Jim Letourneau's Blog

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Alberta Drilling Rights Sale Very Quiet

Land sale activity in Alberta is dwindling due to an uncertain royalty structure, low commodity prices and a dwindling credit market. Land acquisition shows commitment on the part of oil companies to drill new wells. If they don't drill within a fixed period of time, they lose their drilling rights and the lands revert back to the Crown. Diminished drilling budgets force companies to "high grade" their land packages. They'll do the minimum amount of drilling required to keep their core landholdings and let the rest expire.

Land sales are not the best barometer of future industry activity. Record Alberta land sales in in 2005 related to a boom in coalbed methane plays marked a peak in the fortunes of companies focused on unconventional gas. The 2008 land sale take was $938 million, inĀ  2005 it was $1.8 billion. While 2009 is shaping up to be a very slow year, it is going to get easier for companies to make a profit exploring for oil as land and drilling costs plummet from peak levels.