OSUM May Sue Government

Oilsands firm may sue over Marie Lake

Energy minister admits that for the first time he has factored in Albertans' concerns about the rapid pace of development

Jason Markusoff, The Edmonton Journal

Published: Thursday, October 11

EDMONTON - A Calgary-based oilsands company said it will consider suing the Stelmach government for millions or perhaps billions of dollars in damages after the province cancelled its lease to extract bitumen from under Marie Lake.

An executive with Oil Sands Underground Mining Corp. said he's shocked that Premier Ed Stelmach bowed to northeastern Alberta residents' protests and nixed plans for seismic testing on the popular cottagers' lake in northeast Alberta last month, then followed with the first government termination of any firm's mineral lease in 16 years.

"This kind of thing happens in South America, not Canada," OSUM vice- president Andrew Squires said Wednesday, referencing Venezuelan President Hugo Chavez's strong-arm tactics against foreign oil companies.

"It's Ed Chavez, seizing assets -- it's unbelievable." Energy Minister Mel Knight insisted the unusual cancellation was legal and in the public's interest, and admitted Wednesday for the first time that he has factored in Albertans' concerns about the rapid pace of development.

When he became premier, Stelmach said there would be no "touching the brake" on development.

Since then, two government-commissioned reports have urged caution but avoided calling for halts to new projects.

The MLA for the Marie Lake region, Denis Ducharme, questioned if government's initial permit for seismic tests on the pristine lake meant everything in Alberta was for sale.

"It's not me that's indicating the pace of development is too high," Knight said in an interview.

"It's not the corporation that's indicating that, but that came out quite clearly from the two stakeholder groups." He also expressed concerned about OSUM's informally proposed underground extraction process, which was first developed by an Alberta Crown technology agency but never used commercially.

The minister refused to rule out future development of the lake's rich mineral bed, noting that OSUM can reapply for its lease before a November deadline.

But the company hopes the government will reverse its position and realize that it shouldn't circumvent its normal processes.

It is currently considering legal options, Squires said.

Asked if that includes a lawsuit to recover the lease or damages, he said: "If that's a legal avenue, yeah.

"We don't own the lease right now. It's been taken back, we feel illegally." Alberta's Mines and Minerals Act lets a minister cancel a mineral lease "when the minister is of the opinion that any or any further exploration for or development of the mineral ... is not in the public interest." It also entitles the firm to compensation for their development, which Squires said is a few million dollars in engineering and planning work.

But OSUM would look at damages for losing the potential value of a site an independent reserves audit suggested holds 252 million barrels of oil.

"It's immensely valuable. Just to the people of Alberta, it was probably worth close to $2 billion in revenue," Squires said.

"We could have potentially had a 50,000-barrels-a-day operation here." John Ballem, an energy lawyer with Gowlings in Calgary, expressed surprise the government would break a contract under public pressure.

"The government can do powerful things if they want to. They can pass legislation that blocks you at every turn," Ballem said.

If the province has caused damages, as it undoubtedly has in this case, there seems to be a "plausible claim," he said.

Alberta Energy said it last cancelled a lease in 1991, when Shell Canada wanted to exploit Buffalo Bay Wetlands near Lesser Slave Lake.

Squires said the revoked lease and potential higher royalties are "the two worst things you could do to rattle the investment community." He thinks OSUM was being "singled out," and noted that Imperial Oil has two small leases beneath Marie Lake.

Don Savard of the Marie Lake Air and Watershed Society said Imperial has assured residents it won't exploit the lake for several years, and he hopes for stronger government protections by then.

"We expect by that time, you won't be able to touch a lake," Savard said.