, an exploration licence holder needs a favourable ruling from the Régie.³⁴ To this end, the holder must provide a series of documents (assessment of reserves and contingent resources, emergency response plan, economic assessment, local and regional benefits plan, report on initial public consultations, description of proposed mitigative measures to ensure balanced land use and minimal disturbance to local communities and the environment, etc.).³⁵ The “Régie’s review must consider: 1) cost-effectiveness; 2) job creation; 3) estimated government revenues; 4) negative economic impact; and 5) likelihood of completion.”³⁶ When submitting an application to the ministry, the licence holder must include proof of solvency for the same amounts as for the exploration licence.³⁷

This process raises a number of issues. First, how do we ensure the public consultation report is objective if it is written by the licence applicant? Why haven’t we assigned this task to the BAPE or directly to the Régie? Does the Régie have investigative powers to assess the accuracy of the documents? It would be surprising to see citizens or municipalities dispute them, since they don’t seem to have access rights. Requirement to notify provisions are not very detailed³⁸ as notice is given after the licence is granted. Similarly, how are Régie assessment criteria weighted? How do we compare a farmer’s (financial) losses with an oil company’s profits? As for cost-effectiveness, does the Régie need to include damages awarded under the no-fault system? Lastly, is an industry-developed emergency response plan (CSA-Z731 standard) stringent enough to meet its objectives? Oil and gas industry self-regulation does little to ease citizen concerns. We ask these questions not to criticize the industry but to make the process more transparent from a social acceptability standpoint.

The Regulation clarifies elements that are missing from the Act, such as the formula for volume-based monthly oil and gas royalties,³⁹ production reports,⁴⁰ and licence surrender and renewal criteria⁴¹ (as well as the equivalent for storage licences).⁴² It also determines the process and requirements for pipeline construction and use authorisations. These are similar to those for obtaining a production licence in terms of Régie involvement,⁴³ except that the Minister’s approval must be based on the financial sureties cited earlier and on proof of compliance with industry standards.⁴⁴ The applicant must inform the Minister of any incident by providing a “detailed report that outlines corrective measures already completed or planned measures and their time frame for completion.”⁴⁵

Once licences are granted, the Regulation respecting oil and gas exploration, production and storage activities on land⁴⁶ (hereinafter called the Regulation respecting activities on land) and the Regulation respecting oil and gas exploration, production and storage activities in a body of water⁴⁷ (hereinafter called the Regulation respecting activities in a body of water) set out conditions for performing a range of activities. These regulations have the same structure, and most of their provisions are similar except those specific to land or water environments.

The most anticipated provisions concerned minimum protective distances, stating that stratigraphic surveys (coring), drilling, completion (acid cleaning) and fracturing cannot occur within:

• 40 m of the St. Lawrence Seaway (was 400 m away)
• 40 m of a public road or railway (was 100 m away)
• 100 m of power lines, telecom infrastructure, wind turbines, pipelines, or any similar facility or infrastructure (was 100 m away)
• 100 m of a cemetery or of surface improvement projects for sport or recreational purposes (was 100 m away)
• 175 m of concentrated residential, commercial, industrial or service activities (was 100 m away)
• 150 m of any building less than three storeys high or with an area of 10,000 m² or less
• 180 m of a high-capacity dam
• 275 m of a health and social services centre, learning institution, daycare, heritage site, or building three stories or higher with an area of more than 10,000 m²
• 1,000 m of an airport or airstrip (was 1,000 m away)⁴⁸
• 60 m of a national park or protected area⁴⁹

Conditions of use for an exploration licence are not the same as those for a geophysical survey licence. For example, when a survey uses an explosive charge of less than 12 kg, the distance is 32 m from a pipeline, 180 m from a building with a concrete foundation, and 200 m from a drinking water intake site.⁵⁰ If the survey uses no explosives, this distance is just 50 m. There are no provisions regarding underwater environments.⁵¹

The Regulation respecting activities in a body of water affirms the government’s willingness to approve oil and gas activities in Quebec lakes and rivers even when fracking is involved. With regard to privacy rights, it defines the “concentrated residential, commercial, industrial or service activities” in question as “a group of five or more lots that are home to one or more residential (permanent or seasonal), commercial, industrial or service activities, as well as a lot containing five or more residential buildings.”⁵² This excludes cities, suburbs and other densely populated areas, though not residents of remoter areas in the “building less than three storeys high” category. The distance is 25 m shorter but is measured from the building rather than the lot line. Lastly, “the Minister may approve smaller distances if the licence holder shows that risks have been reduced through effective protection measures.”⁵³

4. Conclusion

The Premier of Quebec said there would be no oil and gas development that wasn’t accepted by the community. Despite numerous updates and an increase in protective measures, concerns about residential private property and the protection of water bodies have gone unanswered. It’s a safe bet that municipalities will oppose the new regulatory framework. The ministers of energy⁵⁴ and the environment⁵⁵ both say they are open to amendments after the consultation period.

*Ludovic Fraser is a Quebec lawyer specializing in regulatory law for the energy sector, with a focus on electricity trading. He holds an MBA and a master’s degree in energy law.

1. Mining Act, CQLR c M-13.1, art 3.
2. Environment Quality Act, CQLR c Q-2, art 6.3.
3. Bureau d’audiences publiques sur l’environnement, Sustainable Development in Quebec’s Shale Gas Industry: Report on Inquiry and Public Hearings, Report 273, 2011, p 245.
4. Act to limit oil and gas activities, SQ 2011, c 13.
5. Supra note 1.
6. Bureau d’audiences publiques sur l’environnement, Issues Involved in Exploring and Developing Utica Shale in the St. Lawrence Lowlands: Report on Inquiry and Public Hearings, Report 307, 2014, p 396.
7. An Act to amend the Act to limit oil and gas activities and other legislative provisions, SQ 2014, c 6.
8. An Act to implement the 2030 Energy Policy and to amend various legislative provisions, SQ 2016, c 35.
9. Petroleum Resources Act, art 207, para 3. Also see art 5, “mineral substances.”
10. Ibid, art 252.
11. Ibid, section VI, c III.
12. Ibid, art 6.
13. Ibid, art 189.
14. Ibid, art 14.
15. Ibid, art 38. The Régie de l’énergie also rules on pipeline construction or use applications, ibid, art 110.
16. Ibid, art 119.
17. Supra note 1, art 105.
18. Supra note 9, art 8.
19. Ibid, arts 2, 13(2), 27.
20. Ibid, arts 27, 55.
21. Ibid, art 55; supra note 1, art 235.
22. Supra note 9, arts 26, 55.
23. Ibid, art 203.
24. Ibid, art 25 relative to the Mining Act, art 101.0.3.
25. Supra note 9, art 25.
26. Ibid, art 75 relative to the Mining Act, arts 101, 232.1ff.
27. Supra note 9, art 11.
28. Ibid, art 131 relative to the Mining Act, art 304.
29. Regulation respecting petroleum, natural gas and underground reservoirs, RSQ c M-13.1, r 1.
30. Regulation to revoke the Regulation respecting petroleum, natural gas and underground reservoirs.
31. Draft regulation, Regulation respecting petroleum exploration, production and storage licences, and the pipeline construction or use authorization (2017) GOQ II, 4449.
32. Ibid, art 7.
33. Ibid, arts 19(4), 161.
34. Supra note 9, art 48. Some production licences are granted by auction. See Regulation respecting licences, supra note 31, arts 53ff (for production), 80ff (for storage); supra note 9, art 38.
35. Regulation respecting licences, supra note 31, arts 62 (forproduction), 89 (for storage).
36. Ibid, arts 64 (for production), 91 (for storage).
37. Ibid, arts 51(1), 161, 166.
38. Supra note 9, arts 27, 54, 55; Regulation respecting licences, supra note 31, arts 5, 6, 129.
39. Ibid, art 68.
40. Ibid, arts 72ff.
41. Ibid, arts 75ff.
42. Ibid, arts 114,108.
43. Ibid, arts 120-122.
44. Ibid, art 127. The National Energy Board uses the same standards for pipelines under its jurisdiction. See National Energy Board Onshore Pipeline Regulations (SOR/99-294).
45. Regulation respecting licences, supra note 31, art 140.
46. Regulation respecting oil and gas exploration, production and storage activities on land (2017) GOQ II, 4326.
47. Regulation respecting oil and gas exploration, production and storage activities in a body of water (2017) GOQ II, 4212.
48. Supra note 46, arts 81 (stratigraphic surveys), 133 (drilling), 201 (fracturing); supra note 47, arts 64 (stratigraphic surveys), 120 (drilling), 169 (completion), 194 (fracturing); supra note 29, art 22.
49. Supra note 46, art 135.
50. Ibid, art 40.
51. Ibid, except for the St. Lawrence Seaway.
52. Ibid, art 2.
53. Supra note 47, arts 120, 169, 194; supra note 46, arts 40, 81, 133, 201.
54. Minister of Energy and Natural Resources.
55. Minister of Sustainable Development, the Environment and the Fight against Climate Change.