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Quebec's Marois rolls the dice on risky oil play

Winter has been generous to Quebeckers, but it isn't only the snow that keeps falling. In the past weeks, there has been an avalanche of subsidies in every corner of the province.

That a minority government about to kick off its re-election campaign would resort to such tactics is not exactly new. "C'est de bonne guerre," as the French saying goes.

But what is astounding this time around is to what extremes Pauline Marois's government is willing to go. If the Champlain Bridge has its famous super poutre or super beam to hold it from crumbling down, Quebec has its own super hero, "super Pauline," to hold up its economy.

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There is the dizzying number of announcements. In the first week of February, while reunited for a PQ caucus in the Centre-du-Québec region, ministers unveiled more than 80 initiatives. No project was too small – not even a $45,000 subsidy to build a spa next to a private hotel – for a photo op.

And then there is the incredible level of risk to which the government is willing to expose itself.

The province raised eyebrows with its huge commitment to finance the construction of a cement plant in the Gaspésie region. It will put up a third of the money needed for the $1-billion project through a $250-million loan and a $100-million investment.

But at least experts at the National Bank of Canada and at the Caisse de dépôt et placement du Québec vetted the project, on top of the experts hired by Laurent Beaudoin's family holding company.

The same cannot be said of Anticosti Island, where Quebec is now playing the role of the oil driller.

Let us forget, for a moment, how dire Quebec's financial situation is. Fitch Ratings recently downgraded the province's outlook to negative from stable after the Parti Québécois government broke its promise of balancing the books in the current fiscal year – the deficit is expected to hit $2.5-billion.

As Ms. Marois wants Quebec to become self-sufficient from an energy standpoint – an elusive goal but a catchy political slogan if there is one – the government is dangling the prospect of $45-billion in royalties, profit and taxes over the next 30 years.

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Of course, there is a rather big catch. The province and its private sector partners would have to find a lot of oil that is easy to access so that its extraction would be profitable. Why is it, then, that the Quebec government is taking on most of the risk – going where no major oil company has been willing to go?

Through its state-owned company Ressources Québec, the province has committed to investing up to $115-million in two exploration programs – one of which was so vague it wasn't even formalized at the time of Thursday's press conference. That represents 60 per cent of the projected $190-million bill.

With the exception of Maurel & Prom, a mid-sized oil and gas company from France, which is investing more than $43-million of its money, the other private players are bringing their exploration permits to the table. Most of those permits were acquired at dirt-cheap prices. Pétrolia Inc. even got its exploration permits for free from Hydro-Québec, in exchange for royalties to be given back to the Quebec electricity producer.

Moreover, the province already subsidizes oil and gas exploration through its taxation system in great part because it is a risky activity. Exploration companies such as Junex Inc. and Pétrolia can issue – and have issued in the past – what are called flow-through shares to raise money and finance their operations. Those shares are made more attractive to investors through federal and provincial tax credits.

How good a deal is this for the private players? The numbers tell it all: Pétrolia's stock closed up 21 per cent on Friday, while Junex's stock was up 40 per cent.

On the one hand, it is a good thing that the Quebec government is finally signalling to the rest of the world that it is open for business in the energy sector, beyond hydroelectricity and wind power.

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On the other, those same exploration companies would never have had such a hard time in the first place had the PQ not demonized the fracking techniques that will be used to dig some of the exploratory wells on Anticosti Island. Fracking, which blasts chemically laced water to break the rock that contains the oil or the gas, stirred a huge controversy in the St. Lawrence lowlands, where companies were eager to exploit known gas shale deposits.

In May, the Parti Québécois imposed a five-year moratorium on fracking. But now that the technique must be used to foster Quebec's energy independence, it is just fine and dandy.

One can only imagine what wriggling the greener-than-thou PQ government will resort to if explorers also find gas beside oil, as that gas could not be transported to the mainland at a reasonable price and would need to be burned. The sight of gas flaring high in the sky won't be pretty.

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About the Author
Chief Quebec correspondent

Sophie Cousineau is The Globe and Mail’s chief Quebec correspondent. She has been working as a journalist for more than 20 years, and was La Presse’s business columnist prior to joining the Globe in 2012. Ms. Cousineau earned a master’s degree in journalism from the University of Illinois and a bachelor’s degree in economics and political science from McGill University. More


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