Albertan Wallets Get Fatter as Gas Prices Go Higher

Canadians are cheering on the tight "continental" natural gas market in growing numbers as gains owed to high sales volumes and prices --- driven by expanding exports to the United States --- spread and multiply. The seller's market for gas is behind Alberta government projections of a stunning budget surplus in the range of C$10-$12 billion (US$6.8-$8.2 billion) for the fiscal year that ended March 31 --- or about C$4,000 (US$2,750) for every man, woman and child living in the province. Virtually all the surplus is owed to oil and gas royalties, and the gas share of them is about 70%.

Alberta's Conservative government, re-elected in March with an enlarged legislature majority, is committed to using some of the money to pay off debt accumulated during 1980s and early-`90s oil and gas price slumps. Premier Ralph Klein has added that the province's treasury board, or cabinet-level manager of the government's finances, faces proliferating demands for tax cuts and spending on health, education, welfare and pet projects as the scale of the bonanza sinks in among Albertans. While Alberta still accounts for about four-fifths of Canadian production, gas has become a bright spot in a national economy that continues to rely heavily on resource industries from the Pacific to the Atlantic coasts. Nowhere do the gains show more clearly than in Nova Scotia, thanks to the Sable Offshore Energy Project and the allied Maritimes & Northeast Pipeline. In the first year that SOEP produced and M&NE delivered its output to the northeastern U.S., gas went from nowhere to a starring role as the east coast province's biggest export money earner, say reports from Statistics Canada and the Investment Dealers Association of Canada. Rising prices through 2000 made production averaging 500 MMcf/d worth C$850 million (US$585 million), or 16% of total Nova Scotia exports. Nova Scotia has the same prospects as Alberta, the investment dealers add: "Strong, growing demand for natural gas in the U.S. enhances the prospects for export sales." PanCanadian Petroleum Ltd.'s C$1-billion (US$650-million) Deep Panuke project calls for production of another 400 MMcf/d offshore of Nova Scotia by 2005, while SOEP is advancing through initial stages of a planned, continuing expansion program known as "Tier 2" exploitation of reserves surrounding the initial wells.

PanCanadian remains bullish on gas after it propelled first-quarter 2001 corporate earnings to a record C$494 million (US$340 million), up 167% from the same period a year earlier. Responding to the steady rise in gas export volumes and prices by accelerating drilling over the past year, PanCanadian became the second Canadian producer to raise its average daily output past one billion cubic feet. First-quarter production averaged 1.029 Bcf per day, and PanCanadian's 2001 budget of C$1.5 billion (US$1 billion) focuses on raising those volumes further. PanCanadian demonstrated it has long-range plans for continuing expansion offshore of Nova Scotia by forming a partnership to market deep-water drilling services to explorers there, including itself, with Ocean Rig ASA of Oslo, Norway. PanCanadian alone holds interests in 4.4 million acres of drilling leases offshore of Nova Scotia. By the company's count, it and a long lineup of other Canadian producers have made C$1.6 billion (US$1.1 billion) of exploration work commitments for the next five years in order to secure leases in the area, and C$875 million (US$600 million) of the total is dedicated to deep-water areas.

In western Canada, even groups traditionally associated with opposition to resource development are being drawn into the gas orbit. A coup in luring Indians into the business has been achieved by Alberta Energy Co.

the country's top producer with 1.2 Bcf daily igniting first-quarter 2001 earnings of C$383 million (US$260 million), about triple its performance a year earlier. AEC signed up the Kehewin, Frog Lake, Cold Lake and Heart Lake First Nations in northeastern Alberta, along with contractor Precision Drilling Corp., for a joint venture in operating a drilling rig during the 2001-02 winter field season. Prospects of continued strength on the continental gas market offers action that is just too big to refuse: "We are determined to work with industry and government to maximize economic benefits from resource development," said Kehewin Chief Eric Gadwa.

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