Legal bills mount in B.C. pursuit of LNG project
No guarantees: More than $1 million spent as province vies for Petronas commitment
VICTORIA hen the B.C. Liberals entered into negotiations for the province’s first liquefied natural gas project, they sought out some highpriced legal help from the same neighbourhood as the lead proponent, Malaysia-based Petronas.
“The lead legal team for this work was the firm of Shearman and Sterling,” Finance Minister Mike de Jong advised the legislature last week during debate on the Petronas agreement. “Their office in Singapore specializes in the LNG sector.”
Senior partner Anthony Patten was the principal lawyer for B.C.
“Anthony is ranked as a leading oil and gas lawyer,” the firm’s website states. “There aren’t many lawyers who’ve worked across the entire LNG chain.”
In light of that testimonial, de Jong’s followup comment comes as no surprise: “I would say, and I don’t think I will offend the firm, that they’re not cheap.”
“That’s usually considered a compliment in legal circles,” returned Opposition critic Bruce Ralston, who is himself a lawyer, albeit not in the highpriced range.
De Jong wasn’t able to quantify the total billings by Patten and his firm. But public accounts disclose a tab of $1,031,896 for the financial year ended March 31. As talks on the project development agreement continued into the current year, further billings are likely. Ralston wanted to know what taxpayers got for their money.
The agreement provided Petronas and its partners with 25 years worth of protection against changes on specified taxes and regulations that target the LNG sector.
“Has Petronas committed to construction of the facility?” asked Ralston. “Can I stand here today and with certainty say that by such and such a date, construction will begin on the LNG facility contemplated by this agreement?” replied de Jong. “The answer is no. I can’t do that.”
The proponent still has to secure approval from the local First Nation and successfully navigate through the federal environmental approval process. Nor does the project development agreement bind the company in so many words to proceed with construction of an LNG terminal.
“If I left the impression that anything in the material we are considering represents an ironclad legal guarantee, then I apologize,” said de Jong. “I didn’t mean to convey that, and that would be incorrect.”
Still, the finance minister insisted the agreement did lock the company into a timetable for proceeding. Over the next 24 months, Petronas is obliged to sign off on a series of “project certainty matters,” producing contracts for a specified range of design, engineering, supply and construction work.
“We’re entitled to see that,” said de Jong. Moreover, if the province is not satisfied by the timelines for those contracts, it can withhold implementation of its side of the project development agreement or walk away altogether.
Ralston remained skeptical. While the 24-month period was indeed written into the agreement, the only other requirement was that the company begin “commercial operations” by Dec. 31, 2025.
“There’s a very long window there in which the company, despite their verbal assurance of saying they’re going to construct, doesn’t have to, and they would not be in breach of the contract.”
What was to stop Petronas and its partners from dragging their feet on actual construction until market conditions improve? Or even deciding in, say, “2021 or 2022 that they no longer wish to proceed with construction?”
Not likely, said de Jong. “To the extent that this agreement includes provisions that are beneficial to the proponent, the beneficial nature of those provisions flows when the LNG flows.” Until then, “the Crown hasn’t expended anything,” other than on legal bills and staff work.
But once Petronas has signed on to all those contracts, it is locked into terms with partners, suppliers, shareholders and others.
“If the proponent were to suddenly say, ‘Well, we’ve changed our minds,’ ” the finance minister observed, “the bonanza of litigation would involve the proponent and these third parties.”
In any event, he assured the house, the agreement secured with the assistance of the aforementioned $1 million worth of legal advice was the best that could be accomplished.
“Short of putting a shovel in the hand of the CEO and saying, ‘Build,’ I’m not sure what else the MLA is looking for,” he closed.
“What could be done, short of putting a shovel in the hands of the CEO?” echoed Ralston. “I agree that is a dilemma.”
But it also underlined his point, that LNG companies are big enough to cut their losses and walk away.
“The minister seems to assume from his perspective that the deal is so good that the company will not back out of it,” said Ralston. “What I am endeavouring to point out is this company and its partners operate globally. From their perspective, if market price doesn’t make the project economic at some point in the future, they may be willing to forgo the benefits of this agreement for better opportunities elsewhere.”
A fair point, but one that somewhat undermined the NDP’s other line of attack, namely that the B.C. Liberals gave away the store. For if the deal is as one-sided as they say, wouldn’t Petronas be scrambling to cash in on this never-to-be-repeated sellout before the next election?
Still, I share Ralston’s skepticism. For all the talk of certainty from the government side, the promised investment in LNG by Petronas and its partners is best filed under the heading of: “Believe it when you see it.”