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

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

CALGARY — 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.”

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

Just Posted

Council approved a $3 million grant and a $19 million loan Tuesday to help keep Westerner Park sustainable. (Advocate file photo)
Red Deer city council approves $22M to keep Westerner Park viable after emotional debate

It’s vital ensure future success for the huge economic generator, says mayor

Red Deer Rebels goalie Chase Coward tries to find a loose puck during WHL action at the Centrium earlier this season. (Photo by ROB WALLATOR/Red Deer Rebels)
Changes on the horizon for Red Deer Rebels next season

New coach, roster adjustments among top priorities for Sutter this offseason

Renovations and construction have begun at Red Deer Dream Centre. (Photo contributed)
Renovations underway at Red Deer Dream Centre

Christian-based addictions treatment centre

Red Deer County's municipal planning commission gave approval for a new directional sign for a business located near Elnora.
(Image from Red Deer County)
Red Deer County garden centre and winery gets sign approved

Delidais Estate Winery and DA Gardens is located near Elnora

Alberta Premier Jason Kenney. THE CANADIAN PRESS/Jason Franson
Here is a list of latest COVID-19 restrictions in effect in Alberta

New mandatory health restrictions are now in effect in Alberta. Additional restrictions… Continue reading

Boston Bruins left wing Nick Ritchie (21) and Washington Capitals defenseman Brenden Dillon (4) battle for the puck during the first period of an NHL hockey game, Tuesday, May 11, 2021, in Washington. (AP Photo/Nick Wass)
Raffl’s late goal pushes Capitals past Bruins, 2-1

Raffl’s late goal pushes Capitals past Bruins, 2-1

Chicago Blackhawks left wing Alex DeBrincat (12) celebrates with teammates after scoring a goal during the second period of an NHL hockey game against the Florida Panthers in Chicago, Saturday, May 1, 2021. (AP Photo/Nam Y. Huh)
Toews’ question chases Chicago Blackhawks into offseason

Toews’ question chases Chicago Blackhawks into offseason

Wheeler has two goals, two assists as Winnipeg Jets clinch third in North Division

Wheeler has two goals, two assists as Winnipeg Jets clinch third in North Division

Depleted Raptors drop a 115-96 decision to Leonard and Clippers

Depleted Raptors drop a 115-96 decision to Leonard and Clippers

Denis Shapovalov, of Canada, tosses the ball for a serve to Ilya Ivashka, of Belarus, during the Miami Open tennis tournament Saturday, March 27, 2021, in Miami Gardens, Fla. THE CANADIAN PRESS/AP/Wilfredo Lee
Canadian Felix Auger-Aliassime upsets Diego Schwartzman at Italian Open

Canadian Felix Auger-Aliassime upsets Diego Schwartzman at Italian Open

Philadelphia Flyers' James van Riemsdyk (25) and Sean Couturier (14) celebrate past New Jersey Devils' Yegor Sharangovich (17) after a goal by van Riemsdyk during the third period of an NHL hockey game, Monday, May 10, 2021, in Philadelphia. (AP Photo/Matt Slocum)
Flyers drop from trendy East favorite to another lost season

Flyers drop from trendy East favorite to another lost season

André Gauthier is shown in a handout photo. Gauthier, a Canadian geologist who spent six years in and out of jail in Dubai after he allegedly uncovered fraud in a gold company, finally is back home in Quebec City after his release last week. THE CANADIAN PRESS/HO-Detained in Dubai MANDATORY CREDIT
Canadian geologist detained in Dubai for six years is back home after charges dropped

Canadian geologist detained in Dubai for six years is back home after charges dropped

This undated photo provided by the North Dakota Game and Fish Department shows a group of bighorn sheep in North Dakota. Alberta's environment department has known for years that toxins from old coal mines are contaminating populations of the province's official animal, the bighorn sheep. THE CANADIAN PRESS/AP-Craig Bihrle/North Dakota Game and Fish Department via AP, File
Alberta government knew bighorn sheep contaminated with coal mine selenium: scientist

Alberta government knew bighorn sheep contaminated with coal mine selenium: scientist

Most Read