Fracking Ban Violates NAFTA, Company Claims

Like in the United States, certain Canadian provinces are reluctant to allow shale development through hydraulic fracturing.

Though it’s been around for a while, fracking has never been so efficient and economical as it has become since U.S. companies combined it with horizontal wells to extract natural gas from shale.

But it’s not without its controversy; environmentalists have claimed that it’s a dangerous process with the potential to contaminate drinking water with the chemicals it requires, cause earthquakes from the high pressure injections, and cause harm to wildlife by disrupting the ecosystem.

Because the widespread use of the process is so recent, there hasn’t yet been a thorough study on these claims. No one can really say if they’re true. Or if they aren’t.

Controversy aside, the states haven’t all agreed on whether fracking should be allowed. While the process is ongoing in North Dakota, Texas, and Pennsylvania, the state of New York is debating whether to lift a moratorium, and Vermont has banned it outright.

The same is true in Canada. Quebec is heatedly involved in the fracking debate, and the province banned shale gas development in parts of the Saint Lawrence Valley last year.

But problems really flared up when Quebec also decided to revoke mining rights while it assessed the risks.

Now Lone Pine Resources Inc. (NYSE: LPR), and American company that had these rights revoked, is calling on the North American Free-Trade Agreement (NAFTA) to fight the action.

According to Chapter 11 of NAFTA, which covers the U.S., Canada, and Mexico, a company can take legal action against one of these nations if policy hurts its investment.

Lone Pine Resources is being represented by Milos Barutciski, who says that this policy could be detrimental to the company’s investment in Quebec’s resources.

From the Wall Street Journal:

“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 the legal process underway.

The company wants $250 million in compensation for the recall of a permit that covered 33,460 acres.

Lone Pine Resources is based in Calgary, but it was spun off from Denver’s Forest Oil Corp. (NYSE: FST). It operates mainly in Canada, with oil and gas assets in Quebec and elsewhere.

The moratorium was put in place until further environmental consequences could be assessed. The government anticipates a thorough review would be complete by 2014.

But it doesn’t guarantee Lone Pine would get its permit back after; and more than a year is a long time to wait.

Shane Abel, Lone Pine’s spokesman, told the Globe and Mail:

“We think that the expropriation is arbitrary and without merit… We think that’s a clear violation of the NAFTA agreement.”

And though some, like trade lawyer Lawrence Herman, say that the case may fall flat as few Nafta cases follow through, the company presents a strong case.

And a win could be a leap forward for the future of Canadian shale development.

That’s all for now,

Brianna Panzica

@brianna_panzica on Twitter

Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.