Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.

Steve Jobs
US computer engineer & industrialist (1955 - 2011)

Sunday, December 5, 2010

Understanding Old Harry

In 2008 Corridor Resources, an exploration company, agreed to give up it's permit to explore the "Quebec side" of Old Harry - a 29 km long undersea basin of oil and gas. In that same year it signed onto a five year exploration permit with Newfoundland and Labrador. Corridor is fully involved in the Quebec on shore oil and gas exploration, including the Anticosti Island project.

Things in the oil and gas industry have changed in Quebec in the last little while. Prior to 2003 Hydro Quebec was functioning in it's usual state sponsored role as controller of the resources - including oil and gas. The Parti Quebecois, Quebec's separatist political party, had placed the rights for drilling and exploration in Hydro Quebec's hands. The purpose was to know doubt develop Quebec's oil and gas industry in a monopolistic, and state controlled fashion - not unlike their role as purveyors of hydro power. However, with the election of the Liberals in 2003 that function was to change drastically.

Hydro Quebec's role in the oil and gas industry was rolled back. Small junior exploration companies, with a distinct Quebec accent took Hydro Quebec's place at the helm. Companies such as Gastem Inc., Junex, Petrolia Inc, and Questerre Energy Corp. Raymond Savoie, former Minister of Mines in the previous Liberal government founded Gastem. Sitting on that Board of Directors are people from the former Hydro Quebec oil and gas division to the legal representative to the Royal family of Luxembourg. Junex has the famous Andre Caille, retired head of Hydro Quebec, on it's Board. International players have also become involved as partners to these smaller entities: SCDM Energy (Bouygues Group France), Pilatus Energy(Switzerland), Sprott Asset Management(Toronto), Forest Oil(USA), and Talisman Energy(Canada). Bouygues Group is a massive international conglomerate that coincidentally built the James Bay Hydro Electric dam, among others, for Hydro Quebec.

The latest trend appears to be consolidation, and quasi-take overs of massive properties and their hidden treasures. In June, 2010, Petrolia Inc bought out the interests of Junex and Gastem in the Haldimand field, Gaspe region, Quebec. Don't feel bad for them though as Junex owns 9.4% of Petrolia. One month later Petrolia entered into an agreement to develop the property on a 50/50 basis with Investcan, a subsidiary of SCDM Energie France. SCDM Energie owns 18.6% of the massive Bouygues Group - a controlling interest. Coincidentally, Investcan also has oil and gas operations in Newfoundland and Labrador - three separate on land exploration projects - one in partnership with Newfoundland's own Nalcor.

In 2008, Petrolia bought out Hydro Quebec's interests in Anticosti Island, becoming an instant partner of Corridor Resources. And so it goes. The big one came when Gastem took over the exploration rights to Old Harry on "Quebec's side". Of course it can't do anything with it, because although the Quebec government agreed to give it the rights, it does not have the legal right to action those rights - without an offshore exploration agreement with the federal government - who owns the seabed and it's bounty.

Of course all levels of government know this as do the companies, but what it does do is position them should the time come when an agreement happens. The problem for Quebec is that before the federal government will enter into an offshore agreement Quebec must first negotiate a "maritime economic boundary" with Newfoundland and Labrador. The chances of that happening under current circumstances are worse than nil. If Quebec wants a snow balls chance in hell it must first renegotiate the Upper Churchill agreement - radically altering it's terms. The government of Quebec needs to decide whether a large financial loss to Hydro Quebec's bottom line is worth tapping into the massive Old Harry field. While it may sound akin to extortion it's just business - just as the Power Contract of 1969 was.

It may be a case of 'a bird in the hand is better than two in the bush.' However, waiting too long will likely result in Quebec being too late to join in on Old Harry's fabulous wealth. After all, Corridor Resources is already doing the exploratory work off Newfoundland. It already has an offshore agreement with the federal government. It already has most of the world's largest oil companies in play at it's other offshore sites. Quebec is at least five years behind the eight ball already. Rarely has Quebec been so caught off guard when it comes to this kind of business exploitation. Perhaps, just perhaps, Quebec better get to the negotiating table and repair the damages of the Upper Churchill contract. God guard thee Newfoundland.

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