Quebec oil junior Junex Inc. is merging with Calgary’s Cuda Energy Inc., the latest driller to lose its independence in the French-speaking province as Premier Philippe Couillard’s government moves to tighten the rules on oil and gas exploration and production.
Privately held Cuda will take over management and control five of seven board seats of a new combined company to be called Cuda Oil and Gas Inc., the companies said in a statement Monday. Among the new producer’s assets is a 25,000-acre oil field in Wyoming’s Powder River Basin and wells yielding small volumes of output in Alberta. Adding Junex properties makes the new company one of the biggest landholders in Quebec, with about one million gross acres – leased real estate in which it has an interest – in the St. Lawrence lowlands believed to contain shale natural gas.
“If we did nothing, it would have been tough to continue,” Junex founder and chief executive Jean-Yves Lavoie said in an interview. “This gives us the cash flow to keep alive our assets in Quebec and spread out our risk.”
Quebec’s regulatory environment on oil and gas made it exceedingly difficult to raise money on the public markets in recent years as investors raise doubts about projects reaching commercialization, Mr. Lavoie said. “Even if you raise money, putting it to work is another matter. We’re not here to pay people’s salaries while we’re waiting for permits.”
This marks at least the second Quebec-based oil and gas junior to succumb to the effects of the province’s complicated regulatory environment after Pétrolia Inc. became Pieridae Energy Ltd. in a reverse takeover last year. Pétrolia made a bet to develop oil and gas on Quebec’s Anticosti Island, but after initially signalling it would back the effort, the Couillard government finally ruled the picturesque island off bounds and paid out compensation to companies active there.
Today, the government continues to reshape its approach toward hydrocarbon development.
After passing legislation in late 2016, widely seen as paving the way for more oil and gas exploration, potentially including fracking, Quebec now seems to be reversing course as it gears up for an election this fall. Energy Minister Pierre Moreau on June 6 announced a series of new measures tightening regulation on the industry, including plans to ban fracking for shale gas across the province.
“The history of energy transition is being written,” Mr. Moreau said in a statement. “From now on, in Quebec, the exploration and exploitation of hydrocarbons is forbidden, unless it meets the most rigorous rules in order to protect our environment.”
Shares of big natural gas landowners in Quebec took a drubbing in the wake of the policy shift. Calgary-based Questerre Energy Corp. alone lost about 43 per cent of its market capitalization over the three trading sessions following the announcement.
“To me, this just shows how focused the government is on parochial political issues and is absolutely tone deaf as to the issues for companies trying to raise capital in a competitive world,” said Questerre CEO Michael Binnion, who also heads the Quebec Oil and Gas Association trade group. “Couillard has completely taken out Junex because they just were starved” for financing.
Quebec has enough natural gas to meet its own needs for an estimated 100 years or more, most of it concentrated along the southern shore of the St. Lawrence River in the province’s portion of the Utica shale formation. But it remains untapped and exploration companies with acreage licences don’t yet know whether the gas can be profitably extracted. There’s an estimated 155 trillion cubic feet of gas lodged in shale rock alone, of which maybe one-fifth is recoverable.
Quebec has oil, too, although that is believed to be in smaller quantities. Among the projects that are most advanced are Junex’s Galt play, roughly 20 kilometres west of the town of Gaspé. The company is waiting for an operating lease for Galt from the government, which is also among its investors.
The ambition to produce oil in the province stretches back to British prospectors in the late 1800s. Later, successive provincial governments were more interested in promoting hydroelectricity, leaving Quebec to import oil by tanker and pipeline to meet its needs.
Nicolas Van Praet