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November 2008

Vol. 13, No. 47 Week of November 23, 2008

British Columbia: Rich get richer

B.C. eager to turn land sales into production; prospect of common tolling system with Alberta pipelines could unlock big plays

Gary Park

For Petroleum News

For British Columbia, it’s a case of success spawning success, with the province pocketing another C$114 million from its November sale of leases and drilling licenses, pushing the 2008 total to about C$2.57 billion.

That, for Energy Minister Richard Neufeld, is all well and good.

What he now wants is a “transition to the production stage,” turning what has been a “banner year … into the benefits of being a resource-rich province.”

While his neighbors in Alberta scratch their heads and ponder the merits of their royalty hikes, British Columbia may have even more cause to celebrate within a few months.

Because its most prolific plays are far-flung and difficult to access, the province, despite its programs to stimulate year-round drilling and help the industry build roads and gathering pipelines, can only go so far.

Pipelines needed

Without pipelines, the gas riches of Montney and Horn River will merely sit in the ground.

But a solution could be in the offing, with the National Energy Board expected to rule in the first quarter of 2009 on an application by TransCanada to allow rolled-in tariff rates for British Columbia and Alberta pipelines.

That requires shifting TransCanada’s Nova Gas Transmission network in Alberta from provincial to federal jurisdiction.

Dave Murray, TransCanada’s manager of commercial supply for Canadian pipelines, told a Calgary conference the change would not automatically see new facilities in British Columbia rolled into the Alberta pipeline network, but would set the stage for that to happen.

A change in jurisdiction would allow a “debate with our stakeholders about the appropriateness” of giving British Columbia gas the same commercial treatment as gas produced in Alberta.

It could also help unlock the potential of the Montney tight gas and the Horn River shale gas plays by removing inhibitions to TransCanada to connect that gas to market, Murray said.

“The question is how fast and how effectively producers would be in unlocking that potential,” he said.

Murray said Horn River gas meets pipeline specification other than its carbon dioxide content of 10-12 percent, a “very significant issue” that producers are trying to solve.

If the single commercial interface is adopted, Murray said, there will be “tremendous potential to improve efficiency in the (Western Canada) basin and help simplify the process for producers and end users to connect their gas supply and gas markets.”

Market for exploration rights

Meanwhile, despite spending cutbacks on a broad scale, companies are not passing up the chance to secure exploration rights in the prized Montney and Horn River regions.

Although the November sale of C$114 million was modest alongside the spring and summer results, when the province collected almost C$2 billion from five successive auctions, it would have ranked well up the list in any previous year.

Most significantly, the average per hectare price for 13 drilling licenses was C$6,769, easily surpassing this year’s previous single-sale high of C$5,321, with two licenses acquired by broker Sekani Resources for an unidentified client averaging C$14,877. The licenses carry exclusive rights to explore during primary terms of three, four or five years, depending on location.

The prime target areas in the Farrell Creek area are close to exploratory drilling reported by Canadian Spirit Resources, a junior partner with Shell Canada, while the Altares region, where two drilling licenses were sold, is an active zone for Canbriam Energy, Northpoint Energy and ProEx Energy. A division of Canadian Natural Resources, Talisman Energy and Hudson’s Hope Gas are also involved in exploration wells or hold exploration licenses in Altares.

British Columbia’s final sale for 2008 is scheduled for Dec. 10, offering 60 parcels covering 80,193 hectares (198,157 acres).






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