Unfortunately for the Alberta government, Will Rogers, that man for all seasons and reasons, got it right when he said: “Land ... they ain’t making it any more.”
But what there is has caused the province’s already bulging coffers to overflow in the final days of 2005.
The year’s last auction of oil and gas exploration rights raked in C$544 million, easily shattering the previous single sale record of C$121 million set in July 2001.
For the year, the government pocketed C$2.25 billion from the twice-monthly auctions, a jaw-dropping C$1.1 billion better than the previous benchmark in 1997 that was almost matched in 2004.
In what amounts to the understatement of a year when Alberta is on track for a budget surplus of C$5.9 billion — a figure most observers think will be several billion dollars short of the final tally because of unwavering oil and gas prices — Energy Minister Greg Melchin said the record-breaking deals “confirm the confidence in Alberta’s energy industry.”
Half a million acres on block
Even before there is a chance to absorb and analyze the astonishing volume of activity, another record is guaranteed to enter the books in 2006.
The Jan. 25 sale will see 209,152 hectares (516,815 acres) of oil sands leases go on the block, shouldering aside the previous single-sale high of 194,176 hectares in 1997.
Those 32 parcels will exceed the annual totals of 2002 and 2003 and put the 2005 total of 355,307 hectares under threat.
Beyond the raw statistics, 2005’s auctions underscored the industry’s shift from dwindling conventional oil and gas prospects to the unconventional plays in the oil sands, coalbed methane and tight gas prospects along the eastern slopes of the Canadian Rockies.
EnCana the barometer
EnCana, as the barometer of what it describes as “resource plays,” was the top spender at the Dec. 14 auction, paying C$160 million for 89,000 hectares in the Edmonton-Calgary corridor that encompasses the rising hopes for coalbed methane production from the Upper Mannville formation.
A spokesman for EnCana, although conceding the Mannville coals present a new opportunity, said the purchase covers several zones (sands, shales and coals) and reflect confidence in the long-term market outlook for gas.
The purchase was also a chance for EnCana to consolidate a “checkerboard” of rights inherited from its founding companies, Alberta Energy Company and PanCanadian Energy.
By far the largest landholder in Canada, EnCana has the added advantage of owning lands given to Canadian Pacific Railway (the parent of PanCanadian) in the 19th Century as partial payment for building a railway across Canada.
Instead of paying royalties on that land, EnCana pays a 7 percent mineral tax.
Manville play ‘next craze’
The Mannville play, described by Canadian Society for Unconventional Gas President Mike Dawson as the “next craze,” has been estimated by some to have 300 trillion cubic feet of gas in place.
However, tapping into the formation has also been rated a “science” project because of the complex geology.
The focus is on a partnership of Nexen and Trident Exploration which invested C$100 million drilling 80 wells over four years and is now entering commercial development by spending C$400 million over the next 18 months in a program Nexen believes will give it a net 150 million cubic feet per day by 2010.
Others are now apparently ready to take a risk rather than miss a chance.
Wilf Gobert, vice-chairman of investment dealer Peters & Co., said that in addition to EnCana’s successful bids, other rights were acquired by Apache Canada, an established coalbed methane producer in Alberta, while little-known junior Ember Resources adding to its Manville holdings by spending C$12 million for rights.
Oil sands also a target
In the oil sands, companies spent almost C$70 million, with Scott Land & Leasing paying C$60 million on behalf of unidentified clients for two parcels covering 7,680 hectares, sitting just north of a parcel acquired by Shell Canada in August.
That triggered speculation among analysts that Shell was again the buyer, adding to its existing holdings as operator of the Athabasca project, which is aiming to grow from 155,000 barrels per day to 500,000 bpd.
For 2005, oil sands leases fetched C$433 million, topping the 12-month record of C$170 million set in 1997.
Postings for the Dec. 14 auction totaled 474,031 hectares, easily the largest offering for the year based on nominations by companies. Transactions averaged C$1.147 per hectare, the second highest average for the year.
For the 12 months, 3.24 million hectares changed hands at a per-hectare average of C$697, eclipsing last year’s 3.11 million hectares and C$354.98 average. The final quarter set a blistering pace, with 1.06 million hectares sold for C$950 million at an average C$893.
On the conventional side, 413,422 hectares were acquired for C$475 million at an average C$1.148 per hectare, with BP Canada Energy making a surprise appearance after scaling back its conventional interests in Western Canada by spending C$11.6 million to pick up 15,980 hectares of gas prospects in the Marten Hills area north of Edmonton.
The Deep Basin area of western Alberta was also an area of strong interest, with Cinder Resources leading the way by investing close to C$30 million for a 6,144 hectare license west of Edmonton. Petroland Services joined the activity with a successful C$24.6 million bid for an adjacent parcel.
Debate over sealed-bid prices
The overall auction results have set off a debate among analysts over the prices being paid in sealed bidding — a practice FirstEnergy Capital characterizes as “betting big and betting blind.”
With land prospects shrinking, competition heated and companies awash in spare cash, concerns have been expressed that smaller bidders might be inclined to pay too much.
But FirstEnergy’s Cody Kwong, while rating the final auction as “huge,” saw no evidence of any going “going overboard.”
However, Gregg Scott, president of Scott Land & Lease, said there is no reason to expect the buyers have any intention of sitting on land.
That view was endorsed by Roger Soucy, president of the Petroleum Services Association of Canada, and Don Herring, president of the Canadian Association of Oilwell Drilling Contractors.
They said the pieces are in place for prolonged high levels of upstream activity covering at least the next two or three years, limited partly by the availability of rig crews.
Almost overshadowed by Alberta, British Columbia also wrapped up a successful year.
Dominated by the hunt for gas in its northeastern corner, the province pocketed C$534 million from sales in 2005, second only to the C$647 million in 2003, when EnCana paid C$350 million to lock up land in its Cutbank Ridge play.
