NAFTA challenge launched over Quebec fracking ban

Company Seeks Nafta Cover After Quebec Says ‘Non’ to Shale Gas  by Paul Vieira, November 16, 2012, Bloomberg
Now, one small energy producer is fighting back Lone Pine Resources Inc. LPR -3.57%–spun off last year from Denver-based Forest Oil Corp. FST +0.95%–has filed notice that it’s seeking arbitration under the North American Free-Trade Agreement’s Chapter 11 clause. Under Chapter 11, companies have a right to make a claim against Canada, the U.S. or Mexico if they believe government policy negatively affected their investment. Milos Barutciski, a Toronto lawyer from Bennett Jones who’s representing Lone Pine, acknowledged the provincial government has the right to regulate shale-gas exploration, or impose a moratorium if it so chooses. But it doesn’t have the right to take away mining licenses, he said. “It just can’t, for political reasons, expropriate our property,” Mr. Barutciski said. “And that’s exactly what Nafta’s investor-rights provision is intended to protect.” Mr. Barutciski said his client would continue talking to the province of Quebec and the Canadian government to find a resolution, but filed the Nafta claim so it can get the legal process underway. There is a now a 90-day period in which the parties can negotiate a settlement. If no pact is reached, then the case goes to arbitration. A representatives for Quebec’s resources minister was not available for comment. A Canadian government spokeswoman said officials were reviewing Lone Pine’s claim, in consultation with Quebec authorities. (Lone Pine’s opposing party in any arbitration, if it goes ahead, would be Canada’s federal government, even though the claim focuses on Quebec government policy.) A similar challenge was launched in 2008 by Abitibi Bowater RFP +1.78%, now known as Resolute Forest Products, when the government of Newfoundland and Labrador expropriated the majority of the company’s provincial assets. Roughly two years later, the Canadian government and Abitibi reached a settlement that involved a taxpayer-funded payout to Abitibi of 130 million Canadian dollars ($129.8 million.) (This post was updated to include comment from Canada’s federal government.) [Emphasis added]

Fracking Causes Friction Between Trade And Environment by Ilana Solomon, November 16, 2012,
The truth is becoming clear — trade rules are being used to threaten policies that protect wildlife,preserve scarce natural resources, and promote clean energy and green jobs. The most recent clash between free trade and our environment is in Quebec, where communities are fighting against the harmful effects of fracking, the hazardous process used to extract natural gas by blasting significant amounts of water, chemicals, and sand into rock formations deep underground. On November 8th, Lone Pine Resources, a Delaware-incorporated oil and gas firm with operations in Canada, filed notice of its intent to sue Canada for $250 million under the North American Free Trade Agreement (NAFTA) over Quebec’s moratorium on fracking. The moratorium is set to stay in place as Quebec studies the environmental risks associated with fracking. Quebec also passed legislation in June banning drilling below the St. Lawrence River. Placing a moratorium on fracking in order to study environmental risk is sound public policy. Who can argue that?

Answer: Lone Pine Resources. The company claims that the moratorium violates their rights as an investor under NAFTA and constitutes an expropriation of their drilling permit. They’re taking advantage of NAFTA’s controversial chapter on investment that gives corporations the right to sue a government over nearly any law or policy that the government argues is hurting its ability to profit. It’s almost impossible to believe, but it’s true. By the end of 2011, corporations such as Chevron, Exxon Mobil, Dow Chemical, and Cargill have launched 450 investor-state cases against 89 governments, including the United States. Over $700 million has been paid to corporations under U.S. free trade agreements and bilateral investment treaties, about 70 percent of which are from challenges to natural resource and environment policies. Corporations have launched attacks on a range of public interest and environmental regulations, including bans or phase-outs of toxic chemicals, timber regulations, permitting rules for mines, green jobs and renewable energy programs, and more. This case, however, is the first to directly threaten the obligation of governments to protect its people from the destructive effects of fracking. Lone Pine Resources’ claim might not make it to arbitration; the company says it wants to settle the case rather than see it through. But what must the people of Canada forfeit in order to settle this case? Clean air? Clean water? Quebec must be able to keep its fracking moratorium, and this case should be dismissed if it goes to arbitration. Rules to protect the public and the environment must not be up for negotiation. And governments should not be afraid to protect their people. [Emphasis added]

Moratorium in the St. Lawrence:a gas company claiming $ 250 million by Hugo Joncas, November 15, 2012, [Internet Translation]
Lone Pine Resources of Calgary, has no real office in the United States, but is officially registered in Delaware, which allows it to be considered “American investor” under the Free Trade Agreement North America. …

American company?
To make a complaint against Canada under NAFTA, a company must have a corporate structure in the United States or Mexico. For its part, Lone Pine is headquartered in Calgary and conducts substantially all of its activities, but is officially registered in Delaware. The company is also listed on the New York Stock Exchange, and Toronto. The Receptionist ensures that the company “has no office in the United States.” “We have a mailing address there for legal reasons, but we do not take calls,” says Shane Abel, Vice President, Investor Relations at Lone Pine. For Alfred de Mestral, a specialist in international law at McGill University and former referee NAFTA, Lone Pine must prove that it has a real “corporate structure” south of the border. “It should be expected that the Canadian government denies that it is a true American company.” International lawyer, Bernard Colas also believes Canada could attempt to argue that the company has grown by an American company simply to pursue Ottawa. “It does not mean that Canada’s objection will succeed, he said. The choice of arbitrators will be strategic.” But the vice president of investor relations Lone Pine has no concerns. “It is very clear that we are an American company, said Shane Abel. Our shareholders are the United States, the bulk of transactions as are the United States, and we have built.” [Emphasis added]

Ottawa faces $250-million suit over Quebec environmental stance by Les Whittington, November 15, 2012, Ottawa Bureau The Toronto Star
Lone Pine Resources Inc. has declared its intention to use its power under the North American Free Trade Agreement (NAFTA) to challenge Quebec’s crackdown on fracking, a controversial drilling technique for releasing oil and natural gas from underground shale rock formations. Under NAFTA’s Chapter 11 dispute resolution provisions, the governments of Canada, the U.S. and Mexico can be sued by private companies that believe their interests as foreign investors have been harmed by discriminatory actions in one of the three countries. Quebec has abundant shale gas formations but the provincial government has declared a moratorium on fracking while it studies the environmental impact of the technology, which some say consumes unacceptable volumes of water and may be contaminating groundwater. Quebec also passed legislation in June banning drilling below the St. Lawrence River. Lone Pine contends it deserves $250 million in compensation by Ottawa for the Quebec government’s expropriation of its drilling permit, which it says violates Canada’s obligations to treat foreign investors from other NAFTA countries fairly. Critics of NAFTA’s Chapter 11 provisions say the threatened suit by Lone Pine drives home the risks of bilateral investor protection treaties, which they say are being increasingly used by private companies to challenge government regulations in Canada and elsewhere. “We’re seeing more and more of these cases for increasingly higher amounts and they are attacking non-discriminatory government regulations,” said Scott Sinclair, a senior research fellow with the Canadian Centre for Policy Alternatives. He said Ottawa will almost certainly be subject to more of these challenges if Prime Minister Stephen Harper’s government puts in place planned investor protection deals with China and the European Union. Sinclair said the federal government should cease signing these type of treaties until Ottawa can ensure that the right of governments in Canada to bring in environmental, public safety and other regulations “is fully protected” under the bilateral agreements. [Emphasis added]

NAFTA challenge launched over Quebec fracking ban by Jeff Gray, November 15, 2012, The Globe and Mail
Energy firm Lone Pine Resources Inc. is taking on Quebec’s fracking moratorium, saying it violates the firm’s rights under the North American free-trade agreement and demanding more than $250-million in compensation. The company disclosed in a filing with the U.S. Securities and Exchange Commission this week that it has filed a notice of intent to sue the Canadian government under NAFTA’s controversial Chapter 11. Those provisions of the treaty allow U.S. and Mexican companies to sue Ottawa if they feel they have been wronged by a government policy or action.

The company is just one of many affected by Quebec’s moratorium on the extraction of natural gas using hydraulic fracturing, or fracking, which involves injecting liquids deep into the ground. It has been controversial for its potential effects on the environment and drinking water. According to Lone Pine, Quebec’s legislation passed last June also cancelled permits for oil and gas activity in areas directly below the waters of the St. Lawrence River – including the cancellation of a permit held by Lone Pine covering 33,460 acres. Company spokesman Shane Abel said in an interview that under Quebec’s legislation, the company received nothing for the loss of the permit. “We think that the expropriation is arbitrary and without merit … We think that’s a clear violation of the NAFTA agreement.” The NAFTA challenge, levelled at a major environmental policy, could encourage critics of trade deals as they now question Canada’s proposed investor-protection agreement with China, which would extend similar rights to Chinese investors in Canada. Lone Pine, which also has assets elsewhere in Canada, is headquartered in Calgary but is incorporated in Delaware. It trades on the New York Stock Exchange and Toronto Stock Exchange. The company was created in 2011, spun off from Denver-based Forest Oil Corp. in an initial public offering. Quebec’s moratorium is meant to stay in place at least until the province completes an environmental review of fracking, expected in 2014.

Lone Pine Resources Submits NAFTA Notice of Intent in Response to Expropriation of Rights in Quebec Press Release by Lone Pine Resources Inc., November 15, 2012, Market Watch
Lone Pine Resources Inc. (“Lone Pine” or the “Company”) LPR -3.57% CA:LPR -2.73% confirms that it has filed a Notice of Intent to Submit a Claim to Arbitration under the North American Free Trade Agreement (“NAFTA”) in response to the expropriation without compensation of certain of the Company’s oil and gas mining rights in the Saint Lawrence Valley in Quebec. Lone Pine holds numerous exploration permits in the Saint Lawrence Valley issued by the Quebec Ministry of Natural Resources and Wildlife. Adopted by the National Assembly of Quebec on June 13, 2011, Bill 18 suspended all oil and gas exploration activities beneath the Saint Lawrence River upstream of the Anticosti Islands and on the islands situated in that part of the river, and revoked all previously issued mining rights under that stretch of the Saint Lawrence River, including an area covered by a permit previously held by Lone Pine. The expropriated permit covered 33,460 net acres, and Lone Pine continues to hold exploration permits covering 398,850 gross (240,320 net) acres in Quebec. … Lone Pine Resources Inc. is a Delaware corporation, which through its wholly owned subsidiary, Lone Pine Resources Canada Ltd., is engaged in the exploration and development of natural gas and light oil in Canada. Lone Pine’s principal reserves, producing properties and exploration prospects are located in Canada in the provinces of Alberta, British Columbia and Quebec and in the Northwest Territories. [Emphasis added]

[Refer also to: Chairman Harper’s Weakness, Recklessly blind to ruthless aims of China’s state-owned firms, PM treats them as any free market investors ]

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