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B.C., Alberta fastening seat-belts Land sales steady in British Columbia, Alberta sales down; both provinces bracing for pullback; tougher for small companies Gary Park For Petroleum News
British Columbia continues to flourish, while Alberta flounders at government-run auctions of exploration rights, although both are bracing for a sharp industry pullback.
What would previously have been a headline-grabbing event, but is now in the hum-drum category, saw the British Columbia government rake in C$151 million at its October sale, raising the year-to-date total to C$2.46 billion (compared with C$591 million at the same time last year), with two auctions to come.
Meanwhile, Alberta collected just under C$39 million, lifting its tally from 20 sales this year to C$1.07 billion, about C$110 million behind a similarly undistinguished performance at the same time last year.
But the Alberta government is digging in, refusing to bend at this point on plans to impose royalty increases on Jan. 1.
Energy Minister Mel Knight told a Calgary conference that adjustments are only possible if the province finds the increased take damages its economy.
“It is only fair for me to tell you that implementation of the new royalty framework will proceed,” he said.
At the same time, Knight said “the door is never shut and we continue to work with our industry partners to be sure that as we move forward ... we do so in a manner that does not have negative effects on our economy.”
He said “this isn’t the first time the energy industry and the government of Alberta have been called upon to partner up, get in harness and pull this thing together and make it work for Albertans and for Canadians and I believe we will be able to do that again.”
Concerns about credit, taxes John Brussa, senior partner with the law firm of Burnet Duckworth and Palmer, was less upbeat, arguing the Canadian oil industry will find it tougher today to “drill for oil on Bay Street (the Canadian equivalent of Wall Street) than it is in Alberta.”
Murray Edwards, vice chairman of Canadian Natural Resources, said the pending royalty hike along with a high-cost environment and current commodity prices mean Alberta is “the least attractive regime for conventional natural gas in North America right now.”
He told reporters at the conference that given Alberta’s punitive royalty regime, the current fragile condition of capital markets and the free-fall in commodity prices, new gas projects in Alberta would be uneconomic.
Edwards said Alberta is misreading the tea leaves in the prevailing economic and business environment by not throttling back on its royalty changes.
“I think the industry was hoping to see some kind of step back or pause from government to reflect what’s happening globally and given what we’re seeing in other jurisdictions. I think there’s still a fair bit ... of concern about where we sit in Alberta relative to other jurisdictions,” he said.
Dave Collyer, president of the Canadian Association of Petroleum Producers, offering a candid assessment of the investment outlook, said that if he was on the board of a company “I would not be recommending that decisions should be made now, whether it’s on a big project or the future of the company.”
He said there is a “need for good public policy in this environment with a view to some of the longer-term issues ... not getting too caught up in the near term but also recognizing there’s some tough public policy decisions that need to be taken around some of these near-term issues.”
Edwards said it will be tougher for smaller companies to ride out the storm, given the state of their balance sheets and cash flows, but he is not counting on a wave of mergers and acquisitions in the short-term, expecting instead that larger companies will focus on “keeping their own house in shape” rather than taking out rivals.
“I don’t see anybody having great aspirations to look for acquisitions given the uncertainty out there,” he said.
B.C. concerned with sales Even British Columbia Energy Minister Richard Neufeld is conceding his province’s run of blockbuster land sales is likely winding down because of the economic downturn and the fact that the most desirable land positions have been locked up.
“As B.C.’s oil and gas industry moves towards the production stage, interest remains solid,” he said in a statement. “We continue to be very pleased at the level of investor interest.”
The latest sale generated leases and drilling permits for 99 parcels covering 68,429 hectares (one hectare is 2.471 acres), while the Nov. 12 sale is offering 57 parcels covering 41,793 hectares, reinforcing Neufeld’s outlook.
Regardless, British Columbia has seen its average per-hectare price soar to C$3,657 this year from C$1,441 in 2007, while Alberta has slumped to an average C$364 from C$458.
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