When bidding closed on B.C.’s oil and gas land sale last month, Gregg Scott was pleasantly surprised.
For two years, the monthly auctions have been anemic. Oil and gas companies have cut drilling programs since the collapse in prices, and with demand slack, companies like Scott Land & Lease are spending less on drilling rights and leases for their clients.
Then, in a single sale Jan. 18, B.C.’s petroleum and natural gas rights auction raised more money than every auction in the last two years combined.
Eight drilling licences brought in $39.6 million, including a record-setting $35 million parcel east of Dawson Creek.
“My reaction was a bit of surprise,” said Scott in an email. “It’s been over two years since any company placed a bid of that size in any province. I was pleased the client chose us to represent them with such a sizeable bid and hope it’s a sign of things to come.”
The last two years saw the lowest land sale incomes on record due to a severe downturn in the oil and gas sector attributed to a glut of supply on the world market. The 24 sales held in 2015 and 2016 brought in just $34 million in total.
It remains to be seen whether January’s strong result heralds a rebound in B.C.’s oil and gas sector.
Scott guesses the uptick is a “combination of more optimism in the industry, combined with available prospective land and the competitive forces of the land sale system.”
But unless the trend keeps up, demand for land and drilling licences are is still well below 2014 levels.
That year, producers snatched up $383 million in drilling rights in anticipation of liquefied natural gas development in Northeast B.C.
Depending on market conditions, the sale of drilling rights for subsurface oil and gas accounts for 30 to 70 per cent of B.C.'s total petroleum revenue. That money goes to fund provincial programs including highways, health and education. Many consider the sale an indicator of future drilling activity.
Whether or not the trend hold, January’s result is a heartening sign for the B.C. oilpatch, which has shed hundreds of jobs since the start of the downturn.
Last February, the sale brought in $0 for the first time in history. While subsequent sales added some $15 million to the provincial treasury, 2016 was the worst year on record for auction incomes.
Late last month, the Petroleum Services Association of Canada revised its 2017 drilling forecast, predicting a 31 per cent bump in drilling activity in B.C. over estimates released last fall. Still, oilfield activity is expected to be well below 2014, when oil and gas prices were higher.
The best-ever land sale was held in July 2008 and brought in $610 million. In the past three years, the January 2017 sale placed second overall, behind a $209 million sale in Nov. 2014.