With the Marcellus Shale as its guide, exploration and production (E&P) companies are pressing Quebec officials to give them some running room to develop the Utica Shale, a deep gassy play that extends across the St. Lawrence Lowlands and into the Lower 48 states.

Several E&Ps think there are plenty of reasons to believe that the Utica Shale may be just as prospective as the Marcellus Shale, which actually lies above portions of the play. Reserve estimates vary, with some as low as 2 Tcf and some putting the Utica prospects at 60 Tcf or higher.

Quebec officials have been in no hurry to jump into shale gas frenzy. Until now the province has appeared content to tout renewable energies. That, however, seems ready to change. Quebec's regulatory regime -- or lack thereof -- will be the subject of public hearings beginning Sept. 14, Quebec's Environment Minister Pierre Arcand and Natural Resources Minister Nathalie Normandeau announced Sunday.

"This is a formidable opportunity to exploit and consume a natural gas that is 100% from Quebec," Normandeau said. The homegrown industry could create up to 10,000 new jobs and free up C$2 billion that the province is currently spending to import natural gas. However, she said, because a regulatory regime first has to be put into place, no large-scale projects are expected in Quebec before 2014.

The government plans first to create three study groups comprised of representatives of municipalities, environmental groups and industry. No legislation exists to specifically regulate the shale gas industry, which at the moment is bound by laws that were created to oversee mining, the protection of the environment and the protection of agricultural lands.

The study groups would consider what Quebec needs to balance environmental concerns against a growing interest in exploiting the province's natural resources. The process also would include a "social pact" between provincial leaders and industry leaders calling for "exemplary" practices when exploring for gas. In addition, Quebec intends to launch a website to explain the process of shale gas mining.

Quebec's review likely will form the basis for new legislation to be introduced next spring after the commission's study groups issue their reports in early February, said Normandeau.

Environmental groups reacted with dismay to the news that Quebec may be embracing shale gas development. Only last week a Montreal-based environmental group last week called for an immediate moratorium on shale gas development similar to one enacted recently by the New York Senate (see Daily GPI, Aug. 5).

Meanwhile, the Quebec Oil and Gas Association (QOGA), formed only a year ago, appears ready to take on all comers. On Monday the association said it welcomed the regulatory review, as well as the criticisms expected to be heard about industry practices.

If producers are able to successfully tap the Utica Shale, Quebec could be producing 500 MMcf/d by 2020 and add about 7,500 jobs to the province, QOGA President Andrew Caille said Monday. QOGA this week is launching a separate public information campaign to "answer all questions about the exploration and exploitation of shale gas in Quebec," said Caille.

"The Quebec Oil and Gas Association and its members considers acceptance by local communities an essential and vital factor for the exploration and exploitation of shale gases in Quebec," he said. "This is why I will be present with credible experts to listen, consult and explain, in order to provide honest and transparent answers to questions from citizens and their elected officials."

Coinciding with the planned provincial hearings, QOGA plans a series of town hall meetings also beginning in mid-September.

"We welcome the QOGA's initiative," said Becancour Mayor Maurice Richard. "I hope the industry will be able to show that the exploration and exploitation of shale gas is a promising course of action for Quebec's economic development in partnership with and in respect for local communities, and especially that it is mindful of quality of life and of the environment."

Caille said QOGA wants to collaborate "openly" with Quebec officials in revising the regulatory regime.

"The industry did not wish for this scenario," said Caille. "However, as soon as the government made this decision, we took this opportunity to share our vision and state our case. We believe that this provides a chance for credible experts to show that exploring and exploiting shale gas can be achieved in Quebec in an environmentally friendly manner that is respectful toward local communities. Nevertheless, it is essential to maintain a climate that encourages investment in order to favor Quebec's economic growth."

Interest in the Utica Shale extends well beyond Quebec. Last year the Geological Survey of Canada reported that gas producers would have no shortage of new drilling targets in Canada's eastern frontier (see Daily GPI, Nov. 30, 2009). The report pointed to potential across 100,000 square miles between parts of Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland, the Gulf of St. Lawrence and Cabot Strait.

The survey identifies widely dispersed eastern exploration campaigns involving 14 companies: Junex, Forest Oil Corp., Talisman Energy Inc., Questerre Energy Corp., Gastem Inc., Canbriam Resources, Triangle Petroleum, Elmworth Energy, Contact Exploration, Corridor Resources, Petroworth, Deer Lake Oil and Gas, East Coast Energy and Stealth Ventures.

In May an auction of leases on Michigan-owned parcels in the Utica and Collingwood shales on the state's Lower Peninsula broke the state record for previous auctions (see Daily GPI, May 10). The Collingwood Shale is around 600 miles west-southwest of Quebec's St. Lawrence Lowlands and 400 miles west of Utica and Trenton-Black River exploration in the Finger Lakes region of the Appalachian basin around Elmira, NY.

A lot of producers, both U.S. and Canadian, are snapping up properties across the region. In 2008 Forest Oil said it had discovered natural gas in the Utica Shale, where it had accumulated 269,000 acres (see Daily GPI, April 2, 2008). Canadian-based Gastem two years ago also said it held exploration and development rights to more than 1.1 million acres (see Daily GPI, April 16, 2008). Earlier this year TransAmerican Energy Inc. said it would acquire 10 properties on 136,000 acres in the play (see Daily GPI, March 16).

This year to date Talisman and partner Questerre have drilled five horizontal wells in Quebec with plans to finish and test two of them beginning in October. A Talisman spokeswoman said the provincial review of regulations hasn't impacted activities yet. "It's not like New York where the industry is at a standstill," she said. "This is a very new process to Quebec" She said Talisman "welcomed" the review and planned to participate in the process.

Both sides are keeping a critical eye on what may be ahead for the nascent industry.

"Like everyone, farmers have been taken aback by the speed with which these projects are multiplying and important questions remain unanswered, especially with regards to the environment," Christian Lacasse, the head of a Quebec agricultural union, stated. "The more information we have, the easier it will be for us to make an informed choice."

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