Energy Ink

Alberta’s land sale windfalls aren’t coming back

Crown sales fall as Alberta's Duvernay shale moves from appraisal to development

Guest Post

November 29, 2012

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Resource revenue was $1.4 billion lower than expected in the first six months of fiscal 2012, Alberta finance minister Doug Horner acknowledged in a second-quarter update this week. He blamed global events for the diminished haul, including a well-documented discount on Canadian bitumen versus the North American benchmark price for oil that’s running at roughly $30 (see chart).

“This is not a good situation to be in and it’s costing us dearly,” the minister said in a statement.

Another factor at play stands to make life for the finance minister that much harder. Crown land sales in Alberta during the first six months of the fiscal year totaled $579 million, or $543 million less than expected, the province said. Among other things, the drop-off is a sign that activity in the budding Duvernay shale, where producers have spent roughly $3 billion since 2009 snapping up drilling rights, is shifting from exploration and appraisal to development.

Andrew Potter at CIBC World Markets this week highlighted promising test results from Athabasca Oil Corp. One well flow-tested by the company in the Kaybob region northwest of Whitecourt yielded 6 million cubic feet of gas per day plus 900 barrels per day of condensate. Another hole coughed up 5 million cubic feet per day and 450 barrels per day of condensate, Potter said in a note.

The results illustrate that “the overall industry appears to be gaining more confidence in this play,” he told clients.

It’s easy to see why. The Duvernay, which cuts across a vast swath of west-central Alberta, could hold an estimated 11.3 billion barrels of natural gas liquids and another 61.7 billion barrels of oil in place, according to the province’s Energy Resources Conservation Board.

That has attracted interest from industry giants Exxon Mobil Corp. and Chevron, plus Alberta household names like Encana Corp. and Talisman Energy Inc., all of whom are keen to get their hands on liquids amid soft gas prices.

“Everyone’s at varying stages [of development] depending on when they got in,” says Brian McLachlan, chief executive officer of Yoho Resources Inc., which is drilling two wells at its first development “pad.”

“But if you look at, for example, some of the Encana leases that they’ve licensed wells off of, the actual survey shows an eight-well pad. Shell’s drilling two wells off a pad already, so they’re actually ahead of us.”

The situation confirms that producers are nearly done peering under rocks and gathering data. For the Alberta government, it also means windfalls from Crown land sales aren’t likely to return.

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