Gas rights to net $2 billion

New technology allows year-round drilling in northeast

Scott Simpson
Vancouver Sun
Friday, June 23, 2006

British Columbia's efforts to turn natural gas exploration into a year-round industry are a stunning success, new government numbers show.

Compared to 2002, drilling rig activity is up 1,650 per cent in the summer season to date -- including a 75-per-cent jump over the same period in 2005.

Even more good news surfaced Thursday when the Ministry of Energy, Mines and Petroleum Resources announced that exploration companies paid $151 million in June gas drilling rights -- the second-highest monthly total on record.

New technology is providing drilling companies with access to areas that were once too muddy to travel in summer, and an attractive royalty program for summer drilling makes Northeast B.C. one of the most competitive gas-exploration regions in North America, according to the gas industry.

B.C.'s exploration season used to be one-dimensional -- a 100-day surge during winter freeze-up that saw rigs from Alberta sweep into the Northeast, then sweep back out when the ground began to thaw.

Now, major North American gas explorers such as Encana Corporation are using B.C. as a year-round base of operations -- creating newfound economic stability in communities such as Fort St. John, Fort Nelson and Dawson Creek.

The summer industry was virtually non-existent as recently as 2002, when just two rigs were operating in B.C.

In May 2003 the government announced a program offering discounted royalty payments on wells drilled between April and November.

Other recent incentives included discounted royalties for unconventional drilling programs.

By June 9, 2005, there were 20 summer rigs -- and 35 by the same date in 2006, a 75-per-cent increase.

The province's Oil and Gas Commission reports that in the April 1-June 9 period, it approved 156 new applications for wells, a 24-per-cent increase over 2005.

The commission has approved 137-per-cent more applications for gas pipelines compared to the same period a year ago.

Calgary-based Encana Corporation is one of the leaders in summer activity, with its sprawling Greater Sierra and Cutbank Ridge gas plays.

"The changes as a result of the provincial government's development strategy have contributed to making B.C. a very competitive place to pursue oil and gas development," said Encana media relations manager Alan Boras in an interview.

"It's a long way away from the Lower Mainland and kind of operates sight-unseen, but it's a major part of B.C.'s economy."

Boras said the incentives allow Encana to flourish in B.C. -- and retain in-demand field workers on a year-round basis.

The number of active Encana rigs in the Northeast rose from 10 in 2004 to 20 in 2005 -- and could reach 35 by the end of this summer.

"We call this our load-levelling initiative. What it has done is fundamentally change the way we operate in Northeast B.C."

Exploration costs are lower because there is less demand for services, and a less frantic pace allows the company to organize its drilling activity on an annualized basis.

Overall, the B.C. finance ministry expects to collect $2.2 billion in natural gas royalties in the 2006-2007 fiscal year.

"It is certainly good for provincial revenues," Energy and Mines Minister Richard Neufeld said in an interview.

"I'm not shy about saying commodity prices have helped -- but you can have high commodity prices and still not enjoy the level of activity we're experiencing.

"The table has to be set for the industry to feel comfortable about making investments here -- last year it was $5 billion in that small part of the province."

In September 2003, Encana helped lift B.C. to a Canadian record for a monthly gas lease auction, paying $369 million as part of a $417 million one-month windfall for the provincial treasury.

This month's auction wasn't quite as spectacular, with 39 parcels fetching $151 million -- but it was the second highest B.C. monthly total on record.

Mostly unnamed bidders scooped up parcels located between Chetwynd and Tumbler Ridge -- only a $3-million parcel by Shell Canada was identified by the company's name.

ssimpson@png.canwest.com

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BIG RIG NUMBERS

The number of drilling rigs operating in B.C.'s oilpatch as of June 9 was 35 -- an increase of 75 per cent over the same period in 2005:

Drilling rig count,

to June 9 of each year

2002: 2

2003: 7

2004: 5

2005: 20

2006: 35

Source: Energy, Mines & Petroleum Resources

Ran with fact box "Big rig numbers", which has been appended to the end of the story.

© The Vancouver Sun 2006