A pumpjack works at a well head on an oil and gas installation near Cremona, Alta. File photo by THE CANADIAN PRESS

A pumpjack works at a well head on an oil and gas installation near Cremona, Alta. File photo by THE CANADIAN PRESS

‘No excitement at all’ as oilpatch interest wanes for drilling rights auctions

Sales of Crown drilling rights have fallen off dramatically in B.C., Alberta and Saskatchewan this year

A key indicator of future oil and gas drilling activity in Western Canada is sliding lower as the industry deals with a lack of pipeline capacity, Alberta oil production curtailments and difficulty accessing capital markets.

Sales of Crown drilling rights — needed to allow energy exploration on land where mineral rights are held by the province — have fallen off dramatically in B.C., Alberta and Saskatchewan this year.

“When drilling rights are going well, it tends to mean somebody has found either a good reservoir or a good way to produce a known reservoir and so you get a lot of excitement,” said Richard Masson, an executive fellow with the School of Public Policy at the University of Calgary.

“This says to me, there’s no excitement at all right now. People are doing little bits of infill land buying but there’s nothing that looks like a very prospective play that would excite the industry and excite new capital to come in.”

In Alberta, which produces about 80 per cent of Canada’s oil and about 70 per cent of its natural gas, twice monthly auctions are on track for a record low with two sales left to go in 2019. Through 11 months, the province has raised $100 million by selling rights on 616,000 hectares.

The current low mark was set in 2016, when $137 million was paid for the rights to drill on 937,000 hectares, the lowest since the auction system was adopted in 1977.

The high was in 2011, when a bidding frenzy for lands for the Duvernay underground oil-bearing formation resulted in $3.5 billion spent to buy rights on 4.1 million hectares.

In British Columbia, land auctions have delivered $64 million so far this year, down from $173 million last year but ahead of $18 million and $15 million in 2015 and 2016, respectively. The record high year was 2008, when $2.66 billion was spent.

In Saskatchewan, sales of drilling rights have raised about $22 million in five auctions, down from $51 million in six auctions last year. The province’s record year was also 2008, when it raised $1.1 billion.

Industry insiders say the declines are mainly due to the lack of new pipeline capacity to allow more oil and gas production, and the resulting loss of confidence by investors that has starved the sector of debt and equity funding. Production limits in Alberta imposed by the government to better align supply with pipeline capacity are another overhang on activity.

“The mood is very cautious. People are feeling very beat up,” said Grant Fagerheim, CEO of Whitecap Resources Inc., in an interview.

At Whitecap, as with many other mid-sized Calgary producers, using scarce dollars to buy land for future drilling and then spending more on the exploration required to retain the lease is way down on the priority list, he said, below maintaining a dividend, reducing debt and buying back shares.

“Companies just don’t have budget to acquire new lands. Nobody is exploring for new plays or new ideas, or very few people are,” said Brad Hayes, a geologist and president of Petrel Robertson Consulting in Calgary.

Drilling rights auction prices fell sharply after global oil prices bottomed out in 2016, which convinced some bargain hunters to nominate land and make bids in hopes there would be a bounce back, he said. But conditions haven’t improved.

The trend to lower interest in drilling rights auctions is welcomed by environmentalists like Keith Stewart of Greenpeace Canada, who said in an email it is a sign that the ”era of ever-growing demand for oil” is over.

In B.C., much of the prime land has been snapped up by producers, leaving less to be nominated for auction, said a spokesman for the Ministry of Energy, Mines and Petroleum Resources who asked not to be identified. He said some land is not available for development because of government processes around caribou recovery and land and environment planning assessments in northeastern B.C.

The Canadian Association of Oilwell Drilling Contractors recently predicted just nine more wells will be drilled in Canada in 2020 compared with this year, taking the total number to 4,905, less than half the 11,226 wells drilled in 2014.

Meanwhile, the S&P/TSX Capped Energy Index, which tracks share values of major Canadian oil and gas producers, has fallen by about 15 per cent over the past year, reflecting investor distaste for the sector.

But Whitecap’s Fagerheim says there’s hope for the industry if Canada can get pipelines built, a task he says will require concerted effort from everyone involved to educate the rest of Canada on the virtues of the oilpatch.

“I think it’s as simple as that. Make commitments, live by those commitments. Remove those delays and the regulatory processes that inhibit us from getting our products to market.

“And I think we can get the enthusiasm back.”

READ MORE: B.C. gets top marks in national energy efficiency

Dan Healing, The Canadian Press


Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

COVID-19. (Image courtesy CDC)
COVID-19 exposure at The Key, weather shelter announced in Fort St. James

Northern Health made the public service announcement Dec. 1

An aerial shot of Cedar Valley Lodge this past August, LNG Canada’s newest accommodation for workers. This is where several employees are isolating after a COVID-19 outbreak was declared on Nov. 19. (Photo courtesy of LNG Canada)
52 positive COVID-19 cases now associated with LNG Canada site outbreak

Eight cases still active, 44 considered recovered

Pipe stringing work in Section 4. (Coastal GasLink photo/Lakes District News)
Pipe installation begins from south of Burns Lake to north of Vanderhoof

Coastal Gas Link’s November update indicates 528 additional workers

Vanderhoof Community Foundation logo.
Donate in your loved one’s name this Giving Tuesday: Vanderhoof Community Foundation

Today, Dec. 1 is celebrated as Giving Tuesday, a global movement for… Continue reading

Annerose Georgeson in the process of painting a mural at the Stuart Nechako Manor in July. While she was working on the mural, a nurse and a senior living at the Manor were enjoying the live painting. (Aman Parhar/Omineca Express)
Vanderhoof artist completes mural at the Manor

A Vanderhoof artist has finished her mural at a local long-term care… Continue reading

A tongue-in-cheek message about wearing a face mask to curb the spread of COVID-19 on a sign outside a church near Royal Columbia Hospital, in New Westminster, B.C., on Sunday, Nov. 29, 2020. THE CANADIAN PRESS/Darryl Dyck
B.C.’s COVID-19 infection count climbs back up to 656

20 more people in hospital, active cases still rising

THE CANADIAN PRESS/Nathan Denette
B.C. researchers launch study to test kids, young adults for COVID-19 antibodies

Kids and youth can often be asymptomatic carriers of the novel coronavirus

A sign is seen this past summer outside the Yunesit’in Government office west of Williams Lake reminding visitors and members to stay safe amid the COVID-19 pandemic. (Rebecca Dyok photo)
B.C. First Nation leaders await privacy commissioner decision on COVID-19 information

Release of life-saving data cannot wait, says coalition of First Nations

MLA Jennifer Whiteside is B.C.’s new minister of education. She is speaking out against Chilliwack school trustee Barry Neufeld and asking him to resign. (Black Press)
New education minister calls on Chilliwack trustee to resign

Whiteside echoes former minister’s promise to look at options to remove Barry Neufeld

Peter Beckett. ~ File photo
Supreme Court of Canada to decide if it will hear appeal in 2010 wife murder trial

Peter Beckett has stood trial twice for murder in connection with the death of his wife, Laura Letts-Beckett

Tabor Home in Abbotsford. (Ben Lypka/Abbotsford News)
B.C.’s largest COVID-19 care-home outbreak records 19 deaths, 147 cases

Tabor Home in Abbotsford has been battling outbreak since Nov. 4

Ash and Lisa Van carry a freshly cut Christmas tree while wearing personal protective masks at a Christmas Tree Farm in Egbert, Ontario, Sunday, Nov. 29, 2020 THE CANADIAN PRESS/ Cole Burston
‘Everyone wants a tree and they want it now’: Christmas tree sales on pace for record

Anticipated demand for Christmas trees has sparked a rush by some to purchase more trees wholesale

Business groups have been advocating for years that local approvals for construction in B.C. are too long and restricted, and that B.C.’s outdates sales tax deter business investment. (Black Press Media file photo)
B.C. residents worried about COVID-19 deficit, business survey finds

Respondents support faster local approvals, value added tax

Most Read