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Exxon Stalled By Court – other project affected

Posted by mhudema on May 15, 2008

Imperial suffers Kearl defeat


From Thursday’s Globe and Mail

May 14, 2008 at 9:36 PM EDT

CALGARY — Multibillion-dollar oil sands projects will face new legal and regulatory hurdles after the Federal Court ruled against Imperial Oil Ltd. in its battle to keep the $8-billion Kearl oil sands mine on schedule.

Imperial went to court to win back a key permit for site preparation that was voided after a Federal Court found Kearl’s regulatory approval to be incomplete on the issue of greenhouse gases.

The loss will set back Kearl by at least several months, if not a year or more.

For the energy industry, the Federal Court decision means regulatory reviews are likely to become ever-more detailed and arduous, while legal challenges will become more common.

Alberta's oil sands

It also means that if an oil sands plan is caught up in a court fight, the project is likely to be halted as governments will be more hesitant to issue important permits early, after the Kearl experience.

“[Project] proponents can expect more challenges,” said Shawn Denstedt, a leading oil sands regulatory lawyer and partner at law firm Osler Hoskin & Harcourt LLP in Calgary. “And you’ll see regulators reluctant to issue permits until a court says the [regulatory] decision was satisfactory.”

Mr. Denstedt said companies proposing projects will have to redouble their efforts during the regulatory review to minimize the risk of potential court challenges.

Petro-Canada is the next big company to go to public regulatory hearings, starting June 23 near Edmonton, to review a proposed oil sands upgrader.

Peter Symons, a spokesman, said Petrocan has prepared diligently because scrutiny is growing more intense every day.

“There’s just a ton of valid issues that have to be addressed,” Mr. Symons said.

The court decision also has implications beyond the oil business, and could affect big infrastructure projects in any industry, said Dennis Mahony, an environmental specialist and partner at Torys LLP.

Mr. Mahony said the Kearl case was watched closely across Canada by professionals working on climate change issues. Even if Imperial ultimately wins back the permit – an outcome many think is likely – the delay highlights the growing challenge of keeping big projects on schedule.

The case suggests that “it’s certainly possible to delay projects by several years,” Mr. Mahony said.

The original challenge against Kearl was brought by environmental groups, led by Sierra Club and Pembina Institute and represented by Ecojustice. They had previously and unsuccessfully challenged Petrocan’s Fort Hills oil sands mine, with the Supreme Court rejecting a leave for appeal in 2006.

“You’re going to see more of these challenges until we get adequate mitigation that does actually result in real and absolute reductions in greenhouse gas pollutants,” Simon Dyer, an analyst at Pembina Institute, told Bloomberg News.

Imperial had planned to start major site preparation work this month, draining the boggy muskeg at the Kearl site in northern Alberta to ready the area for construction.

Without the federal permit, Imperial cannot proceed and said in court filings it could fall a year or more behind schedule if it doesn’t start the so-called dewatering work now.

Imperial said it couldn’t immediately provide estimates of how much the lost court case would cost it.

Imperial, which is majority owned by Exxon Mobil Corp., had argued that the federal government had no right to void the water permit.

In the Federal Court order published Wednesday morning, Mr. Justice Douglas Campbell said the government acted properly.

Additional material on greenhouse gases called for by the original Federal Court judgment has been submitted to Ottawa by the regulatory panel, meaning the government can now reapprove Kearl, and then issue a new water permit to Imperial.

At the very least, a reapproval of Kearl can’t happen until early June, based on timelines outlined in the Canadian Environmental Assessment Act.

Last year, it took five months for the government to approve Kearl after the regulatory panel gave it a green light. The issuance of the water permit followed six months later.

“We cannot estimate a timeline,” said Lucille Jamault, a spokeswoman for the Canadian Environmental Assessment Agency.

Imperial has spent $228-million on Kearl so far, but the project hasn’t been officially sanctioned by the company’s board of directors.

Further, Imperial doesn’t know when the mine would open. In 2005, it wanted Kearl to be operating by 2010.

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