Drilling rights bonanza turns into a bust

November 20, 2013 11:24 PM

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Drilling rights bonanza turns into a bust

Alberta treasury gleans just $26 million as tracts of land fail to sell

CALGARY — A great deal of land was nominated but big pieces of it failed to win bidders and the Alberta treasury earned only $26 million in Wednesday’s drilling rights auction.

The sale had attracted plenty of attention because a two-year high of 396,000 hectares had been nominated, mostly in the activity-stunted southeast corner of the province.

But Alberta Energy reported Wednesday afternoon that only 239,000 hectares had sold. Fifty-seven of 166 parcels nominated in the Plains region, which includes the southeast, were listed as “no offers” and did not sell. Many parcels sold for less than $5 per hectare.

Brad Hayes, president of Petrel Robertson Consulting, a global petroleum geoscience consulting firm based in Calgary, said he can’t recall an instance where more land failed to attract a bid.

“I’m surprised in one way and not surprised in another,” he said, pointing out it was difficult to see what prize the nominating party might be after in southeastern Alberta.

Analyst Robert Fitzmartyn of FirstEnergy Capital said it looks as though a company or companies nominated land as “a smokescreen” to cover up their interest in other parcels.

Wednesday’s sale had an unusual number of parcels that didn’t win any bids and the parties that nominated them will be penalized, said Alberta Energy spokesman Mike Feenstra.

“For each parcel that’s put up and not bid on, the proponent actually pays the penalty of $625 plus GST,” he said. “It’s around $35,000 in penalties.”

He said he couldn’t identify the penalized parties nor could he say if was more than one party.

In the end, Wednesday’s sale of drilling rights on land on which the government holds the mineral rights was not even the largest this year — the first sale of 2013 in January resulted in 306,000 hectares being sold for $83 million.

Bids at the land sale are usually made through agents so it’s difficult to tell who the bidders are.

Only two Plains lease bids, both made through Scott Land and Lease Ltd., were for more than $1 million.

The biggest Alberta land sale in terms of dollars raised took place in June 2011 when 271,000 hectares were sold for $842 million, an average of $3,110 per hectare. That sale was largely driven by interest in the Duvernay formation of west central Alberta.

In Wednesday’s sale, the Plains leases sold for an average of $42 per hectare and the overall sales price was just $109 per hectare.

Source: calgaryherald.com

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