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.

Just Posted

The District of Sooke is looking to revamp its business licence bylaw. Council agreed recently that all businesses must hold a business licence to operate in the community. (Kevin Laird – Sooke News Mirror)
Sooke pushes ahead with new business licence bylaw

Proposal calls for all forms of business to require licensing, but bylaw can stil be tweaked

A search is underway for a 75-year-old fisherman who went missing near Port Angeles Thursday evening. (Courtesy of U.S. Coast Guard)
Search continues for angler missing between Port Angeles and Victoria

Canadian, U.S. Coast Guard searching for 75-year-old man reported missing Thursday evening

A multi-building residential development on Erskine Lane in View Royal was approved by council on June 15. (Courtesy Town of View Royal)
Dire shortage of three-bedroom apartments, says View Royal mayor

New development to feature wide range of rental units, amenities for tenants

Embracing the urban forestry rule known as 3-30-300 could improve the community’s mental health, says Saanich Coun. Zac de Vries. (Black Press Media file photo)
Saanich council embraces 3-30-300 rule to improve access to green space

Coun. Zac de Vries says rule promotes health and well-being through urban forestry

BC Housing has brought in sanitation trailers to the former Mount Tolmie Hospital site so its current residents can access clean water, showers, sinks and toilets after a collapsed sewer pipe impacted water service to the building. (Google Streetview)
Mount Tolmie Hospital homelessness shelter using sanitation trailers after pipe collapse

Travelodge shelter residents faced intermittent hot water supply in late May, early June

A small pod of Pacific white-sided dolphins pass by close to shore in Campbell River June 16, 2021. Still capture from video courtesy of Kimberly Hart
VIDEO: Dolphin sunset captured from Vancouver Island shore

Spectacular setting for view of travelling pod of Pacific white-sided dolphins

Fraser Health registered nurse Ramn Manan draws a dose of the Pfizer COVID-19 vaccine into a syringe at a walk-up vaccination clinic at Bear Creek Park, in Surrey, B.C., on Monday, May 17, 2021. THE CANADIAN PRESS/Darryl Dyck
‘Honour our fathers’ with COVID-19 vaccine protection, B.C. urges

109 new cases Friday, 75 per cent of 12 and up immunized

Freighters have becomd abundant in the Trincomali Channel on the east side of Thetis Island.
Nanaimo ponders taking on waste from nearby anchored freighters

Vancouver-based Tymac petitioning the Regional District of Nanaimo to accept waste at its landfill

(Paul Henderson/ Chilliwack Progress)
Trutch Avenue in Chilliwack to be renamed to remove racist taint

New name to have Indigenous significance as Chilliwack takes new step toward reconciliation

Chief Public Health Officer Theresa Tam listens to a question during a news conference, in Ottawa, Tuesday, Jan. 12, 2021. The number of confirmed COVID-19 cases attributed to the highly contagious Delta variant grew in Canada this week. THE CANADIAN PRESS/Adrian Wyld
Canada’s public health agency reports spike in confirmed cases of Delta variant

More than 2,000 cases of the variant confirmed across all 10 provinces and in one territory

(Black Press Media file photo)
POLL: When was the last time you visited the mainland?

The films are again lighting the screens at local theatres, the wine… Continue reading

Anyone with information on any of these individuals is asked to call 1-800-222-TIPS (8477) or visit the website victoriacrimestoppers.ca for more information.
Greater Victoria Crime Stoppers wanted list for the week of June 15

Greater Victoria Crime Stoppers is seeking the public’s help in locating the… Continue reading

Bella Bella is on B.C.’s Central Coast, accessible only by air and ocean. (Tom Fletcher/Black Press)
B.C. provides $22 million for Heiltsuk development on Central Coast

Elders care home project, tourism, lumber mill supported

The federal government says it wants to ban most flavoured vaping products in a bid to reduce their appeal to youth. THE CANADIAN PRESS/AP-Craig Mitchelldyer
Health Canada proposes ban on most vaping flavours it says appeal to youth

If implemented, the regulations would restrict all e-cigarette flavours except tobacco, mint and menthol

Most Read