Western Canada loses land appetite

Gary Park

For Petroleum News

It may be a good thing they are not making any more land in Western Canada because what they have is no longer selling to petroleum explorers at the fierce pace set a few years ago.

The only encouragement this year occurred in British Columbia, where government auctions fetched C$383 million, the best since the C$844 million posted in 2010, but far short of the record C$2.7 billion in 2008.

Alberta drilling rights tallied C$489 million, the lowest point since C$477 million in 2002 and the second lowest return in the past 20 years. The provincial government has forecast a C$623 million return for the fiscal year that ends March 31, 2015.

The Saskatchewan government reported its sales this year tallied C$198 million, tripling last year’s C$67 million. The benchmark year was 2008 when C$1.1 billion was stuffed into the province’s treasury.

Brad Hayes, president of Petrel Robertson Consulting, said the downturn in Alberta reflects a number of trends not least the fact that the biggest explorers have many years of inventory on hand, especially in the resource plays such as Montney and Duvernay, which drove prices into the stratosphere over several years.

He said both fairways have finite limits and have largely been bought up at auctions.

Scott Land and Lease, which acts as a broker for clients who want to initially preserve their anonymity, agreed that producers have many years of exploration ahead of them after investing C$3.54 billion to lock up more than 10 million acres of Duvernay prospects in 2011, bracketed by C$2.2 billion in 2010 and C$1.1 billion in 2012.

Company President Greg Scott said that rather than chasing more land companies turned their attention to deep and expensive wells to prove up their holdings, as well as building the necessary infrastructure.

Scott and Hayes concurred that the largest bids this year were for land on the established edges of popular plays.

Overall, Alberta sold about 2.47 million acres in 2014, about half the 2013 total, but made gains on the flip side with the average price per hectare (2.471 acres) climbing to C$462 million from C$3.17.

In addition, Alberta attracted a paltry C$4.6 million from separate auctions of oil sands leases.

Scott suggested what is rapidly becoming evident on 2015 spending plans is that companies are resolved to preserve their capital, meaning that land sales in 2015 are likely headed over lower than the last two years.