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Sales activity at B.C.’s auction for exploration rights nearly ground to a halt in September, while Alberta and Saskatchewan are being pinched as energy firms scale back.

Canada's western energy powerhouses are feeling the chill from sluggish natural gas markets.

Sales activity at British Columbia's auction for exploration rights nearly ground to a halt in September, while Alberta and Saskatchewan are being pinched as energy companies scale back their budgets for targeting new natural gas prospects.

The sagging fortunes in natural gas are hitting government coffers already strained by budget deficits. Last month, the B.C. government's deficit forecast for the 2012-13 fiscal year widened to $1.14-billion from $968-million, largely due to dampened prospects in the natural gas sector. B.C. Premier Christy Clark's Liberal government will be hard-pressed to present a balanced budget for the 2013-14 fiscal year, as mandated by law.

In late August, Alberta forecast that its deficit could range from $2.3-billion to $3-billion in the 2012-13 fiscal year, or roughly three times higher than originally predicted, largely due to disappointing revenue from oil and bitumen royalties, and also less money raised at land sales.

Saskatchewan is still holding out hope that it will be able to balance its books in 2012-13, despite taking a hit from weaker energy markets and raking in less from auctions.

B.C. is primarily a natural gas play, but the slowdown at monthly provincial auctions in all three westernmost provinces reflects the reality that obtaining new gas exploration rights has fallen out of favour.

David Pryce, vice-president of operations at the Canadian Association of Petroleum Producers, said "Companies are looking at prospects and asking whether it's economic at lower commodity prices. They have a finite amount of capital to spend, not just on land sales, but also on proving up their resource," referring to the process of doing additional drilling to confirm natural gas reserves. Producers must also allocate money to get natural gas flowing from existing wells, so that also takes much of the attention away from bidding for new properties at auctions, he added.

This year is shaping up to be the worst showing for selling B.C. rights to drill for petroleum since 1998. In September's land sale, British Columbia sold just $1.5-million in rights, compared with $17.3-million in the same month last year. Energy producers have spent $92-million to acquire B.C. drilling rights in the first nine months of this year. By contrast, in September, 2008, the province attracted $221-million at its monthly land sale during a boom year.

A spokeswoman for the B.C. Energy Ministry said Thursday that a "period of prosperity" could return to natural gas markets within three years. She noted that results from October's B.C. land sale will push the total raised so far this year above $101-million.

Alberta sold a record $3.64-billion in oil and gas rights last year, including $104-million in the oil sands alone. But Alberta has experienced a slide amid tepid natural gas markets, with the province reaping $959-million at land sales in the first nine months of this year – well off last year's blistering pace.

Saskatchewan, which garnered $1.19-billion at its petroleum land sales in 2008, has also watched its auctions taper off. Saskatchewan sold $94-million in oil and gas rights in the first nine months of this year. If that trend lingers, it will mark the worst showing at Saskatchewan auctions since 2004. Saskatchewan's energy mix is heavily weighted in oil, while Alberta has swung back toward oil in recent years after the rally in natural gas fizzled.

While many producers are giving the cold shoulder to B.C. auctions this year, Mr. Pryce said drilling technology is constantly evolving to make some previously shunned prospects much more attractive in the future, especially with a flurry of proposals to export liquefied natural gas in tankers to Asian buyers. First off the market could be an LNG project planned for Kitimat, B.C., being backed Apache Corp., Encana Corp., and EOG Resources Inc.

B.C.'s slowdown is in sharp contrast to 2008, when British Columbia garnered $2.66-billion in bids to easily surpass Alberta to claim to the No. 1 spot in annual sales of new exploration rights. B.C. also topped Alberta in 2009. British Columbia has fallen the hardest, going from the record high in 2008 to $893-million in 2009 to $844-million in 2010 to $223-million last year.