Canada’s upstream in a sickly state

Land sales, new well permits take hammering in first quarter; Alberta oil sands, conventional gas, CBM take heaviest punishment

Gary Park

For Petroleum News

Key guides to the health of Canada’s upstream sector keep pointing to a less-than-robust industry.

With the first-quarter statistics in, government land sales took a drubbing, off by 64 percent or more than C$1 billion from a year ago, while permits for new wells shrank 22 percent.

Thus two of the most important signposts are pointing in the wrong direction.

Alberta, British Columbia and Saskatchewan pocketed a modest C$608 million in the January-March period from their auctions of exploration rights compared with C$1.69 billion a year earlier when the scramble to lock up oil sands property was in full flight.

The average overall price per hectare was C$521 ($211 per acre), barely half last year’s C$1,075, which was driven by the oil sands activity.

Although that figure was close to the average C$518 in the first quarter of 2005, it lagged behind the average in seven of the last 14 years, with only 1999 posting a markedly weaker result.

Downturn most evident in Alberta

Successful bidders invested C$223 million to gain rights to 380,578 hectares of oil sands prospects. A year ago the totals were C$860 million and 428,868 hectares, reflecting the sharp downward spiral in per-hectare averages from over C$2,000 to C$587.

British Columbia sold rights to 94,410 hectares, its lowest since 1999, for C$102 million, down from C$125 million in the same period of 2006, but the average price set a new benchmark of C$1,084 per hectare.

Saskatchewan’s only sale yielded C$28.5 million, off C$7.4 million from a year earlier, although the province’s first auction of the second quarter generated C$70 million, within sight of the all-time record of C$85 million in October 1994.

The shaky outlook to industry confidence contained in the land sales numbers got no help from new well permits issued by government regulators.

For the same three provinces, 7,214 permits were approved in the opening quarter, off 22 percent from 2006, led by a 41 percent plunge in natural gas wells to 3,259, the lowest level in five years.

Conventional oil and bitumen production licenses tallied 1,842, more than 100 ahead of last year, while Alberta granted 1,800 licenses for oil sands evaluation wells, fractionally ahead of the first quarter of 2006.

Taking some of the heaviest clobbering is the conventional gas sector, down to 2,257 this year from 3,986 in 2006 and the record 4,131 in 2005, while coalbed methane permits crashed to 380 from 747 last year.

Saskatchewan bucks the trend

Its April land auction generated C$70.2 million, within sight of the all-time high of C$84.8 million set in October 1994.

In addition, the province approved 183 oil sands evaluation holes for its northwest region.

Leading operators are EnCana 1,111 permits, Husky Energy 348, Canadian Natural Resources 280, EOG Resources 221 and Devon Canada 179, all including experimental and test holes.

One of the few bright spots in the year so far has been well completions, with the total for the three months at 6,635, compared with 6,171 last year.

Of this year’s count, 4,573 were listed as gas-targeted wells and 1,627 as oil, including 911 oil wells in Alberta, the highest for the opening quarter in nine years. Saskatchewan logged 614 oil wells, its best showing in 22 years.

Exploratory oil wells for Western Canada rose to 267 this year from 247 in 2006, but gas exploration wells fell from last year’s record 1,072 to 845.

However, that positive note may only be fleeting. With only 16 percent of Western Canada’s 870 rigs at work in the first week of April, the lowest utilization rate in eight years, completions are expected to go into a sharp descent in coming months.