B.C. gas patch poised for another boom

Scott Simpson
Vancouver Sun
November 17, 2008

Record levels of natural gas and oil drilling expected in 2009

Drilling for natural gas and oil in British Columbia is expected to reach record levels of activity in 2009, in the wake of frenzied bidding for new gas exploration leases in 2008.

Two organizations that track the Canadian gas and oil drilling industry predict a drop in exploration and well development in Alberta, but forecast a major jump in activity in B.C.

The Petroleum Services Association of Canada expects drilling activity will increase 29 per cent in B.C. -- which would bring it precisely back to the level that had drillers and service rigs going flat-out in 2005 and 2006 amid robust gas prices on the North American market.

This time, however, natural gas prices aren't the catalyst.

Instead, it's a buzz of on-the-ground activity in the wake of record-setting bidding for gas drilling rights in two non-conventional and under-explored basins, Monkman and Horn River in northeast B.C.

Those two areas have lifted gas-rights auction revenues in B.C. to record levels for both the 2008 calendar year and the 2008-09 fiscal year as both large and small companies scrambled to stake a claim to a portion of what are believed to be huge, long-term, world-class reserves.

Now that they have the land, it's time to work.

"We will run about 150 rigs in the first quarter of the year in B.C.
Everything that can run in the province will be there," said Don Herring, president of the Canadian Association of Oil Drilling Contractors.

Herring said there is only a limited number of rigs with the sophisticated drilling equipment necessary for the deep, multi-directional drilling needed to extract gas from tight shale formations.

The B.C. play is a "new, unique play to Western Canada" and has only one real counterpart, the vast Barnet Shale play that has the gas industry roaring in Texas.

At this point, the Canadian play is restricted to B.C.'s portion of the Western Canada Sedimentary Basin, the nation's primary reserve of gas and oil.

The lion's share of the basin is in Alberta, where most resources rest in conventional, cheap-to-access drilling areas that are producing less and less gas each year.

Alberta will still draw the lion's share of activity, but its higher gas-royalty costs are driving many companies to B.C.

"This non-conventional gas resource is a new, unique play to Western Canada. It is very much focused at this point in northeastern B.C.,"
Herring said.

"It could also, of course, extend across the border into Alberta. But the focus has been on B.C. in large measure and in part because the royalty regime in Alberta has discouraged a lot of investment, whereas the fiscal regime in British Columbia has done exactly the opposite. It has attracted investment."

At the same time, "very good drilling results" reported in 2007 and
2008 by companies exploring Monkman and Horn River are accelerating interest in B.C., Herring said.

"The investor certainly is speaking with his wallet and saying he believes there is some real opportunity in British Columbia. What makes it unique is that he is not saying that about Alberta."

Roger Price, Western Canada operations vice-president for the Canadian Association of Petroleum Producers, noted B.C. has taken in more than $2 billion this year and calculates at least half of it has gone to the two key areas.

"Companies have spent a lot of money. They are now at the stage, with that kind of capital outlay, where they need to start getting a return on that investment," Price said.

"So they need to start investing further in terms of the drilling programs -- to start getting the production to pay for the capital they've invested."

ssimpson@vancouversun.com