Welcome back SOQUIP

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The Quebec Government presented its budget last week.

The most significant change is a plan to revive SOQUIP and back it up with part of a $1.2 billion dollar investment fund.   SOQUIP was created in the 1960’s to find oil and gas in Quebec.   After a large investment without commercial success it was wound down and its permits made available to the private sector.

  1. The justification for winding down SOQUIP wasn’t so much the poor track record of Governments at finding oil and gas.  Rather the justification was more that Quebec simply didn’t have any hydrocarbons to find.  Over time, in good Orwellian ‘double speak’ tradition, the idea grew that it was actually a good thing not to have oil and gas because it’s greener if others produce it.
  2. SOQUIP created a brain trust of local industry expertise.  Virtually all of Quebec’s local expertise today can be traced to people who worked at SOQUIP.  Some of these people disagreed that Quebec didn’t have oil and gas and created small private exploration companies to prove it.  Without these small companies all of Quebec’s local expertise would have disappeared over the last thirty years (not that anyone listens to them or anything).
  3. Most important  in my opinion is that Terrenex, our predecessor company, was the first in the 1970’s to take out licenses after SOQUIP.  This ultimately led to our August 2008 natural gas discovery at Gentilly proving to Quebec’s great surprise that it does in fact have natural gas and also that private companies are better at finding it.

Revitalizing SOQUIP creates a forum to expose the benefits to Quebec of locally produced oil and gas.  It’s also a vehicle to re-create the critical and very specialized expertise needed inside Government.   The idea of allowing SOQUIP to invest with private companies is a concept successful in the Norwegian model.  After the devastating last two years, I have no doubt some companies will welcome the investment.

Sadly the budget did not accept the recommendations of artists and others to adopt the complete Norwegian model.  This model with no royalties, no license fees and 78% refundable exploration credits is among the most generous in the world and I was dreaming the artists might win on this point.  Instead the Government moved towards a Canadian model of:

  1. competitive bids (should have been done as soon as we announced our discovery in late 2008),
  2. higher royalties (maybe but respect for property rights demands grandfathering or who would trust the system to risk exploring again in future),
  3. shorter licenses (makes sense post discovery), and
  4. much higher fees (no problem if the Government does something for them).

The Government will also reduce drilling credits from the existing 15% (35% for small exploration companies).   We will see how this goes once we learn what the SEA committee recommends.  The SEA is a creation of the Ministry of Environment and is stacked against industry with environmental representatives.   Bias for effective and efficient regulation doesn’t feel likely which could exacerbate a drilling credit reduction.

All in all the Government with this budget sets a framework and commences the ground work to gain the expertise to be ready for oil and gas development post the SEA recommendations.  It’s what was missing last time.

Welcome back SOQUIP.