Companies spend $167M in Alberta land sale
Comes a day before province expected to cut royalties
Energy companies paid $167.5 million Wednesday for oil and gas exploration rights in Alberta, the fourth highest total in the province's history, in part in anticipation that the province plans to reduce its royalty take.
They paid an average of more than $500 per hectare for exploration rights on 324,000 hectares.
The sale comes one day before Premier Ed Stelmach and Energy Minister Ron Liepert announce results of a competitiveness review of the oil industry.
They are widely expected to outline changes to the province's royalty rates at an afternoon news conference in Calgary on Thursday. Some people in the oil industry have predicted the province will make a major reversal of its royalty increases announced in October 2007.
The industry has been highly critical of the increases, saying they compounded the effects of falling demand and low oil and gas prices during the recession that came on the heels of the province's decision to increase its royalty take.
The amount of interest in land is "significantly bigger" than the average over the last year, Gregg Scott, president of Scott Land and Lease, told CBC News.
"Oil prices are strong. There's an anticipation and optimism regarding the new competitiveness review that will be announced here soon."
Although the industry calls it a land sale, it's actually an auction of rights to petroleum and minerals for five-year terms. The province puts the land up for bid at the request of companies.
Scott's company has been the biggest buyer of land at sales for the last 18 years. Bidding is much like a poker game, with oil companies using Scott to front their bids, in order to keep rivals from seeing which land they're interested in and escalating prices.
"They use us for confidentiality purposes," Scott explained. "So when you see our name all over the map, it's because we represent various clients."
New technology spurs interest
Interest is also up because new technology has allowed companies to drill back into old formations and produce more oil.
New innovations have also allowed companies to extract oil and gas from shale formations that were previously inaccessible.
Increased land sales are a leading indicator in the oil industry, reversing the trend over the last year. Companies that couldn't afford to drill within their five-year term during the recession would have had to hand the land back to the government. That land is now coming back on the market.
"We've seen a slowdown in land sales last year and that preceded a drop in drilling activity," Scott said. "I think there's a growing optimism in the industry right now."
- A photo caption with an earlier version of this story said incorrectly that the maximum amount of land involved is seven times the size of Vancouver Island. In fact, the maximum area is a tenth the size of Vancouver Island.Mar 10, 2010 1:30 PM ET