Details released for oil-exploration deal on lush Quebec island of Anticosti

QUEBEC – The long-awaited details of a Quebec oil-exploration deal, kept quiet for five years, indicate Hydro-Quebec traded its exploration permits in exchange for a promise it will be paid a fee if shale gas is ever extracted from Anticosti Island.

Petrolia (TSX:ECP) finally shed light Thursday on the agreement it signed in 2008 with Hydro-Quebec to explore for oil on the island.

Although the provincial Liberal government wanted to reveal the details in 2011, Petrolia refused, citing confidentiality clauses in the sale of permits.

The Parti Quebecois said after it won a minority government last year that it wanted to know the contents of the secret deal.

The PQ, meanwhile, has confirmed it will move ahead with exploratory drilling on the island — even if it doubts the dizzying estimates that Anticosti contains tens of billions of barrels of oil.

Petrolia president Andre Proulx said the interest of the PQ government was one of the main reasons the company decided to release details of the deal.

“It’s reassuring to see that the government appears interested in developing petroleum,” Proulx said in an interview.

“We were afraid they were going to do the same thing as on shale gas but I think the issue has been better explained to people and things are unfolding more serenely. The cards are beginning to fall quietly into place for the government, for us, and I imagine, for others.”

Earlier this year, the government brought in a five-year moratorium on shale-gas exploration and drilling activities in the St. Lawrence River valley.

The province has owned Anticosti Island since buying it from Consolidated Bathhurst in 1974 for about $25 million.

A few hundred people live on the 8,000-square kilometre island, known for its forests and fauna.

The document released by Petrolia says Hydro-Quebec has not received any monetary compensation during the transaction even though the publicly owned utility has already invested $10 million to carry out work on the island where it shares rights with Corridor Resources.

Corridor owns 54 per cent of the assets on Anticosti and therefore an equivalent proportion of potential revenues. Proulx said Thursday that payments to Hydro-Quebec would be calculated on Petrolia’s share of revenues, which would be 46 per cent.

Under the accord, Hydro-Quebec assigns all its rights and obligations in 35 permits to explore for oil on Anticosti Island — a 50 per cent interest in 29 permits and a 25 per cent interest in six others.

Petrolia granted the Crown-owned utility a priority fee on the possible oil production.

The fee is equivalent to one per cent for the first three million barrels, two per cent on the portion between three million and 10 million barrels, and three per cent on everything above 10 million barrels.

The company will provide Hydro-Quebec $10 million to guarantee the payment of the priority fee and $460,000 for the right to use the utility’s seismic data.

Hydro-Quebec will have a right of first refusal on any transaction in which Petrolia cedes some of its rights to a third party as a result of the discovery of an extractable deposit.

Coalition party Leader Francois Legault said in Trois-Rivieres he believes Quebec ended up with the short end of the deal and questioned why the then-governing Liberals let Hydro-Quebec negotiate it.

“I think it’s a bad deal that Hydro-Quebec negotiated,” said Legault, who added Quebec should take control of the companies now exploring Anticosti island.

Provincial Liberal Leader Philippe Couillard said in Quebec City that taxpayers should not have to assume the risks of oil exploration although he added he is satisfied with the level of royalties.

“Globally, on these principles, I think it’s good for taxpayers and Hydro-Quebec.”