|
Not such poor cousins Provinces flanking Alberta thrive on petroleum revenues, but edgy about near-term outlook for natural gas prices By Gary Park For Petroleum News
The often-overlooked book-ends to Alberta’s bulging oil and gas industry are smiling all the way to the bank.
Saskatchewan and British Columbia, which flank their staggeringly rich neighbor, keep piling up numbers on a scale that once left Alberta feeling good about itself.
For Saskatchewan, oil and gas is one way to partly overcome the desperate plight of Prairie grain farms and prevent a further drain on a population of under 1 million.
The sector currently contributes about 11 percent to government.
Spending on exploration for oil and gas, base metals and minerals was C$2 billion last year and is expected to surpass that level this year.
On the oil front alone, Saskatchewan pumps about 155 million barrels per year — second only to Alberta — accounting for 18 percent of Canada’s production, of which 70 percent is exported to the United States.
It has 35 billion barrels of predominantly heavy oil in place, only 15 percent of which is recoverable employing proven technologies, but research is expanding those horizons.
Gas output is close to 340 billion cubic feet per year from recoverable reserves of 2.7 trillion cubic feet, although the National Energy Board rates the province’s potential at 9 tcf.
The Petroleum Services Association of Canada is counting on 3,400 oil and gas wells this year —lagging behind last year’s 3,734 completions — but the government views that forecast as being on the “low side” given drilling and licensing so far this year and the pace of land sales.
By mid-February 361 wells were drilled and 414 were licensed, compared with 291 and 378, respectively, in 2005.
Sales of petroleum and natural gas rights have raised the total for the 2005-06 fiscal year to C$141 million, easily ahead of the five-year average of C$100 million, while the average per hectare price has more than doubled to C$400.
Industry and Resources Minister Eric Cline said the industry’s confidence in the province coupled with commodity prices and cash flow is “fueling an ongoing exploration momentum. Continued acquisition of rights bodes well for the future strength of our top industry.” Saskatchewan’s economy growing The mood is so buoyant that Saskatchewan’s economy — lifted by uranium and potash mining and the world’s largest production of lentils and mustard seed — is predicted to grow by 3.9 percent in 2006, pushing its per-capita Gross Domestic Product ahead of Ontario, once the economic engine of Canada.
“Everyone knows that Alberta is an energy powerhouse, but we are the other energy powerhouse,” said soft-spoken Premier Lorne Calvert, who recently touted his province’s resources in a meeting with U.S. Vice President Dick Cheney.
“We made it clear we want to contribute to continental energy security,” Calvert said after that session.
To that end, Saskatchewan is working with the U.S. Department of Energy and the industry to advance the carbon sequestration process, using two projects to inject carbon dioxide and prolong production from aging oilfields, while trapping greenhouse gases in the reservoirs.
Calvert said experts have predicted that 50 such projects would allow Canada to meet all of its emission requirements under the Kyoto Protocol.
As well, the Saskatchewan government requires 7.5 percent ethanol in gasoline, opening the way to a reforestation program.
In the works are plans for more heavy oil upgraders, in addition to Husky Energy’s facility at Lloydminster, and experimental projects to tap into deep oil sands deposits and oil shale. B.C. projects C$2.8 billion from oil and gas On the west coast, the British Columbia government continues to revel in the strong commodity cycle, projecting revenues of C$2.8 billion from oil and gas royalties in 2006-07 — the largest source of revenues at 8 percent after taxes.
Once petroleum lease sales and electricity exports are rolled in, Finance Minister Carole Taylor is projecting returns of C$3.4 billion.
Land sales alone have reached C$105 million so far this year, compared with C$43.4 million a year ago and average per-hectare prices continue their upswing to C$748 from C$614 in 2005. For fiscal 2005-06, land sales have raised C$482 million, with two more sales remaining before March 31.
But, like all forecasters, the struggle for the B.C. government is to get a fix on volatile gas prices, which have gyrated from US$13.95 per million British thermal units to under US$7 in the last two months — a range that could translate into anywhere from C$2 billion to C$4 billion in returns for the province.
“Oil and natural gas prices are expected to remain high and volatile in the short term,” Taylor said.
For every US$1 shift, the province’s royalty revenues rise or fall C$300 million.
To guard against a severe impact on the province, Taylor, in forecasting a budget surplus of C$1.45 billion in 2006-07, set aside a hefty C$850 million as a contingency to cover revenue shortfalls if gas prices tumble.
The British Columbia government is bracing for tougher times by planning for a decline in gas prices over the next three years, which would be exacerbated by a cooler-than-average U.S. summer at a time when gas storage is expected to enter summer up 50 percent at 1.5 tcf.
Equally troubling is the prospect that other British Columbia gas explorers might follow the lead of EnCana and slash their upstream budgets.
The budget includes provisions to enhance oil and gas development opportunities in the province’s Central Interior, where the mountain pine beetle has ravaged millions of acres of forest.
Energy Minister Richard Neufeld sees an opportunity, after affected trees have been cut, to accelerate geological and seismic surveys of the Nechako and Bowser basins. Extension of royalty and incentive programs planned The government also plans to extend its targeted royalty and incentive programs, including the possible introduction of net-profit royalty systems to open up new areas. An updated plan is expected by the fall.
But, whatever hopes Saskatchewan and British Columbia have, the chances of closing the gap on Alberta are negligible, with the Canadian government forecasting a 10.6 percent hike in non-conventional oil extraction in Alberta this year to C$10.8 billion.
Roll in spending on conventional oil and gas extraction and Alberta is predicted to see total investment of C$28.4 billion, more than two-thirds of the C$39.2 billion expected across Canada, up C$2.5 billion from 2005.
In all, that points to another year when the Alberta government can deliver on what it now calls a key priority — saving surplus resource revenues for future generations.
For the first time in more than 20 years it plans to inject C$1 billion into the Alberta Heritage and Savings Trust Fund, which now sits at about C$12 billion, a level that is unchanged since 1987.
Former premier Peter Lougheed, whose government started the fund, has been urging the government of Premier Ralph Klein to commit 30 percent of energy revenues to the fund before the opportunities evaporate, but the government remains undecided about the most appropriate way of saving.
| 