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A cargo ship on the St. Lawrence River near Trois-Rivières, Que. Lone Pine Resources Inc.’s exploration permit is for an area east of Trois-Rivières. (Paul Chiasson/THE CANADIAN PRESS)
A cargo ship on the St. Lawrence River near Trois-Rivières, Que. Lone Pine Resources Inc.’s exploration permit is for an area east of Trois-Rivières. (Paul Chiasson/THE CANADIAN PRESS)

Energy

Quebec’s St. Lawrence fracking ban challenged under NAFTA Add to ...

The Quebec government’s move to cancel a natural-gas exploration permit for deposits beneath the St. Lawrence River last year was “arbitrary, capricious and illegal,” according to the U.S. energy company challenging the move under the North American free-trade agreement.

New details about the case launched by Lone Pine Resources Inc. against Quebec’s legislation that tore up oil-and-gas permits under the St. Lawrence are included in the company’s 18-page “notice of intent,” published this week on the website of the Department of Foreign Affairs and International Trade.

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Lone Pine, which is incorporated in Delaware but headquartered in Calgary, said it has sunk “millions” into plans to use the controversial method of hydraulic fracturing, or fracking, to extract natural gas from shale formations under the riverbed.

The company decries the move last June to strip it of its permit, calling it a “political decision” that was not backed up by a scientific study.

Lone Pine first disclosed last week that it intends to sue the Canadian government for at least $250-million under NAFTA’s Chapter 11, which allows investors from the U.S. and Mexico to take government policies or actions that hurt their interests before a panel of arbitrators.

In its notice of intent, Lone Pine charges that the government’s move, “without a penny of compensation,” violates NAFTA’s provision that companies facing expropriation should be reimbursed. Lone Pine also charges that Quebec’s move unfairly pre-empts the conclusion of the province’s ongoing study on the safety of fracking.

Critics of trade deals seized on the challenge as an illustration of the vulnerability that environmental regulations face not just from NAFTA, but from a proposed treaty with China that would extend similar rights to Chinese investors.

But Lone Pine insists its quarrel is not with Quebec’s right to bring in scientifically justified new environmental rules, or even with Quebec’s controversial provincewide moratorium on fracking, which is in place as Quebec studies the process. Environmentalists warn that fracking can pollute drinking water, but the industry argues it can be done safely.

Milos Barutciski, the lawyer with Bennett Jones LLP acting for Lone Pine, said attempts to portray his case as “another rapacious multinational challenging governments’ ability to regulate for health, safety and the environment” were off base.

“It has nothing to do with that. This has to do with an arbitrary and capricious administrative action that was done for purely political reasons – exactly what the NAFTA rights are supposed to be protecting investors against,” he said in an interview.

He did acknowledge that NAFTA and other investor-protection treaties create an anomaly in that Canadian companies that have also seen their permits rescinded by the very same Quebec legislation, which expressly forbids the paying of compensation, do not have the right pursue a NAFTA claim. Winning compensation in Canadian courts for domestic companies in this case would be more difficult, Mr. Barutciski said, since the Constitution puts property rights in provincial hands.

NAFTA also creates a situation in which the federal government is left to pay damage awards under the treaty that result from provincial actions.

Lone Pine’s St. Lawrence River permit is located east of Trois-Rivières.

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