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Athabasca shares plummet as First Nation wins leave to appeal

An Athabasca Oil drilling rig. A northern Alberta First Nation has made good on pledge to keep fighting an oil sands project proposed by Athabasca Oil Corp., a move that could delay the $1.3-billion sale of the company’s interest to its Chinese partner.

Athabasca Oil Corp.

Athabasca Oil Corp. stock plummeted Friday after the Alberta Court of Appeal granted the Fort MacKay First Nation leave to appeal the provincial energy regulator's approval of the company's Dover oil sands project.

The project, which is operated by Brion Energy Corp., is a joint venture between Athabasca and Phoenix Energy Holdings Ltd. – the Canadian subsidiary of PetroChina Co. Ltd. If approved, the project will eventually produce 250,000 barrels of bitumen per day. It won a conditional green light from the Alberta Energy Regulator in August.

But the company and the Fort McKay First Nation, located north of Fort McMurray, have been unable to resolve a dispute over a project buffer zone. The band says it's not opposed to the project as a whole, but wants to make sure wildlife, and traditional hunting and trapping grounds already surrounded by other oil sands projects are protected.

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In a decision released Friday morning, Alberta Court of Appeal Justice Frans Slatter said he was granting the band the right to appeal based on questions about whether the energy regulator erred in defining the scope of the Constitutional issues as it made its decision. Athabasca's stock was down 12.6 per cent in afternoon Toronto Stock Exchange trading from Thursday's close, to just over $6 per share, and had dropped by more than 20 per cent earlier in the day. Trading was briefly halted but resumed at 1:15 p.m. Eastern Standard Time.

Karin Buss, the lawyer for Fort MacKay, said the leave was granted based on the Alberta Energy Regulator's refusal to consider the project's impact on Fort McKay's treaty rights and reserve lands. "In order to obtain leave, we were required to demonstrate that the case was meritorious, and was legally important. The court found the Constitutional arguments met this test," she said in an e-mail.

But in a news release, Athabasca said the impact of the court decision is limited. "Leave to appeal is not a judgment on merits of the case and does not impact the validity of the (Alberta Energy Regulator) approval, but is restricted to a specific question of law or jurisdiction."

The approval of the steam-assisted gravity drainage (SAGD) project is crucial to Athabasca being able to sell its share of the project to PetroChina, which already owns 60 per cent. Athabasca investors have anticipated the proceeds from the sale being used to fund the company's other operations, including the Hangingstone oil sands project and development of the company's Duvernay liquids-rich shale gas reserves.

RBC Dominion Securities Inc. analyst Mark Friesen said the Alberta Court of Appeal decision is "significantly negative" for Athabasca.

"While this decision begins an appeals process that may technically run in parallel to the remaining official regulatory approval process, the fact that the right to challenge the constitutional argument was granted by the Court of Appeals significantly increases the risk of regulatory approval delay," he wrote in a Friday note.

"We see this announcement as significantly increasing the timing risk of the company receiving the Put option proceeds before year-end, thereby jeopardizing the company's winter drilling program."

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Ms. Buss said she anticipates it will be six months until the appeal is heard, depending on the court's calendar.

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