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Imperial oil sands plans dealt blow
Kearl project faces delay as Fisheries and Oceans pulls water authorization
DAVID EBNER
Monday, March 31, 2008
CALGARY — — The federal government has revoked a key water permit for Imperial Oil Ltd.'s proposed $8-billion Kearl oil sands mine, delaying work on a major new oil sands development as environmental scrutiny of the massive projects around Fort McMurray intensifies.
Imperial, which is majority-owned by Exxon Mobil Corp., has been granted an expedited court hearing, scheduled for early May, on its application to overturn the decision. The company says the lost permit could mean a delay of one or more years, according to an affidavit.
The mine had been scheduled to start producing 100,000 barrels of bitumen a day in 2011. Imperial's board of directors is expected to make a final decision about whether to build the mine by the end of September.
The loss of the water permit stems from a Federal Court of Canada judgment in early March that found approval of the Kearl project by the Alberta and federal governments didn't fully explain why greenhouse gas emissions were not significant. However, that ruling didn't throw out the overall approval.
Still, citing the court judgment, the federal Department of Fisheries and Oceans told Imperial in a March 20 letter that the water permit issued Feb. 8 had been rendered invalid. Imperial, the letter stated, "is not authorized to proceed with any works or undertakings that will cause a harmful alteration, disruption or destruction of fish habitat or that destroys fish by any means other than fishing." A Fisheries habitat biologist is set to visit Kearl in the next several days to assess the situation.
Imperial is "very disappointed" by Ottawa's decision, said company spokesman Gordon Wong. "[The water permit] is legally valid and that's the argument we will pursue in court," he said.
The voided water permit is a victory for non-profit environmental groups, including Alberta's Pembina Institute and the Sierra Club of Canada, who brought the original federal court case against Imperial and Kearl and were fighting the validity of the Fisheries authorization. The setback for Imperial comes as oil sands producers are facing challenges including sharply rising costs, and uncertainty related to new federal emissions legislation and recent environmental moves by U.S. lawmakers.
In granting Imperial's request for a hearing on the matter last week, Federal Court Justice Yves de Montigny rejected Imperial's call to quash the revocation, saying it is of "crucial importance to resolve all the uncertainties, legal and otherwise, before embarking on such an important project."
Imperial, which already has 1,000 workers at the Kearl site 70 kilometres north of Fort McMurray in northeastern Alberta, started initial work for the mine after receiving the Fisheries permit in early February and said the loss of the permit hasn't yet stopped preliminary site preparation.
However, with temperatures now climbing above freezing around Fort McMurray, the Kearl site is about to turn into a water-soaked boreal forest bog - and the important prep work of "de-watering" the proposed mining territory, set for this summer, cannot happen without the permit.
The proposed mine, which was scrutinized during 16 days of public hearings in late 2006, is viewed by the green groups as a flashpoint in the frenetic development of the oil sands and as an opportunity to challenge Exxon Mobil, considered by activists as the world's least environmentally friendly oil company and a long-time denier of global warming. The groups say that the project will mine an area of undisturbed boreal forest larger than 20,000 football fields.
While initial work at Kearl has begun, the biggest factor as Imperial's board weighs going forward with the project is the escalating cost of development.
For investors, the court fight over Kearl is unlikely to heighten concerns about environmental exposure, said Len Racioppo, president of money manager Jarislowsky Fraser Ltd., one of the Imperial's largest shareholders.
"We all know there's a very significant environmental risk in the oil sands - we've always known that," Mr. Racioppo said. "The court case isn't going to start a round of discussions among our analysts whether we should own or not own Imperial."
Imperial stock, buoyed by record oil prices, is near an all-time high - the shares have risen about 240 per cent in the past five years, compared with a gain of about 110 per cent for the S&P/TSX composite index.
Sean Nixon, a lawyer at Ecojustice who took on Kearl in court for the environmental groups, said Fisheries made the right decision to pull the water permit while the overall approval for the project is in limbo.
"It's always been our opinion that once you've shown a flaw in the environmental assessment, everything else that flows from that is flawed," Mr. Nixon said.
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