Western Canadian governments pin hopes on new liquids-rich plays
Vancouver, British Columbia (Platts)--26Dec2012/114 pm EST/1814 GMT
Government auctions of oil and natural gas exploration rights in Western
Canada have fallen to some of their lowest levels in the last 15 years and
hopes of a recovery in 2013 hinge on operators making a breakthrough in new
liquids-rich unconventional plays, according to consulting firms.
Land sales in Alberta, the traditional barometer of industry confidence,
slumped to C$1.12 billion ($1.13 billion) this year, down from last year's
record of C$3.64 billion.
Gas-driven British Columbia fell to its lowest dollar value since 1998
and lowest land area since 1978, with bid revenues slumping to C$139 million
from C$223 million in 2011 after posting C$7.7 billion in the previous decade
from its unconventional plays in the Montney, Horn River and Liard basins.
Saskatchewan, which relies heavily on a mixed bag of shale plays in its
Bakken and Lower Shaunavon formations, dropped to C$106 million from C$249
million in 2011.
The combined C$1.36 billion raised by the three provinces paled in
comparison with the record-setting years of C$4.24 billion in 2008 and C$5.01
billion in 2009.
Brad Hayes, president of Petrel Robertson Consulting, said Alberta and
British Columbia will need a surge in high-priced parcels within established
fairways, or the emergence of new fairways if they are "to see an increase in
overall land sale revenues."
Weakened industry confidence based on the outlook for natural gas prices
and, in Alberta's case, uncertainty over oil sands development until new
markets in the US, Canada and Asia are opened, was mirrored in the sharp drop
in land volumes and average land prices.
In Alberta, 3.16 million hectares (8.89 million acres) changed hands
this year at a per-hectare average of C$355, compared with 4.6 million
hectares at an average C$790 in 2011.
Saskatchewan sold 397,119 hectares at an average C$266, compared with
504,395 hectares averaging C$493 million last year.
British Columbia easily led the per-hectare average at C$1,020 from
136,521 hectares, after nosediving to 191,534 hectares in 2011 at a
pre-hectare average of about C$1,303, following several years of averages
Hayes said many companies in Alberta are looking for expiring leases "so
we will continue to see the odd high-priced parcel spring up."
He also said there are indications that someone has identified a deeper
play in the southern Duvernay shale fairway, which has attracted intensive
land sales, drilling and deal-making in the past two years and could point to
a deeper carbonate play.
Steven Hager, senior exploration analyst with Canadian Discovery, said
heavy spending in the Duvernay acreage at Alberta's last sale of 2012
included one parcel of 3,840 acres that "is a typical mixed rights block"
offsetting wells drilled by Encana, Talisman Energy and Sinopec Daylight
Energy probing liquids-rich shale gas potential.
In British Columbia, the main target is the Montney play, where
operators are expanding east and north of the original play, where liquids
and oil are "likely to be more abundant in updip areas than in some of the
deeper parts of the fairway," he said.
Hayes said there is "still long-term value in British Columbia's main
drivers, such as the Montney and other unconventional reservoirs. It appears
to me that land sales in British Columbia are more focused on high-value, hot
In Saskatchewan, Energy Minister Tim McMillan on Monday said he was
encouraged by bids of more than C$1 million on each of two oil sands permits,
where operators are turning their attention to prospects on the eastern edge
of Alberta's big regional plays.
He said the government is optimistic that the results of "exploratory
oil sands work will provide further insight into the potential of the
resource in this province."
But Hayes said the distance of Saskatchewan's oil sands deposits from
infrastructure will add "greatly to capital expenditures. With there being
far fewer thermal projects and no oil sands mining in Saskatchewan, investors
might discount value," he said.
--Gary Park, firstname.lastname@example.org