Provincial land sales down half a billion dollars

Oil and gas companies have paid western provincial governments half a billion dollars less in auctions for drilling rights on Crown land so far in 2012 compared with 2011.

The trend, if it continues, could result in lower than expected income for some provinces, potentially inflating deficits or resulting in the need for higher taxes.

A study published this week by Firstenergy Capital Corp. shows a total of $394 million in bonuses were paid to British Columbia, Alberta, Saskatchewan and Manitoba governments so far in 2012 compared with $930 million in the corresponding period of 2011.

Companies bought 45 per cent fewer hectares and paid 22 per cent less per hectare, it added, linking the shortfall to lower realized oil and gas prices.

“Posted quarterly average acres and average winning bids have decreased significantly since third quarter 2011, a trend we expect to continue to manifest until commodity prices show signs of recovery or stability at the very least,” said the report.

Analyst Brian Purdy of Global Hunter Securities and CIBC World Markets researcher Jeff Fetterly agreed natural gas prices, at a 12year low in the first quarter, are the biggest factor in the downturn.

“The low gas prices are certainly constricting budgets for a number of companies, so when we look at capital budgets for companies comparing 2012 indications from what was spent in 2011, a lot of the gas producers are down significantly,” Purdy said.

Fetterly said he hasn’t heard of any spectacular new resource plays to match the Alberta Duvernay land grab that drove the Alberta auctions to record levels last year.

Producers accumulate Crown land in auctions, where bids are often submitted anonymously through agents.

Alberta, which has by far the most active oil and gas sector, holds a land sale every two weeks. B.C. goes once a month, Saskatchewan every two months and Manitoba every three months.

Alberta’s record $3.6 billion raised in 2011 helped power Western Canada to a total of $4.1 billion.

This year, so far, Alberta’s contribution is just $341 million, off 56 per cent from $777 million at the corresponding time in 2011. Acreage sold is down 40 per cent; the price per hectare is off 27 per cent.

The Alberta government forecast lower income from selling drilling leases and licences in its February budget, but not this low. It estimated $2.04 billion for the 2012-13 fiscal year that began April 1 after collecting $3.3 billion in 2011-12, an anticipated decline of 38 per cent.

Alberta Energy spokesman Bart Johnson pointed out the government will update its estimates after the first quarter ends in June.

“We’re less than a month into the fiscal year so it’s a little premature,” he said.

“It is what we expected to happen and it’s reflected in the budget. It’s down quite a bit (from 2011-12) although still relatively high if you look back over previous years.”

The Firstenergy study shows that B.C. bonuses are ahead by 37 per cent this year to $56 million, Saskatchewan is off 70 per cent to $45 million and Manitoba has jumped up 524 per cent to about $8 million.

It suggested producers are concentrating on developing land they already own, adding that B.C.’S natural gas-prone lands have been out of favour since mid-2010 because of low gas prices and Saskatchewan’s mature light oil plays, the Bakken, Shaunavon and Viking, have largely been staked out.

The record year for western Canadian land sales was 2008, when a $2.8-billion B.C. contribution, $1.2 billion from Alberta, $1.1 billion from Saskatchewan and $4.9 million from Manitoba took the total to $5.1 billion.

Firstenergy expects continued bidding for smaller Duvernay parcels in Alberta this year, along with smallerscale bidding on such light oil plays as Cardium, Swan Hills and Slave Point.