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Alberta land sales shoulder BC aside After losing top rung on O&G lease sales ladder for two years running, Alberta back on top for 2009-10 fiscal year with C$1.14B Gary Park For Petroleum News
On the face of it, the natural order is being restored in Western Canada, as Alberta regains its leading position in oil and natural gas land sales, ending British Columbia’s brief reign on the top rung.
But it’s too soon for Alberta to start feeling smug. Even newly installed Energy Minister Ron Liepert is taking a measured view of things.
What is a fact is that Alberta finished ahead of British Columbia in the 2009-10 fiscal year after surrendering its title for two years.
It ended the budget year on March 31 having pocketed C$1.14 billion in bonus revenues, beating its own forecast by C$300 million, while British Columbia, despite a sizzling start, saw its auction revenue slump to C$896 million from a record C$2.42 billion in 2008-09, falling short of a five-year average of C$1.4 billion.
There might have been a tinge of disappointment for Alberta, whose final sale for 2009-10 auctions yielded only C$75.79 million for 269,616 hectares (666,221 acres), far ahead of the same sale a year ago, which generated a paltry C$2.97 million on 24,965 hectares.
Not strongest surge But the surge was less than the C$200 million-plus which Chris Theal, an analyst with Macquarie Capital Markets Canada, had anticipated from a strong industry posting in northern Alberta’s highly rated Devonian Duvernay shale prospect.
And livelier bidding might have been expected in the first auction since the Alberta government announced March 11 that it would lower maximum royalty rates for initial conventional oil production to 40 percent from the 50 percent set in its now abandoned New Royalty Framework implemented in 2009, and to 36 percent from 50 percent on conventional and unconventional gas.
The March 24 auction came on the heels of modest results on March 10 when the government raised C$168 million from another bidding round dominated by Duvernay offerings. Theal, who had held out hopes for up to C$900 million, said he was “underwhelmed” by that industry response on the day before the royalty adjustments were released.
Alberta collected C$867 million in 2008-09, falling below the C$1 billion level it had come to expect until experiencing a sharp decline after a 2005-06 bonanza year when oil sands fever contributed to a total C$2.16 billion.
For the first quarter of this year, a surge in horizontal drilling and multistage fracturing has pulled Alberta out of the deep hole it tumbled into a year ago, dragged down by a combination of the economic recession and industry hostility to the then-new royalty regime.
To date, five auctions for the 2010 calendar year have tallied C$454.4 million on 898,330 hectares at a per-hectare average of C$505.82, compared with C$55.9 million on 468,738 hectares averaging C$119.25, in the same period of 2009.
B.C. revenues fall British Columbia has also been rocked after several years of an industry land grab in its Montney and Horn River unconventional gas plays, with revenues falling to C$896 million on 379,077 hectares at an average C$2,364 per hectare, compared with the C$2.42 billion in 2008-09 for 653,509 hectares at an average C$3,710.
But the government has been cautioning that that the best Montney and Horn River prospects have been locked up, leaving its best hopes tied to exploration and development activity to create jobs and boost revenues.
The province’s five-year average return for the fiscal years starting 2005-06 has been C$1.4 billion at a per hectare average C$1,960.
British Columbia’s three auctions this calendar year have produced C$43 million in bids on 41,436 hectares at an average C$1,042 per hectare compared to C$39.73 million in the same period of 2009 on 51,505 hectares at an average C$771.
For Alberta, the emphasis is on regaining trust among investors, which has put Liepert on a selling trip to Toronto and New York. Low gas prices a factor However, he conceded that Alberta doesn’t expect an overwhelming response to its royalty adjustments at a time when frontend gas prices have fallen below US$4 per million British thermal units on the New York Mercantile Exchange.
He said that if current price levels keep sliding it will be reflected in upstream activity.
He conceded that the timing of the royalty changes implemented on Jan. 1, 2009, “could not have been worse” given the double whammy of a recession and sharp fall in commodity prices, forcing Alberta to take stock of a competitive position that had eroded over the last decade.
He describes the industry response to the latest changes as “not a home run, but a solid double.”
The key now is to settle by May 31 on a commodity price curve that will be tied to royalty levels, decide if first incentives are required and clean up regulatory overlap.
Liepert is not prepared to forecast when the royalty changes might take hold because of commodity price uncertainties. He said Alberta’s main current objective is to ensure it is not an obstacle to investment.
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