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

People are shown at a COVID-19 vaccination site in Montreal, Sunday, April 18, 2021, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
211 new COVID-19 cases in Interior Health over the weekend

Currently, there are 875 active cases of the virus in the region

A nurse prepares a dose of the COVID-19 vaccine in Kelowna on Tuesday, March 16. As of April 19, more than 230,000 doses have been administered across the Interior Health region. (Phil McLachlan/Black Press)
More than 230K doses of COVID-19 vaccine administered across Interior Health

A total of 220,216 first doses and 13,775 second doses have been given to residents across the B.C. Interior

A class is in isolation after a potential exposure at J.V. Humphries School in Kaslo. Photo: School District 8
Kaslo school’s class isolated due to possible COVID-19 exposure

A class at J.V. Humphries School is home for the week

Firesmart activities will be happening this week on city-owned forested land. File photo
Firesmart activities to take place this week on Castlegar’s 14th Ave.

City and Selkirk College Forestry program working together on project

Sunday’s storm rocked one of the ferries crossing Kootenay Lake. Photo: Dirk Jonker
VIDEO: Storm makes for wild ferry ride across Kootenay Lake

The video was captured by ferry employee Dirk Jonker

Families of two of three workers killed in a train derailment near Field, B.C., in 2019 have filed lawsuits accusing Canadian Pacific of gross negligence. The derailment sent 99 grain cars and two locomotives off the tracks. THE CANADIAN PRESS/Jeff McIntosh
Families of workers killed in Field train derailment allege negligence in lawsuit

Lawsuits allege the workers weren’t provided a safe work environment

(New Westminster Police)
4 youth arrested after 30-person brawl in New Westminster leaves 1 seriously injured

Police are looking for witnesses who saw the incident take place

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

South Surrey’s Paul Cottrell, who works with the DFO, tows a grey whale out of Semiahmoo Bay Sunday. (Contributed photo)
Dead whale floating near White Rock towed to shore for necropsy

Animal has been dead since at least April 15

Dr. Bonnie Henry 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
BREAKING: Toddler marks youngest British Columbian to die related to COVID-19

Child one of eight people to die from virus this weekend

Chakalaka Bar & Grill remains open in defiance of orders from Island Health to close. (Cole Schisler photo)
B.C. health authority seeks injunction against restaurant defying COVID-19 orders

Chakalaka Bar and Grill plans to continue serving customers without public health compliance

Kimberley's Steve Tersmette has published Waterfall Hikes In Southern British Columbia, documenting 100 of the areas waterfalls.
Pharmacist Barbara Violo arranges all the empty vials of the Oxford-AstraZeneca COVID-19 vaccines that she has provided to customers at the Junction Chemist which is a independent pharmacy during the COVID-19 pandemic in Toronto, on Monday, April 19, 2021. THE CANADIAN PRESS/Nathan Denette
B.C. to open up AstraZeneca vaccines for all people 40+, set up clinics in hot spots

A total of 13 neighbourhoods and communities will receive the AstraZeneca vaccine

Most Read