Canadian Energy Law : Lawyers & Attorneys for Environmental Energy Law

On September 23, 2011, the Federal Court of Appeal (the "FCA") released the highly anticipated decision in Daishowa-Marubeni International Ltd. v. The Queen (2011 FCA 267). The decision of the FCA is of key importance in the mining, forestry, and oil and gas context, where the assumption of reforestation and reclamation liabilities is part and parcel of the sale of properties.

In this case, the corporate taxpayer (“Daishowa”) sold two of its forestry divisions. As part of each of the divisions, Daishowa held timber rights, which gave rise to certain reforestation liabilities. The Purchase and Sale Agreement provided the following: a purchase price of $169,000,000 for the assets; the net working capital (as adjusted); and the assumption by the purchaser of $11,000,000 in reforestation obligations, plus or minus "any difference between a preliminary and a final estimate" of the reforestation obligations. The FCA noted that Daishowa admitted that the purchase price would have been greater if the purchaser had not assumed the reforestation liabilities.
 

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 U.S. and Canada-based environmental groups have filed a petition with the U.S. Secretary of the Interior under the Pelly Amendment, a statute that allows the U.S. President to impose trade restrictions against countries that engage in trade which diminishes the effectiveness of an international program to protect threatened or endangered species.

The petition claims that Canada has not put in place mechanisms in its oilsands regulatory regime that would prevent or mitigate harm to woodland caribou, whooping cranes and other species of migratory birds. The petition further claims that such omissions have diminished the effectiveness of international efforts to protect those species such as the Migratory Bird Convention of 1916 and the Western Hemisphere Convention of 1942.

Under the Pelly Amendment, the Secretary of Interior must now determine whether Canada’s actions have diminished the effectiveness of these international conservation efforts. If the Pelly Amendment application is certified by the Secretary of Interior, the President may direct the Secretary of the Treasury to prohibit any imports to the extent such prohibition is sanctioned by NAFTA or the World Trade Organization, and shall notify the U.S. Congress of any such actions.

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In response to the increased water use in recovering shale gas deposits in the Montney Formation and Horn River Basin in northeast B.C., the province plans to amend its Water Act to provide for the licensing of groundwater, among other changes.

The responsibility for licensing water is now divided between the B.C. provincial government and the B.C. Oil and Gas Commission (OGC). Under the Water Act, the OGC may issue short-term water use approvals, while long-term water licenses are dealt with by the provincial government. 

The OGC currently issues between 250 to 300 short-term, water use approvals per year. The application process for a short-term water use approval is about a month. In comparison, there are only about 10 long-term water licenses issued to the oil and gas industry, and the application process takes about a year to complete.

B.C. is the only province in Canada that still does not license groundwater. With the advent of horizontal well hydrofracking operations and its increased draw on water resources, amendments to the Water Act are a welcome response to the needs of a burgeoning sector.

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The Canadian Association of Petroleum Producers (CAPP) recently issued Guiding Principles for Hydraulic Fracturing (hydrofracking) operations that emphasize public disclosure and the protection of water resources. CAPP President, Dave Collyer, stated that the guidelines are intended to address concerns regarding water use. The guidelines set a priority on recycling water for reuse and for public disclosures regarding the quantity of water used in hydrofracking operations. 

In addition, the recommended practice of disclosing fracturing fluid additives is under development and will be released on CAPP’s website when finalized. Fluid additives range from various oil- and water-based alternatives to complex polymeric substances with a multitude of additives.

The guidelines are meant to apply in all jurisdictions and will complement existing and future regulatory requirements.

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A Joint Review Panel (“Panel“) composed of the federal Minister of Environment and Newfoundland and Labrador Minister of the Environment released a report recommending an assessment of alternatives to Phase I of the Lower Churchill hydroelectric project.

The proposed 3,074-MW Lower Churchill project would entail an 824-MW Muskrat Falls hydro plant built as Phase I, followed by a 2,250-MW Gull Island hydro plant. Both plants would be located on mainland Labrador with transmission lines connected to Newfoundland and to export markets.

The Panel did not agree that development of the Lower Churchill’s hydroelectric potential was a ‘need,’ and recommended that the project be compared to other alternatives to address the province’s future electricity and renewable energy demand. The Panel recommended an independent analysis determining the best way to meet domestic demand under a “no project” option, and to review the projected cash flow for the Muskrat Falls and Gull Island plants separately in the approval process.

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