Oil

When it entered into the NAFTA in 1994, Canada undertook a specific obligation with respect to petroleum development projects off the coasts of Newfoundland and Labrador. At that time, Canada had in place a local content requirement for such projects that was contrary to the NAFTA’s prohibition of performance requirements. Canada’s treaty partners allowed it to keep the local content requirement that existed in 1994, but they did so based on Canada’s explicit obligation not to put into place any new local content requirement or make the one existing in 1994 more restrictive.

In November 2004, the Canada Newfoundland Offshore Petroleum Board adopted Guidelines for Research and Development Expenditures (the “Guidelines”) that require investors in offshore petroleum projects to pay millions of dollars per year for research and development in the Province of Newfoundland and Labrador. The Guidelines required investors to pay any moneys assessed that could not be spent on research and development into a fund. The
new Guidelines thus assured that, regardless of whether there is any commercial need for such expenditures or whether there are sufficient resources in the Province to absorb them, investors will have to pay out millions every year.

The Guidelines are far more restrictive than the local content measures that existed in 1994.

Accord Act>

To create a legal regime for exploitation of these and other offshore fields, in 1985 the Canadian Federal Government and that of the Province of Newfoundland and Labrador entered into a Memorandum of Agreement on Offshore Oil and Gas Resource Management and Revenue Sharing. The Federal and Provincial Governments enacted parallel legislation implementing this agreement, known respectively as the “Federal Accord Act” and the “Provincial Accord Act” and collectively as the “Accord Acts.” (Canada-Newfoundland Atlantic Accord Implementation Act, 1987, c. 3 and the CanadaNewfoundland and Labrador Atlantic Accord Implementation Newfoundland and Labrador Act, R.S.N.L. 1990, c. C-2).

The Accord Acts govern the conduct of petroleum projects in the Newfoundland and Labrador offshore area. They also establish the Canada-Newfoundland Offshore Petroleum Board to regulate such projects. (Federal Accord Act, s. 9; Provincial Accord Act, s. 9.)

To exploit a field in the area, project operators in the area must obtain a production operations authorization from the Board. The Board can suspend or revoke an authorization if a company fails to comply with any condition on which the authorization had been granted.

An applicant for an authorization must submit a “benefits plan” to the Board for approval (Federal Accord Act, s. 45(2); Provincial Accord Act, s. 45(2)). Benefits plans under the Accord Acts specify the preferences that operators will give to local goods, services and workers. The Accord Acts define a benefits plan as a “plan for the employment of Canadians and, in particular, members of the labor force of the Province … for providing manufacturers, consultants, contractors and service companies in the Province and other parts of Canada with a full and fair opportunity to participate on a competitive basis in the supply of goods and services used in any proposed work or activity referred to in the benefits plan.” Federal Accord Act, s. 45(1); Provincial Accord Act, s. 45(1).

Benefits plans must also “contain provisions intended to ensure that … expenditures shall be made for research and development to be carried out in the Province ….” (Federal Accord Act, s. 45(3)(c); Provincial Accord Act, s. 45(3)(c))

The Accord Acts do not specify any fixed amount or percentage of revenue to be spent on research and development.

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This entry was last updated: April 22, 2016