Government auctions of oil and natural gas exploration rights in Western Canada have fallen to some of their lowest levels in the last 15 years and hopes of a recovery in 2013 hinge on operators making a breakthrough in new liquids-rich unconventional plays, according to consulting firms.
Land sales in Alberta, the traditional barometer of industry confidence, slumped to C$1.12 billion ($1.13 billion) this year, down from last year's record of C$3.64 billion.
Gas-driven British Columbia fell to its lowest dollar value since 1998 and lowest land area since 1978, with bid revenues slumping to C$139 million from C$223 million in 2011 after posting C$7.7 billion in the previous decade from its unconventional plays in the Montney, Horn River and Liard basins. Saskatchewan, which relies heavily on a mixed bag of shale plays in its Bakken and Lower Shaunavon formations, dropped to C$106 million from C$249 million in 2011.
The combined C$1.36 billion raised by the three provinces paled in comparison with the record-setting years of C$4.24 billion in 2008 and C$5.01 billion in 2009.
Brad Hayes, president of Petrel Robertson Consulting, said Alberta and British Columbia will need a surge in high-priced parcels within established fairways, or the emergence of new fairways if they are "to see an increase in overall land sale revenues."
Weakened industry confidence based on the outlook for natural gas prices and, in Alberta's case, uncertainty over oil sands development until new markets in the US, Canada and Asia are opened, was mirrored in the sharp drop in land volumes and average land prices.
In Alberta, 3.16 million hectares (8.89 million acres) changed hands this year at a per-hectare average of C$355, compared with 4.6 million hectares at an average C$790 in 2011.
Saskatchewan sold 397,119 hectares at an average C$266, compared with 504,395 hectares averaging C$493 million last year.
British Columbia easily led the per-hectare average at C$1,020 from 136,521 hectares, after nosediving to 191,534 hectares in 2011 at a pre-hectare average of about C$1,303, following several years of averages above C$3,000.
Hayes said many companies in Alberta are looking for expiring leases "so we will continue to see the odd high-priced parcel spring up."
He also said there are indications that someone has identified a deeper play in the southern Duvernay shale fairway, which has attracted intensive land sales, drilling and deal-making in the past two years and could point to a deeper carbonate play.
Steven Hager, senior exploration analyst with Canadian Discovery, said heavy spending in the Duvernay acreage at Alberta's last sale of 2012 included one parcel of 3,840 acres that "is a typical mixed rights block" offsetting wells drilled by Encana, Talisman Energy and Sinopec Daylight Energy probing liquids-rich shale gas potential.
In British Columbia, the main target is the Montney play, where operators are expanding east and north of the original play, where liquids and oil are "likely to be more abundant in updip areas than in some of the deeper parts of the fairway," he said.
Hayes said there is "still long-term value in British Columbia's main drivers, such as the Montney and other unconventional reservoirs. It appears to me that land sales in British Columbia are more focused on high-value, hot plays."
In Saskatchewan, Energy Minister Tim McMillan on Monday said he was encouraged by bids of more than C$1 million on each of two oil sands permits, where operators are turning their attention to prospects on the eastern edge of Alberta's big regional plays.
He said the government is optimistic that the results of "exploratory oil sands work will provide further insight into the potential of the resource in this province."
But Hayes said the distance of Saskatchewan's oil sands deposits from infrastructure will add "greatly to capital expenditures. With there being far fewer thermal projects and no oil sands mining in Saskatchewan, investors might discount value," he said.
