British Columbia has enjoyed a record year of exploration and development in the oil and gas industry, according to the Ministry of Energy and Mines.
From January to the end of September, 563 oil and gas wells in B.C. had completed drilling — a 31% increase over the 430 wells drilled in the same period last year.
The government also estimates that the total will reach 650 by the end of December –the highest number of wells ever drilled in a single year in the province. But whether that pace continues or not depends on how companies react to an increased price for natural gas and the province’s new royalty regime.
“The question still remains as to whether or not the price increase will cause the drilling to continue through this winter”, said Greg Stringham, vice president of markets and fiscal policy at the Canadian Association of Petroleum Producers (CAPP). “They’re just setting their budgets right now, and they’re evaluating the government’s new royalty regime as well, which at these prices has slightly higher royalties than they used to be.
And so they’re comparing that very closely to Alberta and making decisions as to whether they drill in northeastern B.C. or in Alberta.”
The oil and gas royalty rates have been reduced between 20 and 40 per cent this summer but Stringham said the rates rise as the price of natural gas rises. They’re still lower than Alberta’s but high costs in B.C. offset those rates.
He said that the large drop in the sale of oil and gas rights — they’re at about one-third in value of what they were last year — is nothing to worry about, noting that the levels have dropped back to about what they were after a three-year plateau.
“What we’ve noticed in northeastern B.C. is that there was a lot of activity last year when there was cash flow in the oil industry, and they bought up a lot of properties that they are now starting to develop and so they’re moving from the purchasing side of things into the development of those properties”,he said.
Ministry of Energy and Mines communication director Shawn Robins said that while rights sales are down royalties are up nine per cent. He also sees high U.S. demand and two major pipeline projects as reason for the pace to continue.
“The fact of the matter is that the U.S. isn’t getting the supply they need. So you’re seeing Alliance and Southern Cross suddenly getting very strong interest”, he said. “You’re starting to see the potential for brown-outs in some American markets, and natural gas is a real obvious energy replacement where our capacity to continue to produce hydro electricity has leveled off.”
Remington Energy president and chief executive officer Paul Baay said North American gas markets will continue to perform strongly into the next century.
“B.C. is the most under-explored part of the western sedimentary basin from a natural gas perspective”,he said. “And with the changes government had recently put in place, we should see continued record activity in northeastern B.C.”
Energy and Mines Minister Dan Miller said the oil and gas industry is “one of the stars in our economy. The potential for growth in this sector is tremendous, and there will be an increasing need for a stable supply of energy to support economic development in North America.”