No play types, not even the Bakken formation in Saskatchewan and Manitoba and its close relatives elsewhere in Western Canada, have escaped one of the sharpest downturns in government auctions of exploration rights.
The region, including Alberta and British Columbia, has collected only C$780 million in first half sales, down about 63 percent from the same period of 2011, evidence of the buffeting from low natural gas prices and uncertainty over crude prices, combined with an easing of values for natural gas liquids.
In the heart of Canada’s Bakken activity, Saskatchewan has generated revenues of C$55.6 million, down dramatically from C$193 million over the first half of last year, C$276 million in 2010 and C$605 million in the record year of 2008, when the Bakken, Shaunavon and Viking land grab was in full swing.
But the slump in land acquisitions is being partly offset by continued strong drilling activity in the Williston basin.
Modest sale in Saskatchewan
Saskatchewan’s latest sale raised a modest C$10.48 million and generated no received or accepted bids for six oil shale parcels.
Energy and Resources Minister Tim McMillan said the June auction is historically quieter in terms of industry interest and the number of acres on offer.
He said companies are now using the sales mainly to beef up on their existing land inventories rather than entering new plays.
“What we’re seeing right now from oil companies is a focus on working the dispositions they currently have,” he said. “That’s reflected in the level of drilling activity so far in 2012.
“Last year was our second-best year for oil well drilling and a record year for horizontal oil well drilling.
“We’re ahead of the pace on both counts so far this year and that activity helped us set an all-time record for monthly oil production in March,” McMillan said.
Although there were no big land purchases in June, “the industry is very busy and all indicators are pointing to a banner year for investment and activity in Saskatchewan’s oilfields,” he said.
FirstEnergy Capital echoed the Saskatchewan government’s assessment that operators are concentrating on developing land they already own.
It also said that Saskatchewan’s mature light oil plays in the Bakken, Lower Shaunavon and Viking formations have largely been locked up.
The latest industry statistics show oil-prone Saskatchewan logged 1,100 completed wells to the end of May, the bulk of them within the Williston basin, compared with 1,003 for the same period last year. However, new well permits slipped over the five-month period to 2,029 from 2,233.
The slow pace of land sales also hit Alberta, which posted successful bids to the 2012 mid-point of C$648 million, off C$1.2 million from a year ago.
British Columbia sales up
Only British Columbia recorded a year-over-year increase, rising to C$84 million from C$66.4 million, but a strong early-year pace has fizzled in the last three months with returns tallying a mere C$2.96 million and land volumes declining to 12,290 acres in the second quarter from 153,000 acres in the first quarter.
FirstEnergy said that quarterly per-acre average winning bids have “decreased significantly” across the region since the third quarter of 2011, “a trend we expect to continue to manifest until commodity prices show signs of recovery or stability at the very least.”
Brian Purdy, an analyst with Global Hunter Securities, said in a note that natural gas, with prices tumbling to a 14-year low, is the biggest factor in the downturn.
He said the commodity prices are “certainly constricting budgets for a number of companies, so when we look at capital budgets, comparing 2012 indications from what was spent in 2011, a lot of the gas producers are down significantly.”
Alberta raised a record C$3.6 billion in calendar year 2011 through sales of drilling rights, but has scaled back its forecast for the current fiscal year which ends March 31, 2013, to C$2.04 billion — a target that industry observers believe it might have difficulty achieving — from C$3.3 billion for fiscal 2011-12.
A spokesman for Alberta Energy said the early returns are “down a bit” from what the government anticipated, but he argued the numbers are “still relatively high if you look back over previous years.”
—Gary Park
