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‘Phenomenal’ oil and gas rights sale sets stage for exploration push in B.C.

The Globe and Mail

‘Phenomenal’ oil and gas rights sale sets stage for exploration push in B.C.

July 18, 2008

CALGARY — British Columbia has raked in a record-breaking $610-million in an oil and gas rights sale, the latest in a series of windfalls driven by a rush of natural gas producers looking to lock up land in the northeastern part of the province.

The tally from the one-day sale smashes the old record of $441-million set in May, and puts B.C.’s total land sale proceeds so far this year at $1.58-billion. That surpasses last year’s record mark of $1.04-billion, and ranks as among the biggest to date in Canada.

Beyond the sale money pouring into government coffers, the dollars to be spent by producers on the ground will provide an important boost to the provincial economy. Northeastern B.C. is already getting a jolt from a ramp-up in exploration in the region that has culminated with recent discoveries such as the Horn River and Montney plays.

“We are pretty pumped in British Columbia about what just took place,” B.C. Energy Minister Richard Neufeld said.

“Buying land at $33,000 a hectare, that has never happened in North America that we are aware of,” he said.

“It is phenomenal. Oil companies don’t put up those kinds of numbers unless they plan to do something with it.”

The Montney formation, among the largest finds in recent memory, is estimated to contain trillions of cubic feet of natural gas.

The high-priced sale, along with Royal Dutch Shell PLC’s $5.23-billion agreement earlier this week to buy a key operator in the region, Duvernay Oil Corp., highlights how hot the region is right now.

“The competition for land right now in any hot play, especially [northeastern B.C.], is intense,” said Gregg Scott, president of Calgary-based land broker Scott Land & Lease.

“You also can’t discount the Duvernay deal this week that gave everyone another perspective on value in that play.”

The size of the bids in the latest sale and the location of the parcels, which extend west from Montney’s main area of drilling activity, also suggest an explorer could be chasing new targets in the region.

While Montney is a tight-gas play and producers have to use sophisticated – and expensive – technology to extract gas from the shale, it’s possible that deep drilling to the west of the Montney might lead to the discovery of more conventional pools.

One possible bidder for the western part of the area is Shell, since Duvernay holds a position bordering the parcels that were snapped up in the auction.

Combining those parcels with Duvernay’s land position would give the company a large block of connected land. A contiguous land position, in industry parlance, is critical to the profitably of a gas play because it makes it more economical to build processing operations.

A Shell spokesman declined to comment on the results of B.C.’s monthly auction.

Companies often use third-party agents in provincial land auctions to conceal their identity from competitors. Nearly 80 per cent of the sale, or $482-million of the total, stems from bids for five parcels.

Even with the size of the Montney trend, First Energy Capital analyst Robert Fitzmartyn said justifying the huge dollars being spent in the region means buyers in northeastern B.C. must be looking to extend beyond the Montney and into other plays.

“The price is so high that you need to have some other things there.”

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