Friday, June 26, 2009

Natural Gas Speculation in British Columia, Canada

Alberta is lagging behind British Columbia in terms of oil and gas land sales for the year, as companies in search of the next big play flock to that province.

One week ago, British Columbia had the ninth biggest oil and gas land rights sale in its history, amassing more than $178 million in bonus bids in the monthly auction – triple the combined total for the last five sales.

Eight of the bids in the June 17 sale were on parcels of land in the Horn River Basin, north of Fort Nelson, for a total of $173 million.

Comparatively, in Alberta’s June 10 land rights sale, 66 parcels of land were bid on in northern Alberta, including the Peace Country, for a total of more than $5.6 million.

So far in 2009, bids were made on 1,057 parcels of land in northern Alberta, netting more than $66 million, less than half of last week’s B.C. sale alone.

The next provincial land rights sale takes place today.
In the B.C. sale, companies paid between $2,100 and $11,765 per hectare; in Alberta the average price this year per hectare is $144.27.

But regardless of the numbers, the province says it remains confident in the future of its petroleum industry.

“There’s certainly an interest in the play that’s going on in northeastern B.C. and whenever something like this occurs – when there’s a big play – there’s a rush to the epicentre,” Alberta Energy department spokesman Bob McManus said from Edmonton.

“But that play will extend to Alberta in time. We’re confident that there will be activity in Alberta as a result of that play, portions of it do extend across the border into Alberta.”

But Kevin Rathburn, vice-president of the Grande Prairie Petroleum Association, said that in addition to the popularity of the Horn River natural gas play, the new provincial royalty framework implemented on Jan. 1 is discouraging companies from the province.

“I would say it’s probably the royalty scheme. It’s cheaper in B.C. to drill, you get more money back, our royalties are higher so there’s less (activity here),” Rathburn said.

“It’s just cheaper for them. They get a better return on the dollar with the lower royalties.”

Low natural gas prices, currently at less than $4 a gigajoule, are also affecting where companies decide to set up shop, he said.

“We (Grande Prairie) are in a mature field, so there’s going to be a rush for a new, hot play,” he said. “And there’s still going to be lots more infield drilling in the Grande Prairie area, but not at $3.90 per gigajoule. At that price they can’t make any money out of it.”

However, McManus said incentives introduced by Energy Minister Mel Knight in March are attractive for companies. The province is offering a $200-per-metre royalty credit to companies that drill new wells between April 1 and March 31, 2010.

In addition, a five per cent royalty rate will also be levied on the first year of production from wells drilled during that time period – a substantial amount less than the royalty regime that came into effect on Jan. 1.

“We have royalty schemes in place here in Alberta which are very attractive, certainly especially in terms of deep wells, so we feel that we are very competitive from that point of view,” McManus said.

“Right now especially, many wells which are operating in Alberta are paying lower royalties than they would in British Columbia or in Saskatchewan.”

For his part, B.C. Energy Minister Blair Lekstrom said last week’s land rights sale demonstrated that oil and gas companies are confident in the province’s future.

“I think it shows investor confidence in our province and in what we’ve been able to accomplish here through our regulatory regime, through the royalty incentive programs we’ve set,” Lekstrom said from Victoria.

Asked if B.C. has been actively courting companies leery of Alberta’s new royalty framework, Lekstrom said the province has been focusing on what it can do from within its own borders.

“We’re focused on what we have to offer, not on what others have done or haven’t done,” he said. “We’ve made it very clear at the beginning we have some ideas on what we’d like to do to attract investors and their capital to come to our province.”

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