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Alberta poised to test market with auctions, higher minimum bids
Gary Park for Petroleum News
Through the 1990s and the first decade of this century, the Alberta government feasted on the sale of oil and natural gas exploration rights at its twice-monthly auctions, times when raking in anything less than C$2 billion a year was a source of worry.
Those days are long gone and never likely to return.
During a protracted period of bearish commodity prices, compounded by the negative impact of COVID-19 on capital spending, Alberta held only six lease and license auctions in the first three months of this year, raising a meagre C$26 million.
“We were in an absolute crisis,” said Energy Minister Sonya Savage, commenting on the government’s decision to cancel land sales since early April to prevent the disposal of exploration prospects for little to no value.
“We didn’t know how low (the auctions would fall). There was no question that no one was going to be bringing on new drilling,” she said.
Auctions by end of year But Savage confirmed to the Financial Post that Alberta is now poised to resume auctions by the end of 2020, despite questions about whether the government can fetch reasonable values for its rights.
She said upstream companies have been urging the province “to open land sales up otherwise the capital (investment in exploration) will be going elsewhere.”
Savage said the auction process will take steps to ensure the land isn’t sold too cheaply.
If returns from the six auctions held so far this year were adjusted to cover a full year, they would fall short of the 2019 returns of C$119 million, the low point since data was first collected in 1977, compared with a record C$3.5 billion in 2011 when oil sands rights were in high demand.
Higher minimum bid To prevent bargain-basement sales, the government plans to implement a higher minimum bid.
Government documents obtained by the Financial Post show the government has considered minimum bids of C$50 per hectare (2.471 acres), compared with the current minimum bid of C$2.50.
In 2019, 59% of all land parcels sold in Alberta for less than C$50, compared with only 16% in Saskatchewan and 32% in British Columbia.
But the industry is not happy with Alberta’s move to raise minimum bids.
Ben Brunnen, vice president of fiscal and economic policy at the Canadian Association of Petroleum Producers, urged the government to “proceed with caution.”
He said that “for just about any bidding process, there’s always an assumption that there would be another bidder. That competition for bidding has generally led to relatively healthy bid prices for land, despite where the minimum bid sits.”
- GARY PARK
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