A NAFTA panel has ruled against Canada in a case about local investment by oil companies in Newfoundland and Labrador.
The panel ruled in favour of Mobil and Murphy Oil over their complaint that the province shouldn't require investors to put money into local research.
A spokeswoman for the Department of International Trade said the federal government is disappointed by the decision, which hasn't yet been made public.
"The ruling is extremely technical and requires careful review," Me'shel Gulliver Bélanger said in an email to CBC News.
"We are currently assessing the final decision to determine the best way forward."
The complaint stems from the companies' investments in the Hibernia and Terra Nova offshore projects.
The complaint to the NAFTA panel said that the Canada-Newfoundland Offshore Petroleum Board require investors in offshore petroleum projects to pay millions of dollars per year for research and development in the province and to put any assessed amount that can't be spent on R&D into a fund.
The guidelines mean 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 2007 complaint by Mobil Investments Canada said.
Canada argued the requirements were reasonable and that it had the authority under NAFTA to impose them.
The combined damages claimed by the two companies in 2007 was $50 million.
Ruling not 'unqualified victory'
Unofficial reports from a U.S. website broke the news Friday that Exxon Mobil Oil and Murphy Oil won a 2-1 decision by a panel under the North American Free Trade Agreement.
The report said Canada and the U.S. were advised on May 22 that the obligations for research and development spending imposed on the oil firms by the province breached Article 1106 of NAFTA prohibiting governments from applying performance requirements as conditions of investment.
The panel is seeking additional information before assessing a penalty, but the parties originally sought over $50 million in compensation.
Lawrence Herman, a trade lawyer with Cassels Brock, said the ruling was not an "unqualified victory" for the oil companies since the tribunal apparently rejected a second claim that the firms were denied fair and equal treatment.
And he speculated that given the split decision on the panel, the penalty may be less than the demand.
"Beyond that, this award illustrates that more and more provincial measures — as opposed to federal ones — are coming under NAFTA (challenges)," he said.
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