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Sale of Shale Drilling Rights in Alberta Hits New Record

The Alberta Energy Ministry said it has sold a record C$2.68 billion in drilling rights so far this year, eclipsing the previous record of C$2.39 billion set in 2010.

Christine King, spokeswoman for Alberta Energy, told NGI's Shale Daily the mark was achieved after the ministry concluded the second-largest auction of shale drilling rights this year on Wednesday. Alberta Energy said the auction raised C$463 million for 286,000 hectares in the Duvernay Shale, making the average sale price C$1,622 per hectare.

King added that Wednesday's sale was the largest since an auction on June 1 netted C$842 million, when producers clamored to acquire acreage in the Kaybob area of the Duvernay, a shale play rich in natural gas liquids (NGL).

"Obviously, we are seeing more and more companies come to us," King said Thursday. "We know there are several factors for this. Some companies are having easier access to the resources and there have been favorable prices. We've also made some royalty changes recently, and we've been told by industry that has been very helpful."

Travis Davies, spokesman for the Canadian Association of Petroleum Producers, told the Calgary Herald the province's record sales figures "speak for themselves. It shows [that] Alberta is a competitive place to invest and that certainly has something to do with the work that government did."

King said the largest bid at Wednesday's auction was also the largest price ever paid: C$124 million for a 7,680-hectare parcel near Fox Creek, AB, or C$16,100 per hectare. Other parcels went for C$80 million, C$57 million, C$42 million and C$35 million. All of the bids were placed through land agents, so the identities of the oil and gas producers purchasing the parcels was kept anonymous.

Alberta Energy has eight sales remaining for the calendar year, the next of which is scheduled for Sept. 7. King said 173 leases on 57,000 hectares would be up for bids at the next auction, as well as 71 licenses on about 102,000 hectares.

King said the ministry has made nearly C$2.05 billion in sales during the current fiscal year (FY), which runs from April 1 to March 31. She said the fiscal year sales record is C$2.56 billion, which was achieved in 2010. Thirteen sales remain for the current fiscal year.

The Duvernay has been a popular play among producers and financial analysts, especially since Shell Canada Ltd., a Royal Dutch plc subsidiary, acquired Duvernay Oil Corp. for C$5.9 billion in July 2008 (see Daily GPI, July 15, 2008). On Aug. 15 Macquarie Capital Markets Canada Ltd. issued a 48-page report on the play, calling it "one of the most promising oil/gas resource plays in Canada."

"The Duvernay shales are a perfect example of a newer resource play that with a significant amount of science, a lower cost structure, and a little luck, could emerge as one of the biggest resources to hit Western Canada since the Montney," the Macquarie report said. "In fact, we see these shales as having the potential to be Canada's answer to the prolific Eagle Ford Shale in South Texas."

Macquarie said since late 2009, land sales in the Duvernay have gone into "overdrive," with companies spending more than C$1.4 billion to acquire more than 1 million new acres throughout Alberta. Unit prices have ranged from C$200 to C$400 per acre, but some have fetched as much as C$5,800 per acre.

The Macquarie report also listed companies' land positions in the play. The top four players were Athabasca Oil Sands Corp. (with 742 net sections), followed by Encana Corp. (570), Talisman Energy Inc. (563) and Chevron Corp. (313).

On Thursday Yoho released its operating and financial results for 3Q2011. The Calgary-based company said total production for the quarter was 2,500 boe/d and it was moving its two wells at Kaybob -- the first two successful horizontal wells in the Duvernay -- into production.

In April Yoho said one of the two Kaybob wells was producing 1,250 boe/d, consisting of 5.2 MMcf/d of sweet natural gas and about 390 b/d of NGLs, including 180 b/d of condensate. Yoho said it expected the well to eventually yield total liquids of about 75 bbl per 1 MMcf of raw gas, including 35 bbl per 1 MMcf of free condensate.

"[We] continue to be encouraged by the production results," Yoho said. "In particular, the [NGLs] content of both wells exceeds the original expectations for liquid-to-gas ratios, with condensate and pentanes comprising approximately 61% of the [NGLs]."

Yoho has a one-third working interest in the wells, which is a joint partnership with Trilogy Energy Corp. and Celtic Exploration Ltd. (see Shale Daily, Feb. 22). The company also said Thursday its board of directors had approved a FY2012 capital budget of C$35 to C$40 million, which includes the cost to drill six additional horizontal wells at Kaybob.

Macquarie described the two Yoho-Trilogy-Celtic wells as "most notable" in the play, but characterized drilling activity in the Duvernay overall as "a science experiment" with only about 24 wells drilled or licensed. But the firm said more than 20 additional wells -- both horizontal and vertical -- are expected to be drilled by the end of 2012 "to help appraise the [prospectivity] of the play."

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