City sells its biggest oil play
Glauc C produced about three quarters of Medicine Hat’s barrels-per-day production
The City of Medicine Hat has sold its strongest producing oil field, with elected officials and administrators saying the risks of spending more cash to boost profits in the oil business are too great for a local government to take on.
The sale of the municipality’s one-quarter interest in the 2,700-barrel per day “Glauc C” field, was announced and approved at Monday’s city council meeting.
It is the latest move in a two-year effort by the “Gas City” to shut down uneconomic shallow gas wells and sell minor oil assets.
This deal, to an unnamed privately held petroleum company, is valued at $20 million to the city with the “majority” in cash, according to the head of city council’s energy committee.
“Some say it’s a sad day, I think it’s a great day,” said Coun. Phil Turnbull, the energy chair. “We got the maximum amount of money we could get and reduced our liabilities at the same time.”
He said while the field was still breaking even in a bad pricing environment, declining rates made new capital spending necessary.
Council approved the measure by an 8-0 vote on Monday after being presented with the deal, and administrators said the field had produced a substantial return over 30 years.
The News first reported in September that the city was seeking bids for its share of the heavy oil field that is 73 per cent owned by the operating partner, Enerplus.
Documents presented along the council decision time state that council directed administrators to start considering a sale last June.
That followed a tumultuous spring in oil prices when they dropped for a short time to negative numbers as stockpiles grew without precedent.
Energy Commissioner and former Natural Gas and Petroleum Resource general manager Brad Maynes said the deal is with a substantial, well-established privately held oil and gas operator.
Enerplus maintains its interest as one of few remaining Canadian assets.
“Our understanding is that they (the new buyer) plan to invest in the field, and that results in economic activity,” he said.
He added that internal analysis found the cost of regular work in the field and long-term liabilities exceeds the risk tolerance for the city, which is set internally.
What was once a top-20 natural gas producer in
Canada 20 years ago, will only have a couple hundred producing wells in two years time.
Chief Administrator Bob Nicolay says he worked for the city when the city entered into Glauc C field 30 years ago, and the sale was “bitter sweet” but necessary.
“It’s time to exit that part of the business,” he told council.
The field contributed about 900 barrels per day of the city’s total production of 1,200 barrels of oil.
Earlier this year, the city sold several minor properties, including the Denzil Project that was drilled in east central Saskatchewan several years ago as part of a growth strategy.
With the Glauc C transaction, that leaves only the controversial Manyberries field that the city has said has long been hampered as federal environmental orders prevent substantial redevelopment work, needed, say administrators, to make it profitable.
In Sept. 2019 the city announced it would begin abandonment and reclamation activities on about 2,000 shallow gas wells it owns in Alberta and Saskatchewan. Four years ago it sold 2,300 wells in a block deal that provided little cash but erased nearly $50 million in cleanup liabilities.
An updated budget for the newly combined power plant and petroleum divisions states that oil prices fell last year to their lowest point since 2005.
The average price for a barrel of Western Canada Select, which is what the city fetches, was about $25 per barrel.