Oil companies have slammed the brakes on bidding for new exploration prospects.
Sales of rights to drill on government land across the West are headed for their lowest level in at least 17 years, as cash-strapped energy companies forgo amassing new acreage, the National Energy Board said.
In the latest indicator of pain in the sector, the NEB said Wednesday that land sale revenue in the Western provinces has totalled $322.3-million with a month to go before the end of 2015. That's about a third of the 2014 figure and a small fraction of the 2008 record of more than $7.4-billion.
Canada's main energy regulator brought attention to the dismal results as oil prices settled below $40 (U.S.) a barrel for the first time since August. U.S. benchmark West Texas Intermediate ended the session down $1.91 at $39.94 after the U.S. government released figures showing a 10th consecutive weekly build in crude inventories.
Major energy-producing provinces all suffered big drops in land sale revenue, despite warnings among some executives and analysts that the Alberta government's reviews of carbon costs and royalties would result in a disproportionately large hit.
This is likely because the focus of companies and investors has shifted to the impact of the oil and gas price meltdown, said Martin Pelletier, portfolio manager at TriVest Wealth Counsel in Calgary.
"Everything becomes equalized in this low commodity-price environment. Natural gas is in the toilet. Oil's in the toilet and nobody cares about increased regulatory risk," Mr. Pelletier said. "Myself, I've gotten to the point where I wonder: Does it really matter what uncertainties are unfolding in Alberta?"
Crude oil prices have hung below $50 a barrel for much of this year, well under the $100 level of mid-2014, and natural gas markets have also been under pressure as a result of oversupply. The downdraft in commodity prices has pressured finances at energy companies, which typically bid on Crown lands to bulk up on acreage for future operations.
The NEB points out that other factors influence land sale results. Provinces experience sporadic spikes when the industry kicks off a land rush in a hot area. It cited major oil sands lease acquisitions in Alberta between 2005 and 2008, and major interest in the Horn River and Montney gas regions of British Columbia in 2008 as examples.
As with royalties, land sales provide governments with revenue to help fund their budgets. Major declines in such areas have hit provincial coffers, especially in Alberta. In October, Premier Rachel Notley's government said it would soon be forced to take on debt to fund a portion of operating expenses, as a sustainability fund built up by previous surpluses runs out and resource revenue wanes.
The province's land sale take has totalled $260.3-million (Canadian) through November, down from $494-million in 2014, the NEB said, quoting Alberta statistics. Those figures show companies paid an average of $177.25 per hectare, down from $462.34 last year.
British Columbia, where some of Canada's most prolific gas fields are located, has generated just $12.3-million in land sale revenue in 2015, down from $383-million the previous year.
Complicating matters in B.C., no prospective developer of a liquefied natural gas project has begun construction, despite more than 20 being proposed. LNG exports had been seen as a potential boon to Western Canada's gas industry.
Rights to drill in Saskatchewan have generated $45.5-million through October, down from $197.9-million in 2014, according to provincial figures.
Across the West, average revenue per hectare has slumped to $193 from $745 in 2014.
The Bank of Canada has estimated the industry's capital spending will fall 40 per cent this year and a further 20 per cent in 2016. If so, the land sales figures will almost certainly fall again, Mr. Pelletier said. In fact, some land will likely be relinquished, he said.