Natural gas bonanza for B.C.

Alberta's energy crown threatened
David Ebner, Globe and Mail, 27-Mar-2008

Natural gas bonanza for B.C.
Scott Simpson, Vancouver Sun, 28-Mar-2008

The rush for natural gas in northern British Columbia reached a fever pitch in the 2007-2008 fiscal year that closes on Monday, Energy Minister Richard Neufeld announced.

B.C. took in $152 million in bonus bids in March to lift gas and oil rights sale revenue to more than $1.2 billion - almost twice the previous record for single year sales, Neufeld said in a news release this week.

"These exceptional land rights sales show British Columbia is a top jurisdiction for oil and gas investment," said Neufeld in the release. "Our success is the result of first-rate resource potential and strong support for continued industry growth. We have increased our natural gas reserves, expanded infrastructure and attracted new interest to B.C. that will benefit the entire province for decades to come."

The previous record, set in 2003-2004, was $625.7 million.

This year¹s amount also saw a near-doubling in the per-hectare value of bids - $1,863 per hectare compared to $984 in 2006-2007.

Eighty-one parcels covering 89,752 hectares were offered in the March 26, 2008 sale, and bids were accepted on 81 parcels for an average price of $1,694 per hectare, the government said.

Key parcels in the March sale were three drilling licenses located in the Horn River Basin area about 45 kilometres north of Fort Nelson, with bid totals of $22.9 million, $15.8 million and $12.4 million for the trio.

Horn River Basin has immense potential for shale gas development, although the technology to tap gas in deposits of this type is still in development - gas prices must be relatively high in order for them to remain economic.

Natural gas resources in B.C. are increasingly in demand among Canadian drillers, especially in light of the decline in conventional gas resources in Alberta.

British Columbia, by contrast, is relatively unexplored and is believed to contain vast gas reserves - although many of the deposits are in areas such as Horn River which present greater technical challenges for drillers, who may have to pay up to 10 times as much per well compared to conventional gas plays in Alberta.

CALGARY — British Columbia and Saskatchewan are on the verge of a huge oil and natural gas exploration boom as companies pour hundreds of millions of dollars into land rights, shifting their focus away from the established energy capital of Alberta.

B.C. raked in $152-million from its latest sale of exploration rights, the province announced yesterday. Buoyed by high natural gas prices and big exploration prospects, energy companies are rushing to stake a claim in the province's northeast.

Last month, Saskatchewan took in $197-million in a single sale of exploration rights, by far its biggest-ever sale – and almost as much as it previously generated in an entire year. Stoked by $100-a-barrel oil, companies are in a frenzy over the Bakken play in the southeast part of the province, where interest has percolated in recent years and has now exploded.

“It's the big M – momentum. There's no question B.C. and Saskatchewan have momentum,” said Gregg Scott, president of Calgary-based land broker Scott Land & Lease Ltd.

New exploration rights are closely correlated with drilling activity, which remains active in Alberta but is poised to notably broaden beyond the province.

Alberta, during its 2004-06 boom years, saw billions of dollars flood into the provincial treasury, peaking in 2006 with a stunning $3.4-billion paid to scoop up fast-disappearing exploration territory, especially in the oil sands.

But now, the best new prospects are not in Alberta but in neighbouring provinces.

And that's expected to continue.

“We'll be seeing more and more competition at land sales in B.C.,” Mr. Scott said.

FirstEnergy Capital Corp. in a recent report said “frantic” land sale activity in B.C. is likely to extend into April, saying it is a “massive land grab equivalent to that of the oil sands binge observed in Alberta during late 2005 and early 2006.”

Bids for the next B.C. sale are due April 23.

In Saskatchewan, April 7 is the deadline for the next rounds of bids.

The province likely will smash its annual exploration rights record of $250-million, set last year, just four months into 2008.

For British Columbia, driving the boom are drilling results from EnCana Corp. and EOG Resources Inc., both of which may be sitting on some of the biggest natural gas discoveries in Canadian history in the Horn River region of northeastern B.C.

The hot Montney play, which is also in northeastern B.C., where companies such as ARC Energy Trust are active, attracted big bids yesterday as well.

Yesterday's $152-million take was the fourth-biggest single sale in B.C.'s history, extending a run that includes $401-million collected in December and $265-million in September. The province's largest sale was in September, 2003, with EnCana leading a charge that month that saw B.C. collect $418-million.

This year, for the first time ever, B.C. is on pace to surpass Alberta in the competition for dollars for exploration rights. Alberta has seen only $202-million spent in 2008.

Beyond high commodity prices and strong prospects, advances in technology underpin the industry's new look at B.C. and Saskatchewan.

Horizontal drilling techniques, and better fracturing of subsurface reservoirs, is helping unlock previously difficult-to-recover oil and gas.

A further factor is royalties. In Alberta, the rates charged on natural gas will rise in 2009, and will hit the most attractive gas plays in the province the hardest.

In B.C., while royalties on gas are roughly the same as Alberta's increased rates, a special deal was instituted last year to encourage investment in emerging gas plays, such as the kind at Horn River, where much of the recent money has been spent.

Land sales are conducted twice a month in Alberta, once a month in British Columbia, and every two months in Saskatchewan.

In other areas, such as Newfoundland and the Northwest Territories, the land sales generally happen once a year.