Ottawa sued over Quebec fracking ban; U.S. firm says loss of permit 'illegal'

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A worker walks from a shale gas drillng rig, on March 25, 2009 in Saint-Edouard-de-Lotbiniere Que. THE CANADIAN PRESS/Jacques Boissinot

OTTAWA - An American company intends to sue the Canadian government for more than $250 million over Quebec's controversial moratorium on hydraulic fracturing or fracking.

Lone Pine Resources Inc. (TSX:LPR), which is incorporated in Delaware but headquartered in Calgary, has filed notice that it intends to sue under provisions of the North American Free Trade Agreement.

Lone Pine says the Quebec government's move to cancel a natural gas exploration permit for deposits beneath the St. Lawrence River last year was "arbitrary, capricious and illegal."

Details of the claim for arbitration are contained in a notice filed Nov. 8 on the website of the Department of Foreign Affairs and International Trade.

Lone Pine cites Article 1117 under NAFTA in making its claim for the loss of a "valuable right ... without due process, without compensation and with no cognizable public purpose."

Lone Pine says the suit has been filed against Ottawa because it is responsible for acts by provinces both under NAFTA and international law.

Quebec passed the moratorium in order to study the controversial process in which fluid under high pressure is pumped underground to release petroleum from rock formations.

Environmentalists contend fracking risks contaminating ground water, while the industry says it can be done safely.

Quebec Finance Minister Nicolas Marceau told reporters Friday that NAFTA prohibits discrimination against individual companies.

"(But) if all companies who wanted to exploit Quebec's shale gas were subject to the same provisions, be they foreign or Quebec, the complaint is unfounded," he said after speaking about his budget to the Montreal board of trade.

Lone Pine said that between 2006 and 2011 it had spent millions of dollars as well as time and resources to obtain the Quebec permits.

"Suddenly, and without and prior consultation or notice, the Government of Quebec introduced Bill 18 ... to suspend all exploration for oil and gas in the province (except for the purposes of scientific studies onshore.)"

Lone Pine said all attempts to discuss the matter with the province were "repeatedly rebuffed" and that it had been told the move was "a political decision and that nothing could be done to prevent it from being passed."

"It is Lone Pine's hope that this dispute can resolved amicably through consultation and negotiation," the company said in its notice. "However, is such consultation and negotiation is unsuccessful, Lone Pine will pursue arbitration" under NAFTA.