No activity for Southwest during October petroleum and natural gas rights sale

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There was no interest for any of the five lease parcels posted in the Southwest region during the October sale of Crown petroleum and natural gas rights.

The lack of bids resulted in the Southwest being blanked for activity in one of the six Crown sales held each year, while province wide there was $15.2 million in activity. A total of $$11.8 million was generated in bonus bid activity on 125 lease parcels, while an additional $3.4 million was paid for nine petroleum and natural gas exploration licences.

Provincially, the $15.2 million reflects the second lowest Crown rights total of 2012, and the third lowest among the last 19 sales dating back to Oct. 2009.

Tim McMillan, Minister responsible for Energy and Resources Tim McMillan, noted a trend is developing away from land purchasing to putting holdings into production.

"I think province wide we saw a few years ago companies were very much in the land acquisition phase of the process. Over the last few years we've seen them shifting from acquiring land to bringing those lands into production. After they acquire them they have five years to get boots on the ground and start drilling and producing," McMillan noted in an interview last week.

McMillan feels that the Southwest is in the midst of this phase, as so far in 2012 there have been over 120 wells drilled in the area.

"I think that's one part of the story. I think the companies have shifted, largely based on price, from gas to oil. Oil's over $90 a barrel, and gas is in around that $3 per gigajoule, which is driving capital expenditures," he said.

"The other factor at play may have been that many of the companies in the Swift Current area were very aggressive in the August land sale. Swift Current was second in the province in August, just behind the Southeast. Actually the largest price paid for a parcel of land in August sale was just outside of Gull Lake."

The Southwest moved into the top two regions generating activity for the first time in almost a year during the August sale of Crown petroleum and natural gas rights. The Swift Current/Shaunavon region generated $6 million in activity to record a second best showing among the four main oil producing regions in the province. The highest price for a single parcel was $2.4 million paid by Standard Land Company Inc. to acquire a 1,036-hectare lease southeast of Gull Lake.

The Southwest last topped the $6 million interest level during the April 2011 sale when $56.6 million in activity was recorded in the region.

During the October sale, while the Southwest was shutout the Kindersley-Kerrobert area recorded $8.5 million in activity, the Weyburn-Estevan area was second at $3.4 million, followed closely by Lloydminster at $3.3 million.

Horizontal drilling has prompted increased activity in the mature fields in the Kindersley-Kerrobert area. Since 2009, horizontal drilling in the Viking Sand has resulted in production jumping significantly from 1,250 barrels per day to 17,500 barrels per day. Over half of October's activity was focussed on the Viking Sand lease parcels.

"These numbers reflect the expanded use of the technology that originally unlocked the Bakken Formation," McMillan stated in a press release. "The benefit of this technology is helping drive production and land acquisition across the province."

The October sale may have also reflected on a previously forecast decrease in drilling activity as a result of decreasing natural gas prices.

Back on July 30 the Petroleum Services Association of Canada issued their third quarter update to their annual drilling activity forecast, calling for a marked decrease in activity. During their end of July forecast they were forecasting a decrease to 12,500 wells for 2012, a three per cent decrease from the activity recorded during 2011. This was a contrast from their start of year forecast of 13,150 wells, which would have been a three per cent increase from activity in 2011. Those original forecasts were based on crude oil prices in the $100 per barrel range and natural gas prices in the $1.90 per thousand cubic feet.

“Commodity prices on the natural gas side of things have had a big impact on activity levels so far this year,” stated PSAC President Mark Salkeld in a July 30 press release. “As well, activity has been impacted by key shifts in the global economy including the European debt crisis and the decline in demand coming from Asia.”

“We are cautiously optimistic about activity levels staying at or around the 2011 well count, with activity more weighted towards liquids rich gas and oil,” Salkeld added. “PSAC Member companies continue to be busy and the demand for their services in western Canada seems to have steadied following a late breakup and some persistent wet weather.”

McMillan projected that as the provincial government moves into a new budget cycle, they will still be looking at a strong oil and gas industry in Saskatchewan.

"The price of oil being in the $90s is I think a healthy one for industry. Industry has had a strong year of drilling this year and production this year, so I think that the numbers that start to get bounced we get into budget, is a continued, strong industry. We know that companies have locked up a lot of land and that they are aggressively bringing in into production, and we think that will continue."

"That trend I think is very positive. That's when we see our hotels and restaurants full and people working in our communities, bringing stuff into production."

"I think the world of gas has changed in the short and medium term, but in the longer term, I know industry in British Columbia is looking very aggressively at liquidized natural gas, sending it to Asia where gas prices are still relatively high. The effects that will have on the North American gas prices, who knows. But those types of investments I think long term are helpful."

Organizations: Petroleum Services Association of Canada

Geographic location: Swift Current, Gull Lake, Lloydminster Canada Saskatchewan

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