Mr. President of the Québec Oil and Gas Association, (Mr. André Caillé)

Members of the Association,
Ladies and gentlemen,

• I am happy to be here this morning. Thank you for inviting me to say a few words.
• The Québec Oil and Gas Association is an important partner for Ministère des Ressources naturelles et de la Faune, or MRNF.
• Our government firmly believes in Québec’s hydrocarbon potential, which we intend to help develop.
• In this regard, I would like to take the opportunity this morning to explain a few points about the measures announced in the 2009-2010 Budget Speech last March 19, and more specifically to reassure you concerning the government’s intentions with regard to
the royalty holiday and the modernization of the natural gas royalty system.
• Rest assured that the Government of Québec’s goal is to make things as easy as possible for the industry. It intends to work with industry representatives to ensure that any legislative or regulatory amendments take into account the full spectrum of challenges inherent in developing new resources.
• Of course, Québec can’t go it alone. We will need the help of active and efficient exploration companies and operators with the necessary capital and know-how.
• It is our responsibility to ensure that hydrocarbon development in Québec is both attractive to industry and mindful of our fundamental values:
o Creating wealth for all Quebecers
o Adopting and following the most stringent environmental standards

o Truly involving the public to ensure the level of social support needed for projects to go ahead

Québec’s Potential-

• In the last year and a half, we have become aware that Québec has real hydrocarbon potential and that the technology necessary to develop it is available.
• As you know, if even a quarter of Québec’s gas potential were to be developed, this could meet our needs for up to 190 years! Production could represent a total value of up to two hundred and ten billion dollars!
• Currently all our natural gas comes from western Canada.
• Being self-sufficient in natural gas would be worth about two billion dollars. That’s two billion dollars that would stay in Québec.
• We DO have this potential. We just need to develop it.
• The gas shales of the St. Lawrence Lowlands could hold up to one hundred and sixty-three billion cubic feet of natural gas. That’s a huge amount when compared to proven American reserves of two hundred and eleven billion cubic feet. Our potential is thus practically on par with that of the United States.
• The Old Harry structure alone in the Gulf of St. Lawrence could contain five thousand billion cubic feet of natural gas, or two billion barrels of oil. That’s double Newfoundland’s Hibernia deposit.
• Several other similar structures are located in the vicinity of Îles-de-la-Madeleine. Their potential has not yet been determined.
• And that’s without counting the potential in the Gaspé and my own home region of Bas-Saint-Laurent.
• Of course, there are still steps to take, tests to be done, and exploration work to be carried out.

Industry’s Role-

• Now that we know that the resource is there, we have to make sure a framework is in place so that each project is conducted as efficiently as possible.
• Québec needs to draw on the talent, knowledge, and expertise of those who can help it develop its oil and gas resources.
• In this regard, I wish to salute the junior companies who for years believed in Québec’s potential. They are the pioneers who scoured the land in search of clues as to the presence in Québec of commercially exploitable hydrocarbons.
• They showed ingenuity and determination.
• I also wish to note the contribution of the majors, who, through their know-how and financial wherewithal, have moved the industry forward.
• With their help, development will now pick up pace.
• Some may say the financial times are not right. That’s why the Government of Québec intends to support and assist the industry.
• In its 2009-2010 Budget, the government put forward aggressive measures to shore up your industry in Québec.
• We will be investing nearly eleven million dollars in order to spur oil and gas exploration. This money will be used for a series of concrete actions.

Royalty Holiday-

• First, we have announced a five-year royalty holiday for any new natural gas well brought into production by the end of 2010.
• In speaking recently with representatives of your association, I have learned however that certain terms of this royalty holiday have raised a number of questions on the part of companies with prospecting licenses in Québec.
• These companies have asked the government to be more flexible and open in how it applies the measure, so that wells that are already somewhat advanced can qualify for the royalty holiday.
• I can assure you that we will look closely at these matters together. In fact, we have already put together a Working Group made up of representatives of your association and ministry officials. The committee will begin its work next Monday.
• In this regard, I would remind you that our goal is to accelerate the pace of exploration in Québec and to get new wells into production as soon as possible.

Support for the SGF-

• In addition, SGF, or Société générale de financement du Québec, will back development of the oil and gas industry to ensure that local companies have the necessary capital to continue their investments.
• This assistance will provide a boost to the growth and prosperity of our junior companies.

Strategic Environmental Assessment Program-

• As we have seen, the marine environment offers great potential.
• However, we have our work cut out for us if we wish to develop it.
• We must have a full and complete understanding of the marine environment to properly care for it as work proceeds.
• We will therefore spend $1.5 million each year for the next two years on a Strategic Environmental Assessment Program, or SEAP.
• This program will provide a greater understanding of the areas where hydrocarbon exploration and development will occur as well as their users.
• It will also help us draw up stringent criteria to guide the work, including restricted zones, special work zones, and specific time periods.
• Moreover it will help identify priority work zones.

Geoscientific Knowledge Acquisition Program-

• In addtion, we will introduce a Geoscientific Knowledge Acquisition Program for oil and natural gas.
• Before we can spread the word about Québec’s oil and gas potential, we must understand it better.
• That is why MRNF has earmarked $4 million over two years to this program.
• The ministry will also release the results of its studies, which will help the industry better orient its own work.

A New Law for Québec-

• The Government of Québec’s financial support must be accompanied by permanent measures that will make the industry more efficient.
• Modernizing our legislative and regulatory framework is therefore the first priority I intend to tackle in the coming weeks.
• It is why I announced that by the end of 2009 I would table special draft legislation in the National Assembly on oil and natural gas.
• The bill will significantly ease gas and oil exploration and development in Québec by bringing all the applicable rules under a single piece of legislation.
• More importantly, the bill will put the world on notice that Québec is about to become a serious player in hydrocarbon production.
• By updating our legislative and regulatory framework, we wish to make Québec a place where investing in oil and gas exploration and development is straightforward, competitive, predictable, and stable.
• To make sure we get it right, we will be looking to best practices around the world.
• We will be adjusting our legislative and regulatory framework to industry realities. Our oversight will be as strict as it is necessary, but certainly not any more constraining than elsewhere.
• For example, we intend to consider the possibility of
o allowing a single permit application for a series of drilled holes completed on a single site; and
o agreeing to a single performance guarantee by company or project rather than demanding a guarantee for each drilled hole, as is done in the wind industry.
• We also believe we must put in place tools for the public to become fully conversant with planned projects. Involving concerned citizens and groups is a big challenge, but also the best road to success.

Royalty System-

• These legislative changes will also be an opportunity to make sure our royalty system is in keeping with our wealth creation goals for Québec.
• We appreciate that for the industry, the current system of royalties is a plus in Québec’s favor. We wish to keep this drawing card.
• I would therefore like to reassure you this morning and tell you that the government has no intention of applying the same royalty rates in Québec as in British Columbia.
• But the government can do more to achieve Québec’s goals by introducing more flexibility into the system.
• Changes to the royalty system could thus factor such things as well productivity and resource prices into the equation.
• Once again, these changes won’t just fall from the sky.
• The government intends to consult the industry and draw on its expertise. Industry representatives such as yourselves will absolutely be invited to take part in discussions, particularly on when to introduce the new royalty system.
• No changes will occur without your direct input, both as to when the changes should occur and how. You therefore need not expect any surprises. It is important to me that we do this together.
• These discussions will take the economics of hydrocarbon development into account. Changes to royalties will not throw a monkey wrench into your companies’ financial forecasts.
• They will also take into account the fact that we are only now starting to develop the deposits in Québec and that this will require new techniques.
• In conclusion, three main principles will guide our actions over the coming months:
1) First of all, we believe in Québec’s potential. The message in the last Budget Speech was most clear in this regard.
2) Second, we know that developing this potential will require a “no surprises” approach to cooperation with the industry to benefit fully from its expertise and capital. Québec must not only remain competitive, but even rise above.
3) Third, as a responsible government, we have the duty to ensure that development occurs in a way that
- benefits all Quebecers and
- is mindful of the environment and communities, that is, is from a sustainable development perspective.
• On that note, thank you for your attention.