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

Brett Alexander Jones is wanted on several warrants province-wide, in connection with multiple charges. Jan. 21, 2021. Kitimat RCMP photo
Kitimat RCMP searching for man wanted on several warrants province-wide

Jones is described as a five-foot 10-inches Caucasian man, with blond hair and blue eyes.

Administering naloxone to a person experiencing a benzo-related overdose event won’t help. Naloxone is used to neutralize opioids. (Jenna Hauck/The Progress file photo)
Northern Health warning drug users of potential benzo contamination

The drug does not respond to naloxone, and is being included in street drugs

Cedar Valley Lodge, LNG Canada’s newest accommodation for workers at the LNG Canada Project site in Kitimat. The most recent outbreak among workers at the project site was just declared over. (Photo courtesy of LNG Canada)
Second COVID-19 outbreak at LNG Canada Project site declared over

The outbreak was first declared on Dec. 16, 2020

Maj.-Gen. Dany Fortin, vice-president of logistics and operations at the Public Health Agency of Canada, speaks at a news conference on the COVID-19 pandemic in Ottawa, on Friday, Jan. 15, 2021. THE CANADIAN PRESS/Justin Tang
B.C. records 500 new COVID-19 cases Wednesday, 14 deaths

Outbreak at Surrey Pretrial jail, two more in health care

(File)
Man allegedly bites Vancouver cop during arrest for outstanding warrant

The officer was treated in hospital for the bite wounds

(File Photo)
Interior Health says COVID positivity rates in Fernie area actually 10-12%

IH say the rates are not as high as previously claimed by the region’s top doctor

Black bear cubs Athena and Jordan look on from their enclosure at the North Island Wildlife Recovery Association in Errington, B.C., on July 8, 2015. Conservation Officer Bryce Casavant won the hearts of animal lovers when he opted not to shoot the baby bears in July after their mother was destroyed for repeatedly raiding homes near Port Hardy, B.C. THE CANADIAN PRESS/Chad Hipolito
Supreme Court quashes review of B.C. conservation officer who refused to euthanize bears

Bryce Casavant was dismissed from his job for choosing not to shoot the cubs in 2015

Francina Mettes and Thomas Schouten with the 200-page document they submitted in December of 2018. (Travis Paterson/News Staff)
Dutch man, 94, facing unwanted trip home can stay in B.C. with wife of 45 years

Immigration offices cuts red tape so couple of 45 years can stay together in Victoria area

Join Black Press Media and Do Some Good
Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

Health Minister Adrian Dix looks on as Dr. Bonnie Henry pauses for a moment as she gives her daily media briefing regarding Covid-19 for the province of British Columbia in Victoria, B.C, Monday, December 7, 2020. THE CANADIAN PRESS/Jonathan Hayward
B.C. Premier, health officials to discuss next steps in COVID immunization plan

Nearly 31,000 doses of vaccine the province expected by Jan. 29 could be curtailed due to production issues

Vancouver Canucks’ Travis Hamonic grabs Montreal Canadiens’ Josh Anderson by the face during first period NHL action in Vancouver, Wednesday, Jan. 20, 2021. THE CANADIAN PRESS/Jonathan Hayward
Horvat scores winner as Canucks dump Habs 6-5 in shootout thriller

Vancouver and Montreal clash again Thursday night

Most Read