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Western Canada land rush tails off B.C. goes into tailspin and Alberta faces sharp declines after two provinces pile up C$22.7 billion in auction returns since 2002 Gary Park For Petroleum News
The odds are heavily stacked against a continuation in 2012 of a decade-long multibillion dollar spending spree to secure unconventional exploration rights in Alberta and British Columbia.
Pending realization of Alberta’s hopes of discovering commercial quantities or liquids-rich natural gas and British Columbia’s dreams of regulatory and corporate approval of liquefied natural gas export projects, the northern regions of both provinces face a sharp decline in bidding at government land auctions.
For the first time since 2002, the two provinces face combined returns of less than C$1 billion in sales revenues.
British Columbia found itself on the skids in 2011, fetching C$223 million from 191,534 hectares (473,280 acres) in 2011 — its lowest dollar value since 1999 and its lowest acreage since record were first kept in 1978.
Brad Hayes, president of Petrel Robertson Consulting, said that unless there is success from early wells being drilled in British Columbia’s Liard basin, Cordova Embayment and the northern end of the Montney fairway it is doubtful 2012 sales will even match those of 2011.
Alberta, after accumulating staggering returns of C$3.54 billion in 2011 and C$2.39 billion in 2010, is expected to start a sharp decline this year.
Over the past decade the British Columbia treasury has swelled from C$7.7 billion in cash bonuses as E&P companies have fastened on to the potential for horizontal drilling and multistage fracturing in unconventional plays.
Alberta has almost doubled that bonanza, collecting C$15 billion, initially from the oil sands then over the past two years from its oil and liquids-rich shale prospects.
Best prospects tied up Observers believe that companies have now largely tied up the best exploration prospects.
A host of challenges now awaits the two provinces, including the long-range forecast for low gas prices, saturated North American markets, the lack of pipelines and related infrastructure in British Columbia’s remote plays, environmental and landowner opposition to well fracking and unresolved First Nations land claims in British Columbia.
The industry has credited drilling and royalty incentives in both provinces for the surge in bidding and is now hoping British Columbia will be open to further stimulus packages involving its deep gas credit and oil royalty framework.
Gary Leach, executive director of the Small Explorers and Producers Association of Canada, said his membership of junior and intermediate producers urgently need to find a “catalyst that will move the needle in B.C.”
Energy Minister Rich Coleman has already indicated the British Columbia government is ready to consider lowering royalties to capture more long-term exploration spending, especially if that helps create long-term jobs.
Gas reserves up in B.C. Bolstering the prospects in British Columbia, the province’s Oil and Gas Commission disclosed in December that remaining raw gas reserves rose in 2010 by 42 percent to 33.1 trillion cubic feet, the 10th straight year of increases.
The OGC said Horn River had 98 producing shale gas wells at the end of 2010, the latest available count, but results from those wells remain confidential under the terms of approvals for experimental schemes.
Horn River formations account for 10 percent of British Columbia’s gas production of about 1 billion cubic feet per day, compared with 26 percent in the more established Montney play, which has 383 wells.
The best prospect of boosting upstream activity in British Columbia hangs on an early decision by Apache, Encana and EOG Resources to proceed with their Kitimat LNG project to access the lucrative Asian market and ensure a robust energy sector.
In the meantime, Hayes said, companies with a stake in LNG facilities will probably do their best to slow short-term investment commitments until more of the uncertainties around pipelines and project permits have been removed.
Public opposition to advanced technology If British Columbia and Alberta are to translate land sales into exploration and development they have to deal with mounting public opposition to the use of advanced technology in resource plays.
The Dene Tha’ First Nation of British Columbia has already set in motion a possible landmark case by taking the province to court over concerns about shale gas development in the emerging Cordova Embayment.
The lawsuit has challenged the British Columbia Ministry of Energy and Mines’ decision in 2010 to sell oil and gas tenures in the Cordova play and wants a moratorium on exploration until the government conducts a large scale environmental impact study and introduces regulations covering the use of shale gas technologies.
Alberta Energy Minister Ted Morton, acknowledging the public concern across North America about the safety of multistage hydraulic fracturing, said his government is eager to be a leader in the “safe and responsible development of unconventional oil and gas.”
To that end, he said the New West Partnership — an economic relationship of British Columbia, Alberta and Saskatchewan — is committed to introducing a public online registry, where companies will voluntarily post the chemicals they use in fracking fluids, noting that public reporting is mandatory in Texas.
Lack of baseline water testing He said the lack of baseline water testing in a fracking dispute in Wyoming is contributing to public uncertainty about shale gas development, reinforced by a U.S. Environmental Protection Agency report in December that suggested fracking probably caused water contamination in a Wyoming community — a claim that is being disputed by Encana.
Emphasizing the importance to Alberta of dealing with the issue, Morton said his province is “right on the front edge of a new renaissance in unconventional oil production” in the Cardium, Viking and Duvernay formations that spurred the 2011 land sales.
Morton said he and Environment Minister Diana McQueen are also working to bring oil and gas approvals under a single regulator, targeting new regulations this summer.
David Collyer, president of the Canadian Association of Petroleum Producers, said his organization supports any requirement to test surface water and water wells that are tied to fracking activities, starting with baseline monitoring before activity starts.
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