Private land lease deals are booming in Alberta, as oil and gas companies rush to pick up property ahead of much-anticipated royalty cuts in the province.
After years of watching British Columbia and Saskatchewan suck away a key source of provincial revenue, Alberta has seen money from Crown land leases stage a strong return in recent months, with a landmark sale last week fetching a record $31,294.87 per hectare for several particularly appealing properties.
Now transactions are also beginning to take flight between companies and private land owners - typically farmers who lease subsurface rights to their property.
"It's really picked up in the last month," said Brad Turner, president of Calgary-based Britt Land Services. "It's a sign that there's interest in oil and gas development again in Western Canada."
And land brokers are bracing for the biggest deal since 2005 next month when Alberta makes available a huge 615,000-hectare package of land in two auctions. That's an area larger than Prince Edward Island up for lease - and the sheer size is itself a vote of confidence since land is put up for auction based on demand.
"Things are going to continue to pick up," Mr. Turner said.
It's a dramatic turn from the past three years, when Alberta saw its land leases plummet as industry spending fled to more favourable royalty regimes - and growth prospects - elsewhere. Then the economic crisis hit, and the spiral in oil prices down below $40 (U.S.) dried up even more investment, leaving huge numbers of drilling rigs idle and the province's chief industry reeling.
The result: After reaching a high of $1.8-billion in total land lease sales in 2005, Alberta's tenure auctions fell to $731-million last year - a number that was rescued from reaching a nearly two-decade low by a blockbuster $384-million sale in December. B.C. has posted higher numbers than Alberta since 2007, and even Saskatchewan topped Alberta's take in 2008.
But with Alberta now weeks away from releasing a revamped royalty structure as part of a provincial competitiveness review, lucrative new plays - including a potentially major new source of natural gas - have suddenly attracted a great deal of new attention.
That's brought money back to the larger Crown land leases - as well as the private sales that constitute a smaller share of transactions.
"In areas of Alberta that really became dormant in the last year, we're starting to see that pick up," said Gregg Scott, owner of Scott Land and Lease Ltd.
Better yet for Alberta, the average overall price in its February sale hit $618 per hectare, nearly matching the average in 2005, the province's best year since 1978. Alberta has already brought in $210-million this year. Saskatchewan has posted $29-million in 2010 sales, and B.C. $13-million.
It hasn't hurt Alberta that, half a decade after land sales rocketed alongside the last oil and gas boom, companies now find themselves needing new property. To hold on to an oil and gas lease, a company must conduct a certain amount of work. But so much land was bought in the runup to the boom that companies were not able to maintain it all - and some is now finding itself back in auction.
Success in the March auctions will also provide a window into the corporate interest in a promising new natural gas play that could see Alberta reverse dramatic declines in its production.
Though the sales records set last week came from lands bought in the oil-bearing Cardium - a decades-old play that has been reinvigorated with new technology - Alberta could also be home to a new source of natural gas. A significant part of a $384-million land lease in December came from an anonymous acquisition of land in the Duvernay, a new shale gas play that is geologically similar to the Horn River play in northeastern British Columbia.
Buzz about the Duvernay grew louder last week, when EnCana Corp. chief executive officer Randy Eresman hinted that the company has bought land "in a potential new play in Western Canada." Another EnCana executive, executive vice-president Mike Graham, said the company believes Duvernay "can emerge as a big play in Alberta." The company plans to shed more light on its plans at an investor day in Calgary on March 16.