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No new permits for oil and gas exploration or drilling have been issued in Quebec since Premier François Legault’s government came to power in 2018 after a flirtation with the industry that stretches back decades.

Jacques Boissinot/The Canadian Press

Quebec is preparing to close the books for good on oil and gas production in the province after a flirtation with the industry that stretches back decades. But companies with exploration permits aren’t packing up without a fight.

In the latest development, Utica Resources Inc., a small Quebec-based company that was closer than any other to developing the first major commercial oil play on the province’s soil, filed a lawsuit last month against the Quebec government. Utica alleges the government acted illegally and with political motives in refusing the company’s application for an exploratory drilling licence on the Galt project near the town of Gaspé.

By introducing without warning a new directive establishing a minimum distance of one kilometre between oil and gas drilling work sites and water sources, and by making “arbitrary” decisions that flout the recommendations of its own senior ministry staff, Quebec acted “on the fringes” of existing laws and put a kibosh on the industry, Utica says.

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“The defendants have, in practice, annihilated any possibility of exploring, producing and developing hydrocarbon resources,” Utica states in the Aug. 30 lawsuit filed in Quebec Superior Court. The government’s actions “completely flout the rights and legitimate expectations” of all licence holders, the lawsuit says.

Quebec government ends oil and gas exploration on Anticosti Island

Utica is a consolidator of sorts. Its various subsidiaries hold 31 exploration licences, one production licence and three brine production authorization permits in the province – many acquired in deals with other exploration firms over the past three years.

The legal salvo underscores that governments around the world planning to leave their fossil-fuel resources in the ground risk battles with stakeholders as they pursue such policy shifts. The suit also contains some details about the internal deliberations over oil and gas that have taken within Premier François Legault’s government, providing a small window into its thought process as it tries to execute a transition to cleaner energy.

Utica is seeking an unspecified amount of financial compensation from the government, which it says should include sums invested to date on exploration as well as unrealized profits from commercial oil and gas production. Estimates of possible awards range from about $500-million for just the cancellation of licences, to $3-billion or more if potential lost revenues are also included.

None of the allegations have been proved. A spokeswoman for Quebec Energy and Natural Resources Minister Jonatan Julien, who is named as a defendant in the suit, said the government will not comment because the matter is before the courts.

Quebec’s senior political leaders confirmed last week the government was looking at shutting the door definitively to oil and gas development on its territory, a decision that would have little practical effect because there is no commercial oil or gas produced in the province. They also expressed some sensitivity to the judicial and reputational ramifications of such a move.

“We are working to ensure that, in the future, there will be no more permits given,” Mr. Legault told Quebec’s National Assembly. “[But] this isn’t a banana republic. We can’t just do whatever we want, however we want … . We’re looking at the legal impacts surrounding the possibility of buying back existing permits.”

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Mr. Julien told reporters in Quebec City Sept.15 that “all options” are on the table on the issue of fossil-fuel development. The government is waiting for a judge’s decision on a separate lawsuit launched by Utica affiliate Gaspé Énergies last year that could clarify its obligations. The province holds an $8-million stake in Gaspé, an investment it says it now regrets.

“Quebec’s future is certainly not, in the medium term, tied to oil and gas resource development,” Mr. Julien said, noting the province still needs to import fossil fuels at the moment to meet the bulk of its energy needs – mainly for heating and gasoline. But it is working to replace them with hydropower solutions as quickly as possible. “We’re not looking at this with the same eyes we had 10 years ago.”

Drilling work that has taken place over several decades confirms Quebec has significant natural gas reserves and also some oil, although estimates vary on how much of it can be recovered profitably. All of it remains untapped, in part because of government moratoriums and bans on certain specific activities such as hydraulic fracturing.

No new permits for exploration or drilling have been issued since the Legault government came to power in 2018. Anticosti Island, near the mouth of the St. Lawrence River, was previously a key focus of hydrocarbon development interest by private-sector companies and government, but it is now being protected as the 8,000-square-kilometre territory vies for UNESCO world heritage status.

Utica figures Quebec political leaders gave up long ago on the industry, even as the province maintained a legislative framework allowing oil and gas companies to continue their precommercial activities. Officially, the company says, the government mantra was that Quebec could replace a portion of its oil and gas imports with locally produced fossil-fuel resources even as it moved to cleaner energy over time. In reality, however, the company says this was a charade.

A new rule introduced in August, 2018, by then Quebec Liberal premier Philippe Couillard’s government that prevented oil and gas drilling within one kilometre of a water source unless the natural resources minister’s authorization is given was “abusive and unreasonable” because it was done without following the legally required consultation process, Utica says in its suit. The company speculates Mr. Couillard made the move, just six days after a provincial election was announced, to neutralize the potentially divisive issue of fossil-fuel development during the campaign.

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More recently, Utica alleges Mr. Julien declined to issue the company a permit to drill its Galt No. 6 well under the “pretext” that there is a risk to nearby water sources, despite evidence by independent experts submitted by the company that drilling can be done safely. That decision, which is the subject of a separate lawsuit, was a “purely political” one that went against the recommendations of the natural resource department’s own senior employees, Utica says. The minister has insisted he acted on the basis of a risk assessment.

Utica obtained internal communication between Mr. Julien’s chief of staff and Mr. Legault’s chief of staff on the subject of whether to approve the Galt drilling. In one exchange, the minister’s chief of staff raises business and political considerations, saying: “Do we really want a debate on fossil fuel drilling now? Galt will never be a big deposit, according to the information that’s available. But not going ahead would have legal, and possibly financial, implications.”

The company also cites an informational note prepared for Mr. Julien by another senior civil servant in Quebec’s natural resources department it says led directly to the minister’s decision in October, 2020, to disallow drilling at Galt No. 6. That note evokes the potential incongruence of Quebec approving an oil drilling campaign at a time it was about to introduce its 2030 “Plan for a Green Economy” – an electrification and climate change policy rolled out last November that aims to replace fossil fuels over time with hydropower generated in the province.

Quebec currently imports about $8.5-billion worth of oil a year, equal to about 57 per cent of its trade deficit. The government is now working to leverage the province’s hydroelectric resources to cut that deficit through measures such as electric vehicle subsidies and backing construction of what it calls “high-performance, low-carbon buildings.” It is also boosting hydropower exports through long-term supply contracts in New York State and elsewhere.

Greenpeace is urging Quebec to push forward with a ban on oil and gas development, saying it has more to gain than lose with such a decision. There is a broad consensus among Quebec political parties that this would be a good for the province, the environmental group says.

“Quebec could gain credibility [with such a move] and assert itself as the first nation to ban oil and gas exploration and exploitation in North America,” Greenpeace Canada spokesman Patrick Bonin said in an e-mail. “This would be a strong signal that could create a snowball effect and prompt other jurisdictions to do the same.”

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