Nexen's Fracking Water License has Run Dry

October 01, 2015

In a decision released on September 3, 2015, the British Columbia Environmental Appeal Board granted the appeal of the Fort Nelson First Nation and cancelled Nexen's water license for the Tsea River Watershed area.[i] The Panel cited two reasons for reversing its decision to grant the license: 1) the technical flaws in the scientific evidence; and 2) the serious flaws in the constitutionally-required consultation process with the First Nation.

Background

The Tsea River watershed is an area in northeast BC covered by Treaty 8. Members of the Fort Nelson First Nation use the area to hunt, fish, trap, gather plants, inhabit cabins, and travel on a seasonal basis as their families did in the past.

Nexen obtained temporary licenses for water use between 2009 and 2011 under section 8 of the BC Water Act, allowing it to use water in the Tsea River area for its fracking operations. We previously discussed a recent decision of the BC Supreme Court upholding the practice of granting recurring short-term water use approvals for fracking operations under section 8 (see B.C. Supreme Court Upholds Recurring Short-Term Water Use Approvals).

Nexen was later granted a long-term license by the BC Natural Resources Ministry in 2012 under section 12 of the Water Act. The license allowed Nexen to divert millions of cubic metres of water for storage in dugouts and industrial use in fracking. The First Nation appealed the decision to issue the license to the BC Environmental Appeal Board.

Decision

In reaching its decision to reverse the granting of the license, the Panel relied on the following key reasons:

1. The scientific evidence supporting the application was fundamentally flawed.
   • The conclusion that the withdrawal of water would not have a significant impact on the environment was not supported by scientific precedent, appropriate modelling, or adequate field data. In addition, the data collected after Nexen began to extract water under the license indicated the environment was impacted. Further, the Panel found the license was inconsistent with the purposes of the Water Act, as it was based on inadequate data and a flawed design.
   • The Panel also noted that the Water Act does not expressly require an applicant to provide information about the potential environmental impact of a proposed license. However, the broad discretion under the Water Act to require further information allows the Panel to consider such impacts when ruling on an application. Since this unprecedented large-scale operation created significant uncertainty and a high level of risk, the Panel found that additional information about the potential effect on the environment was required.
2. The Province failed to consult with the First Nation in good faith.
   • The Province has a duty to consult regarding the potential impact of the license on the First Nation's treaty rights. Given the importance of the Tsea River area to the First Nation, the Panel held that the level of consultation required was at the mid-range of the spectrum set out by the Supreme Court of Canada in Haida Nation v British Columbia (Minister of Forests), 2004 SCC 73.
   • The Panel found the consultation process undertaken by the Province suffered from a lack of clarity as to each party's role and expectations. Although the Crown may delegate procedural aspects of the duty to consult to industry proponents, there was no evidence that the Province intended to delegate any aspect of the process to Nexen. Nexen's role was never clearly defined, and therefore any consultation undertaken by Nexen did not serve to discharge the duty of the Province.
   • The Panel also found that the Province did not define the nature and scope of treaty rights that could be adversely affected by the license during the consultation process, in part due to the failure of the First Nation to disclose relevant information about the exercise of its treaty rights in the area.
   • Ultimately, the Panel held that the Province failed to consult in good faith and that the consultation process was inadequate and fundamentally flawed. The Province's correspondence demonstrated that the Province intended to issue the license notwithstanding that the Province did not have specific information about treaty rights in the area and regardless of any future meetings that might occur with the First Nation.

In determining the appropriate remedy, the Panel acknowledged that Nexen will suffer some prejudice due to the loss of the license. However, the Panel suggested that this prejudice was diminished since Nexen has enjoyed use of the license for more than half of the term and that Nexen indicated a willingness to explore other water sources. Given the risks to the environment and the exercise of treaty rights, the Panel held that cancelling the license was the appropriate remedy, but that Nexen could continue to store and use the water that it has already diverted.

Future Implications

This decision will have a significant immediate impact on Nexen's fracking operations, as well as broader implications for the industry. The Panel expressly stated that some of its findings were intended to provide guidance to Nexen in the event it applies for a new water license to divert water from the Tsea River watershed. The Panel's reasons indicate that future applicants for licenses under section 12 of the Water Act should have sound scientific precedents, modelling, and data in support of their application. In addition, the decision highlights that it is advisable for companies applying for a license to operate in areas subject to Aboriginal and treaty rights to review and monitor the history of consultation with First Nations in the area and to ensure that any delegated aspects of the consultation process are clearly defined.

If you have any questions about the decision and how it may affect you or your business, please contact Mike Theroux, Brad Gilmour, or Laura Gill.

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