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Royal Dutch Shell Plc .com: More record-breaking in Alberta oil patch

From Globe & Mail (Canada)

Thursday, July 13, 2006

CALGARY — Alberta has smashed another record, increasing its take from the sale of oil and gas exploration rights to $2.31-billion this year, breaking 2005’s $2.26-billion haul barely half way through 2006.

The province raised $151-million its July 12 sale of exploration rights, a process conducted every two weeks with the latest tally announced Wednesday evening.

Spending on oil sands acreage – an increasingly scarce commodity – accounted for two-thirds of the latest sale and has driven the frenzy for exploration rights this year.

For the first time ever, oil sands rights have exceeded those for conventional oil and gas elsewhere in Alberta. At $1.21-billion, oil sands accounts for 52 per cent of the province’s total take.

Last year, oil sands drew $433-million, which to that point was a record but accounted for only 19 per cent of the 2005 total.

In just one February sale this year, oils sands attracted $559-million. Of that, Royal Dutch Sell PLC put down $465-million for 10 parcels of land west of the main oil sands region north of Fort McMurray. Shell is on the experimental fringes, hoping to recovery bitumen from limestone, which has never worked on a commercial scale.

Bitumen, which is upgraded into synthetic oil, is currently extracted from sandstone and dirt.

Before 2005, Alberta’s previous record year for energy exploration rights was 1997, when $1.15-billion was raised, a high-water mark exceeded last September.

The sale of exploration rights is a leading indicator that energy companies believe the strong market for oil and natural gas will continue but the industry in the past has traditionally spent aggressively to the moment prices took a downturn.

In 1980, $1-billion was spent on exploration rights, a figure that fell by almost half in 1981 as oil prices plunged. In 1985, $796-million was invested but the bust of 1986 saw spending on exploration rights fall by more than two-thirds.

The province of Alberta maintains ownership of the oil and gas and sells exploration rights to energy companies and collects a royalty on production. The Progressive Conservative government led by Ralph Klein completed a royalty review this week, saying its take was reasonable, but it has been blasted by opposition parties and even by its own party. Leadership candidates looking to replace Mr. Klein including front-runner Jim Dinning said they would hold a public review the royalty system.

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