B.C. eats into Alberta gas dominance

Gary Park

For Petroleum News

British Columbia’s relentless push to displace Alberta as Canada’s natural gas stronghold, while a long way from completion, is relentless.

The province posted a 3.5 percent increase in gas reserves last year, its eighth consecutive annual gain, while Calgary-based investment dealer Peters & Co. has delivered a startling assessment that investment in the Montney shale formation of Alberta will yield one-quarter less value for owners than the same investment across the border in B.C.

The B.C. Ministry of Energy, Mines and Petroleum Resources, in reporting marketable gas including unconnected gas of 14.76 trillion cubic feet, said no jurisdiction in North America has enjoyed such consistent growth over the same period.

“Industry exploration and improvements in technology have replaced more than the natural gas produced, giving B.C. its highest-ever year-end remaining raw gas reserves,” said Alex Ferguson, commissioner and chief executive officer of the B.C. Oil and Gas Commission.

Although there is no breakdown of conventional and unconventional reserves, the report estimates combined gas-in-place in the red-hot Montney and Horn River plays at 750 tcf, but how much of that is recoverable will need more development. A government spokesman estimated production from unconventional reservoirs has probably climbed over the past year to 30 percent from 25 percent.

The Peters & Co. study was based on a 100-well Montney development drilled over the past five years, concluding the net present value in B.C. would be C$368 million, compared with C$293 million in Alberta.

“Clearly, the significant difference between the royalty structures in Alberta and B.C. impact project economics dramatically and need to be considered with any investment decision,” the firm said.

“Specifically, B.C.-based developments provide greater leverage to rising gas prices than those in Alberta, delivering an incremental 30 percent rate of return, or a 90 percent premium to Alberta’s net present values, under an approximate C$8.20 per thousand cubic feet AECO-C gas price assumption.

“Consequently, based on the vast differences in royalty rates, developments based in B.C. provide better relative economics and, as such, are preferable over similar developments in Alberta. B.C. also has greater incentives in place for summer drilling and infrastructure.”

A spokesman for Alberta Energy Minister Mel Knight, while conceding Alberta’s royalties are higher than B.C’s in some cases, said Alberta still has about 252 drilling rigs at work currently compared with a combined 149 in B.C. and Saskatchewan.

He said Alberta is “not in a race to have the lowest royalty rates.”

Peters & Co. offered one shred of hope for B.C., noting that land sales prospects in the province are looking better because most of the sought-after prospects in B.C. have been locked up.

However, a B.C. government spokesman said there is “still a lot of land” available in the Montney and Horn River plays.