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British Columbia, Saskatchewan Lead Alberta in 2008 Lease Sales

British Columbia (BC) and Saskatchewan brought in a combined C$745 million in land rights on Thursday, boosting their claims that they -- and not Alberta -- hold the best exploration spots in Canada.

To be sure, with its growing oilsands business and still-strong production from the Western Canadian Sedimentary Basin, Alberta remains Canada's top oil and natural gas producer. However, if the lease sales in the neighboring provinces continue at the current pace through the rest of 2008, British Columbia and Saskatchewan could surpass Alberta in bids this year.

"We said in the BC Energy Plan that we would make BC among the most competitive oil and gas jurisdictions in North America, and this ongoing interest and investment confirms it," said Energy Minister Richard Neufeld.

"The oil and gas industries clearly like what is happening in Saskatchewan," added Saskatchewan's Energy Minister Bill Boyd.

With encouraging initial results from gas drilling tests in the Horn River Basin (see NGI, July 21), the BC lease sale last week brought in C$502 million (US$470 million), for 460 square miles of gas drilling prospects. It was the second largest auction ever, and the second month in a row after July's record of C$610 million (US$573 million), when gas producers snapped up 530 square miles of leasehold. In the first eight months BC land sales already have totaled C$2.08 billion, which already is more than double the record set in 2007. Four more auctions are scheduled through the end of the year.

Saskatchewan attracted almost C$243 million from bidders Thursday, which also was the province's second largest auction. The four lease sales in the province this year have together brought the province C$848 million in bids, which is about triple what the province obtained for acreage in 2007.

The money being paid by producers to drill in British Columbia and Saskatchewan is "incredible," said senior energy analyst Steve Hager of Canadian Discovery Ltd. Hager estimated that about 85% of the lease rights were centered around acreage in BC's Horn River Basin. BC's Montney play near Dawson Creek also has potential, he said.

"It's money [BC was] never expecting a few years ago," said Hager. "Of course, they are siphoning this up-front cash away from Alberta, just like Saskatchewan is."

Meanwhile, Alberta land sales have totaled around C$741 million this year.

BC and Saskatchewan officials pointed to their energy industry-friendly regulations, which have taken some of Alberta's thunder. Alberta has enacted a more stringent royalty regime, which is said to have discouraged some energy investment this year. However, new drilling technology also is offering explorers more opportunities, especially in gas shales, noted officials.

"They certainly feel that we have a competitive royalty structure, regulatory structure and a very positive business climate and they're responding in a very big way here in this land sale," said Boyd. Oilsands licenses will be offered at Saskatchewan's next lease sale on Oct. 6.

Alberta is taking steps to remain the leader in the oil patch. Work on exploiting even bigger shale layers in Alberta, projected to contain an astronomical 1,000 Tcf of gas, is under way in a partnership between the Alberta Research Council and Schlumberger.

Shale is on the minds of Canadian explorers across the country. However, some analysts are cautious about the lack of infrastructure that could delay development in the emerging areas. The BC Horn River Play, for instance, is "extremely underdeveloped from an infrastructure point of view," said Calgary-based energy analyst Peters & Co.

National Energy Board member Roland George also sounded a note of caution in a recent address to the World Energy Council.

"Shale gas represents a potentially huge resource," George said. He acknowledged comparisons, in announcements of early drilling results, between the Canadian deposits and the celebrated Barnett Shale. But he noted, "These announcements should be regarded with caution due to the very limited exploration results achieved to date. It may be several years before enough drilling and assessment has been completed to determine to what extent Canada's shale gas may be commercially recoverable."

The deposits may be similar in rock properties and gas content, but the Barnett and Canadian formations are in radically different places, George noted. In the remote Horn River near BC's border with the Yukon Territory, "drilling is only possible in winter. This winter-only access and the need for more infrastructure including roads, processing facilities and pipelines, will slow development...There is also a significant difference in the ability to drill when one compares Barnett wells on the bald prairie near Fort Worth to wells in northeast BC that must be cut out of the bush."

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