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British Columbia shatters land records Fierce competition for Montney, Horn River rights triples average prices; Apache Canada ‘blown out of water’ by results Gary Park For Petroleum News
British Columbia is well on the way to shoving Alberta off its previously challenged spot as the leading Canadian province in auctioning oil and gas exploration rights.
Powered by staggering exploration results and rave reviews about the potential of its unconventional gas prospects at Horn River and Montney, growing confidence in the long-term outlook for gas prices and emerging new technology for multi-stage fracturing, B.C. notched another success at its May auction.
Successful bidders paid C$441 million for 46,284 hectares (114,368 acres), beating the previous monthly high of C$418 million in September 2003.
The per-hectare average price was a staggering C$9,538, shattering the record C$2,915 set in December 2007. The sale also set a record-high average price for drilling licenses of C$10,990 per hectare, eclipsing the April mark of C$3,638.
Apache Canada picked up three parcels in the Horn River Basin, near the Northwest Territories border, but was outbid in Montney.
Company President John Crum admitted “we got blown out of the water.”
He told his staff their recommended Montney bid was too low and would likely be doubled.
But the winning bids were “more like five times greater. … These are take-your-breath-away kind of numbers,” Crum told the Financial Post.
Neufeld: resource potential proven B.C. Energy Minister Richard Neufeld said setting so many records in a single sale is proof that the province’s resource potential “isn’t just promising, it’s proven and companies are getting remarkable results here.”
He said the “escalating productivity and value of the oil and gas sector signal a bright future for British Columbia.”
Jason Crumley, an analyst for Salman Partners, said northeastern B.C. is “definitely an exciting, attractive play,” driven by improving technology-driven economics, notably the use of multi-stage fracturing that can deliver precise fractures along a horizontal well bore, allowing gas to seep more easily into the well.
Key parcels in the sale were three drilling licenses in the Montney’s Stewart Creek area, 25 miles southwest of Fort St. John.
One attracted a bid of C$25,383 per hectare (close to a Canadian record) for a total of C$140 million and two came in at C$20,355 per hectare for totals of C$102 million each.
The other leading area involved five parcels within Horn River, almost 60 miles northeast of Fort Nelson, which generated a C$52.1 million tender bonus at an average price of C$3,275 per hectare. One parcel of 4,964 hectares topped C$5,000 per hectare for a bonus of C$25.36 million.
The next sale is scheduled for June 18, offering 99 parcels covering 61,482 hectares.
Apache estimates 9-16 tcf Gregg Scott, president of Scott Land and Lease, the leading broker in Western Canada over the past 20 years, said companies are increasingly shifting their attention following the dizzying exploration successes reported by Apache (which raised its estimated resource potential of its Ootla discovery to 9-16 trillion cubic feet from an original 3-6 tcf), EOG Resources (rating the potential of its find at 6 tcf) and Nexen (which has pegged a discovery at 6 tcf).
Yet to report from its operated wells is EnCana, which has a joint-venture program with Apache.
Bolstering optimism are two recent reports by consulting firms.
Wood Mackenzie said recoverable resources at Horn River could be 37 tcf and might exceed 50 tcf if future discoveries match those of Apache, EOG and Nexen.
AJM Petroleum Consultants said the Upper Montney region, although not rated as a pure shale play, has estimated gas-in-place of 50 tcf, although Chief Executive Officer Robin Mann said that even if the potential is cut in half “we have a major resource we didn’t even have two or three years ago.”
Scott said a “lot of stars are lining up right now — gas prices, the developing size and scope of the Montney play.”
He expects there will be more similar sales because “there is a lot of land in B.C. that could still be posted … anything is possible when you get momentum and success.”
Dave Popowich, a research associate at Tristone Capital, said the May B.C. sale is a dramatic comment on the determination of bidders to take control of prospective parcels.
U.S. company bid high He said one of the U.S. companies is likely to have made the heaviest outlay in the Montney.
“Whoever it was had to want it really bad,” Popowich said.
In addition to Apache, EOG, EnCana and Nexen, known players are Murphy Oil, ARC Energy Trust, Talisman Energy and Duvernay Oil.
Andrew Boland, research head at Peters & Co., said that “given the amount of money that went out the door, who knows who it was?” He listed BP and Shell Canada as other possible contenders.
Boland believes the Montney could flow 4-5 billion cubic feet per day, more than 20 times its current rate, and be profitable with gas prices at $6-$7 per thousand cubic feet.
B.C. almost matches Alberta Alberta, which has estimated remaining gas reserves of 41 tcf, is starting to reel from the success in B.C., which collected C$1.2 billion in land sales revenues last year, coming within C$200 million of Alberta.
To date this year, B.C. has raised C$759 million in sales of exploration rights covering 216,028 hectares, compared with C$107 million for 107,895 hectares at the same time last year.
Alberta auctions have fetched C$352 million on 996,204 hectares at an average C$354 per hectare, lagging far behind the C$565 million, 1.25 million hectares and per-hectare average C$452 for the same period of 2007.
Scott said that although “things are starting to perk back up” in Alberta because of high commodity prices, some companies have been hurt by Alberta’s planned royalty increases and have moved into B.C. and Saskatchewan.
But he argued that royalties are only one factor in land-buying decisions. They are accompanied by the prospectivity of specific rocks and the commodity price outlook.
He said it is not certain that money spent in B.C. would have gone to Alberta, although B.C. has invested heavily in improving its infrastructure and competitiveness.
Jason Chance, a spokesman for the Alberta Energy Department, said it was “overly simplistic” to suggest that B.C.’s land sales returns were coming at the expense of Alberta.
He said the government is confident the new royalty framework achieves the “right balance.”
Chance said that over the long term there might be some decline in land sales revenue because of the higher royalties, but that will be offset by higher revenues from the royalty increases.
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