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Alberta tested by neighbors’ land sales
Gary Park For Petroleum News
The evidence keeps piling up that British Columbia and Saskatchewan are no mere one-day wonders in the Western Canadian oil patch as the two provinces flanking Alberta keeping eating away at the Canadian energy stronghold.
B.C. raked in C$152 million from its March 26 lease sale, lifting returns from auctions in the 2007-08 fiscal year to C$1.2 billion, nudging Alberta off its top rung.
That more than doubled the previous benchmark of C$625.7 million set in 2003-04, propelled by an 89 percent surge in average per hectare prices to C$1,863 from last year’s C$984.
B.C. Energy Minister Richard Neufeld had no doubt that the land sales have made B.C. the “top jurisdiction for oil and gas investment.”
Saskatchewan is also on a roll, pocketing C$192 million from its February sale (the province holds auctions every second month, compared with monthly in B.C. and twice a month in Alberta).
That was a new single-sale record and was close to what the province once considered satisfactory for an entire year.
The attractions are no longer in doubt — the Montney play in northeastern B.C. and the Bakken formation in southeastern Saskatchewan.
Equity investors endorse Bakken Bakken has just received a ringing endorsement from four leading equity investors — Riverstone Holdings, Kelso, Goldman Sachs and Trafelet — which contributed 81 percent of the C$625 million either raised or committed to privately held Shelter Bay Energy, one of the frontrunners in the Bakken light oil play.
That financing was raised to C$625 million from C$300 million so that Shelter Bay could capitalize on the significant expansion opportunities at Bakken, where original oil in place has soared over the past year to 4 billion barrels from 1 billion barrels.
The remaining 19 percent of the financing came from Crescent Point Energy Trust, itself a key Bakken operator, which acquired 20 percent of Shelter Bay for C$60 million two months ago when it took over Landex Petroleum for C$310 million.
Crescent Point also has the option to either increase its interest or buy out Shelter Bay at any time between Jan. 1, 2010, and Dec. 31, 2012.
Following closure of the Landex plan, Crescent Point acquired from Shelter Bay the non-Bakken assets of Landex, which produce 1,500 barrels of oil equivalent per day, for C$80 million.
That left Shelter Bay with 3,000 boe per day of Bakken production for C$230 million.
Crescent Point was blocked from an outright purchase of Shelter Bay by Canadian government “limits to growth” rules covering income trusts until trusts lose their preferential tax status in 2011.
Common CEO However, Shelter Bay is managed through a technical services agreement with Crescent Point, with both entities having a common chief executive officer in Scott Saxberg, who said the strong response to the Shelter Bay financing was a vote of confidence in Bakken, giving the junior company an opportunity to grow through acquisitions, development and drilling.
In addition to its output, Shelter Bay has accumulated 35,200 gross acres of Bakken land and has a drilling inventory of more than 200 locations.
With C$400 million available from the private placement and a C$40 million bank line, it is well positioned to execute its business plan.
Crescent Point derives 75 percent of its current production of 35,000 boe per day from southern Saskatchewan and doubled its proved plus probable reserves to 70.7 million boe last year through exploration and development.
It has an estimated “low risk” drilling inventory of 1,400 net locations and its 2008 capital budget of C$225 million includes 79 Bakken wells, plus 20 net wells as part of its Shelter Bay farmout.
Typical of other Bakken players, TriStar Oil & Gas drilled 18 wells in the formation last year, booking proved plus probable reserves of 480 million boe. With 718 drilling locations, it plans to spend 70 percent of its 2008 capital budget of C$260 million in southeastern Saskatchewan, boosting that program by C$40 million in March because of its latest Bakken land purchases.
B.C. competition strong In British Columbia, three parcels in the Horn River region — which has been put in the same league as the Barnett shale gas play of Texas — were sold in the March auction for C$51.1 million, although the successful bidder has not been disclosed.
A report by FirstEnergy Capital said the frantic pace of land acquisitions is likely to extend to the April sale, describing the rush as a “massive land grab equivalent to that of the oil sands binge in Alberta during late 2005 and early 2006.”
Greg Scott, president of Scott Land & Lease, one of Western Canada’s top land brokers, expects to see competition intensify in B.C., adding there is no question Saskatchewan has similar momentum.
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