Alberta drilling rights sales raise $489M, lowest in 12 years

Alberta drilling rights auctions held during 2014 paid the least in 12 years to the Alberta treasury as producers spent to develop land they already own rather than buying more, energy department statistics show.

The last sale of Crown non-oilsands drilling rights of the year on Wednesday returned a bonus payment of  $27 million from 93,000 hectares.

That brings the 12-month total to $489 million, the lowest level since $477 million in 2002 — and the second-lowest annual level of the past 20 years of biweekly auctions, according to the Alberta Energy website.

In the provincial budget last spring, the Tory government estimated Alberta would take in $623 million in bonuses and sales of Crown drilling leases in the fiscal year that ends March 31, 2015.

Brad Hayes, president of Calgary-based Petrel Robertson Consulting Ltd., said he doesn’t see a change in the declining trend.

“Watching these land sales from week to week what’s really apparent is over the past few years we’ve had the big resource plays, particularly the Montney and the Duvernay, got some very large bids and that drove the prices up,” he said.

“But both of those fairways have a finite extent and they’ve been bought up pretty completely. The projects to drill them up are going to take even the biggest companies years and years.”

Scott Land and Lease, a company that bids in auctions on behalf of clients who wish to remain anonymous, spent the most in the 2014 Alberta auctions.

President Gregg Scott said producers are still busy developing land purchased in 2011, when a rush to lock in acreage in the widespread Duvernay tight oil and gas play led to the investment of a record $3.54 billion to tie up 4.1 million hectares. They also spent heavily in 2010, with $2.4 billion, and in 2012, with $1.1 billion. In 2013, the auctions rendered $680 million.

“I think what you saw this year was a lot of money going into the ground in deep wells and expensive wells and proving up that acreage,” said Scott. “So, a lot of land was assembled, then the next step was to drill it, get the infrastructure built, that’s kind of the natural progression of things.”

Scott and Hayes both said the biggest bids in 2014 were for land on the known edges of popular plays.

“When the plays work out and the direction becomes clear where the play is leading, that’s where you see some hefty bids because the driller knows they need to secure that land and so do the competitors,” Scott said.

In Alberta in 2014, one million hectares were sold, half as many as in 2013, but the price per hectare was $462, up from $317. The province also raised $4.6 million from the separate auctions of oilsands leases.

Meanwhile, the Saskatchewan government reported Crown land sales of $198 million in 2014, the seventh highest overall and triple the $67 million registered in 2013. Its record year was $1.1 billion in 2008.

British Columbia bonuses added up to $383 million, the highest since it raised $844 million in 2010. Its record year was also 2008, when it sold land for $2.7 billion.

Scott pointed out that Alberta Crown leases normally have a five-year term during which the company must drill or give up the lease. The companies that bought in the record year of 2011, for instance, still have two years to put a drilling rig on the property.

“I think what you’ll see in 2015 is the best prospects drilled and riskier plays deferred until commodity prices firm up,” he said.

“Preservation of capital will be key so I don’t think you’ll see the land sales of the last year or two in 2015. But, you never know … someone hits on a big play and away we go again.”

Alberta Energy spokesman Chris Bourdeau said oilpatch volatility has caused some of the government’s budget forecasts to prove inaccurate but pointed out there are still more than three months left in the fiscal year. He said the province is monitoring the situation and reduced its land sales estimate by $16 million in a quarterly update in November.

dhealing@calgaryherald.com

Twitter.com/HealingSlowly

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