https://marcellusdrilling.com/2021/12/quebec-to-pay-significantly-more-than-5b-to-jilted-utica-drillers/

Quebec to Pay “Significantly More” than $5B to Jilted Utica Drillers
December 2, 2021 Energy Companies, Industrywide Issues, Questerre Energy, Regulation, Utica Resources
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In October the province of Quebec, Canada announced it will expropriate all of the rights for all oil and gas companies in the province to drill and extract oil and natural gas (see Lights Out for All O&G Production in Quebec, Including Utica Shale). It’s all being shut down–including actively producing wells. Shutting down existing businesses in the province is something you might expect in Communist China, or Soviet Russia, or tin-horn dictatorships in South America. It’s not something you expect to see in Western democracies. Yet it’s happening in Quebec, home to a large deposit of the Utica Shale. Now Quebec drillers, those who had planned to tap their vast Utica Shale assets, are demanding Quebec pay up, and the price will be “significantly more” than the $3 billion to $5 billion floated by the province’s energy association.

Yes, the Utica Shale underlies large portions of Quebec. We often get this question when writing about the Canadian Utica because our U.S-centric maps don’t show the Utica reaching up into Canada. But it does:


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Canadian producer Utica Resources owns 33 exploration licenses covering over 5,000 square kilometers of Quebec Utica Shale. Mario Lévesque, president and CEO of Utica Resources, wants compensation for his company and the other nine license-holding companies in the province. The only other company with Utica assets we’re familiar with, having written about it over the years, is Questerre Energy (see our Questerre stories here).

Mario Lévesque wants the Quebec government to pay him to not drill for oil and gas.

Lévesque’s company, Utica Resources, holds 33 exploration licences covering over 5,000 square kilometres of Quebec heartland. Were it up to him, he would be drilling roughly 1,500 metres into the ground to obtain his piece of the estimated 31 trillion cubic feet of recoverable natural gas in Quebec’s portion of the Utica Shale, the same formation from which Pennsylvania and Ohio have wrung riches over the last decade.

But it isn’t up to him. Last month, Quebec Premier François Legault announced that the government was effectively banning hydrocarbon extraction in the province. The decision, which Legault said was part of the government’s plan to hit its emissions-reduction targets, effectively killed Utica Resources’ raison d’être .

So Lévesque wants compensation for Utica and the other nine licence-holding companies in the province. The starting bid: “significantly more” than the $3 billion to $5 billion floated by the province’s energy association, Lévesque told me the other day.

It’s an often-overlooked expense in the push to decarbonize the economy. As countries around the world make it more difficult to find, extract and transport hydrocarbons, the companies that make it their business to do so are demanding billions in compensation.

These cases almost invariably end up in court or in trade arbitration, and are potentially very expensive. Consider Calgary-based TC Energy’s Keystone XL Pipeline extension, the proposed conduit for 830,000 daily barrels of oil from Alberta to Nebraska. Presented in 2008, the pipeline extension was rejected in 2015 by the Obama administration, only to have Trump sign it back to life in 2017. Revoking the Keystone permit was among Joe Biden’s first presidential acts.

That penstroke, which delighted environmentalists on both sides of the border, could be costly. TC Energy filed a formal request for arbitration last week, seeking over US$15 billion in damages as a result of what it says is a U.S. government breach of North American trade regulations.

Meanwhile, four companies are suing European governments under the Energy Charter Treaty, an international agreement governing energy security among its 53 signatories. All told, the four companies are seeking just over US$3.1 billion for instituting laws that protect the environment but damage their bottom lines.

The various complaints and lawsuits underscore the fossil fuel industry’s more muscular approach to selling its wares. After decades of trying to be as green as possible—and weathering the resulting accusations of greenwashing—many in the industry are pushing back. Earlier this month, Scott Sheffield, CEO of Texas-based Pioneer Natural Resources, publicly rebuked the Biden administration for its legislative attempts to wean the U.S. off fossil fuels.

The governments of some oil-producing U.S. states have vowed “collective action” against those banks that, in practicing “Woke Capitalism,” refuse to finance coal, oil and natural-gas industries. There is an almost drunken absurdity to the notion that a bank could be the corporate incarnation of Colin Kaepernick. But Big Oil has a point. For all the talk of a carbon-free future, for now we are utterly addicted to the stuff—by some measures, more so than ever before. “Currently, the trade regime and the climate regime don’t align,” Temitope Onifade, affiliated research scholar at the Canada Climate Law Initiative, told me last week.

Quebec is well placed to cash in on this addiction. The value of its shale deposits is quite frankly bonkers—as much as $130 billion, according to a 2013 provincial government report.

“One of the biggest natural-gas discoveries in North America,” as Michael Binnion, CEO of fellow permit holder Questerre puts it. It’s why, though he is cagey about how much Utica is worth, Lévesque says it’s much more than $5 billion. “If this were an open market, Utica Resources would be worth $20 billion to $25 billion,” he told me. (The province’s natural-resources ministry didn’t respond to my questions before deadline).

The province is decidedly not an open market, however. Previous Liberal governments put a moratorium on fracking in 2011, and outright banned the practice in 2018. The province is known as the place where pipeline projects go to die. Lévesque was hopeful when Legault was elected in 2018—while in opposition, the premier once wrote that Quebec should exploit its oil and gas resources “on a large scale”—but has since mostly resigned himself to leaving the shale gas where it is. “It’s too bad, but now we’re in an expropriation situation, and with expropriation comes compensation.”

Lévesque recently had one small victory. In November, a judge ruled the Quebec government was wrong in denying Utica an exploration permit for its subsidiary Gaspé Énergie, which pumps oil from four jacks in the Gaspé. But these, too, will be forced to shut down if the Quebec government implements a blanket ban on hydrocarbon production, as promised.

How other oil companies will fare in court is an open question. TC Energy faces long odds, if only because the U.S. government has a near-perfect record when it comes to North American trade disputes. And a recent European court decision suggests those companies going after the likes of Germany and Italy can’t base their claims on the Energy Charter Treaty.

In a way, though, the outcomes don’t matter much, because the court of public opinion is more politically compelling. The Keystone XL project will remain shuttered for good, even in the unlikely case that the Biden administration loses at the trade tribunal. Similarly, coal will still be on the legislative outs in Europe and beyond even if German energy company RWE is successful in its US$1.6-billion suit against the Dutch government, which said it would shut down coal-fired plants by 2030. There is political capital to be harvested in taking on the oil and gas industry. Premier Legault has certainly figured this out.*

It’s time for Quebec to pay up. We hope the citizens of the province enjoy their indentured servitude to the left, because they’re going to pay big for it.