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A shale-gas drilling rig in Pennsylvania (Andrew Harrer)
A shale-gas drilling rig in Pennsylvania (Andrew Harrer)

Shale gas play a no man's land in Quebec Add to ...

Quebec's shale gas sector is entering the big chill.

Players in Quebec's nascent shale gas industry are nervously sorting through the provincial government's decision to freeze further exploration using the controversial drilling technique known as hydraulic fracturing.

Quebec is putting fracturing on hold until a full study into the environmental effects is completed. The process could take up to 30 months, an eternity for oil and gas companies making decisions on development commitments.

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Concerns are mounting that a prolonged delay could seriously hurt the prospects for establishing a multibillion-dollar natural gas extraction industry in Quebec, and send some exploration companies to jurisdictions less fraught with political and regulatory risk.

Environmentalists, community groups and residents have raised an outcry over the shale gas projects, saying there are many documented cases in the U.S. and elsewhere that hydraulic fracturing can result in contaminated groundwater, air pollution and other problems. The so-called "fracking" process uses a mixture of water, sand and chemicals injected into shale rock formations under high pressure to release and pump natural gas to the surface.

Investors in some junior exploration companies that are betting big on the Utica shale gas play in Quebec ran for the exits in droves Wednesday after digesting the news of the halt on fracturing-based shale gas exploration in the province.

Shares in Calgary-based Questerre Energy Corp. - a key player in what's known as the Utica shale play along the Lowlands of the St. Lawrence River - plunged 24.5 per cent on the Toronto Stock Exchange Wednesday. Quebec City-based Junex Inc.'s stock sank 20 per cent on the TMX Venture Exchange, while shares in Gastem Inc. of Montreal plummeted 21 per cent, also on the Venture exchange.

The freeze on the use of fracturing is a "pretty significant" development, says Ken Chernin, a research analyst with Jennings Capital in Halifax.

"There is a lot of uncertainty. This could mean 24 to 30 months before we actually have any legislation" on the rules for shale gas development in Quebec, he said.

The uncertainty and the delay could result in some companies abandoning their projects in the province and seeking greener pastures elsewhere, Mr. Chernin said. "It's a possibility. Absolutely," he said. "I wouldn't be surprised at all if they start looking at other areas."

Norma Kozhaya, chief economist at the employers' group Conseil du patronat, agrees.

"There is a risk. The onus is on the government to move speedily ahead with its environmental evaluation and ensure that this does not go on for an eternity so as to discourage industry," she said.

It's important at this stage for the government to clearly lay out what is expected of natural gas developers in terms of rules and regulations so that they can make their business and investment decisions accordingly, she said.

Denis Hamel, a spokesman for the Federation of Quebec Chambers of Commerce, urged the Quebec government to move speedily with the study lest it risk losing out in the highly competitive race for shale gas development, with rival jurisdictions including British Columbia, Alberta and some northeastern U.S. states.

"The question is, will [the Quebec government]have the political courage" in the face of strong, grassroots anti-fracking public opposition, he said.

Officials at the exploration companies are not commenting on the matter for now.

"There will be a response in due course, most likely from the Quebec Oil and Gas Association," said Talisman Energy Inc. spokeswoman Phoebe Buckland.

Calgary-based Talisman is a partner with Questerre in shale gas exploration projects in Quebec.

The association is headed by former Quebec premier Lucien Bouchard, who is expected to comment on the government's move early next week.

The discovery of huge natural gas reserves locked in rock deep beneath the rolling farmlands and towns on the south shore of the St. Lawrence River has attracted a bevy of oil and gas companies. Here are three high-profile players:

The explorers

Questerre Energy Corp., Calgary

Last year, Questerre unveiled preliminary results indicating that the so-called Utica shale gas play in Quebec is among the top 10 shale fields on the North American continent. But Questerre chief executive officer Michael Binnion has been taking a cautious approach lately. Earlier this year, Questerre put on hold two major projects, saying it's willing to wait until clearly established rules for development are in place. Mr. Binnion has also been an outspoken critic of what he calls media distortion, which he says has unnecessarily fuelled public fears.

Gastem Inc., Montreal

The junior exploration company was one of the early believers in an extensive shale gas play in the St. Lawrence Lowlands of Quebec. It holds exploration and storage rights to more than 445,000 hectares of land in the Lowlands as well as conventional reserves in the Gaspé Peninsula and Magdalen Islands. The company claims it was the first to target the Utica shale formation when it drilled two wells in the Yamaska region in 2007.

Junex Inc., Quebec City

A junior exploration firm that holds exploration rights on more than 2.5 million hectares of land in the Lowlands. Like other juniors, including Gastem and Questerre, it seeks partners to share the risk. It holds minority interests in two other Quebec oil and gas companies, Petrolia Oil & Gas Ltd. and Gastem.

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