Alberta's energy crown threatened
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Thursday, March 27, 2008

CALGARY — British Columbia and Saskatchewan are on the verge of a huge oil and natural gas exploration boom as companies pour hundreds of millions of dollars into land rights, shifting their focus away from the established energy capital of Alberta.

B.C. raked in $152-million from its latest sale of exploration rights, the province announced yesterday. Buoyed by high natural gas prices and big exploration prospects, energy companies are rushing to stake a claim in the province's northeast.

Last month, Saskatchewan took in $197-million in a single sale of exploration rights, by far its biggest-ever sale – and almost as much as it previously generated in an entire year. Stoked by $100-a-barrel oil, companies are in a frenzy over the Bakken play in the southeast part of the province, where interest has percolated in recent years and has now exploded.

"It's the big M – momentum. There's no question B.C. and Saskatchewan have momentum," said Gregg Scott, president of Calgary-based land broker Scott Land & Lease Ltd.

New exploration rights are closely correlated with drilling activity, which remains active in Alberta but is poised to notably broaden beyond the province.

Alberta, during its 2004-06 boom years, saw billions of dollars flood into the provincial treasury, peaking in 2006 with a stunning $3.4-billion paid to scoop up fast-disappearing exploration territory, especially in the oil sands.

But now, the best new prospects are not in Alberta but in neighbouring provinces.

And that's expected to continue.

"We'll be seeing more and more competition at land sales in B.C.," Mr. Scott said.

FirstEnergy Capital Corp. in a recent report said "frantic" land sale activity in B.C. is likely to extend into April, saying it is a "massive land grab equivalent to that of the oil sands binge observed in Alberta during late 2005 and early 2006."

Bids for the next B.C. sale are due April 23.

In Saskatchewan, April 7 is the deadline for the next rounds of bids.

The province likely will smash its annual exploration rights record of $250-million, set last year, just four months into 2008.

For British Columbia, driving the boom are drilling results from EnCana Corp. and EOG Resources Inc., both of which may be sitting on some of the biggest natural gas discoveries in Canadian history in the Horn River region of northeastern B.C.

The hot Montney play, which is also in northeastern B.C., where companies such as ARC Energy Trust are active, attracted big bids yesterday as well.

Yesterday's $152-million take was the fourth-biggest single sale in B.C.'s history, extending a run that includes $401-million collected in December and $265-million in September. The province's largest sale was in September, 2003, with EnCana leading a charge that month that saw B.C. collect $418-million.

This year, for the first time ever, B.C. is on pace to surpass Alberta in the competition for dollars for exploration rights. Alberta has seen only $202-million spent in 2008.

Beyond high commodity prices and strong prospects, advances in technology underpin the industry's new look at B.C. and Saskatchewan.

Horizontal drilling techniques, and better fracturing of subsurface reservoirs, is helping unlock previously difficult-to-recover oil and gas.

A further factor is royalties. In Alberta, the rates charged on natural gas will rise in 2009, and will hit the most attractive gas plays in the province the hardest.

In B.C., while royalties on gas are roughly the same as Alberta's increased rates, a special deal was instituted last year to encourage investment in emerging gas plays, such as the kind at Horn River, where much of the recent money has been spent.

Land sales are conducted twice a month in Alberta, once a month in British Columbia, and every two months in Saskatchewan.

In other areas, such as Newfoundland and the Northwest Territories, the land sales generally happen once a year.

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