6/24/05

Shell spends $85m on gas rights

B.C.'s monthly auction totalled $100.8 million - biggest take since September 2003

BY SCOTT SIMPSON
VANCOUVER SUN

The provincial treasury swelled by more than $100 million this week as Shell Canada bought its biggest stake in British Columbia's booming northeastern gas patch.

Energy Minister Richard Neufeld announced Thursday that his ministry's monthly natural gas rights auction took in $100.8 million, the third largest total in B.C. history.

Shell Canada contributed the lion's share, $85 million, buying up rights to almost 24,000 hectares of land near the Alberta border in the vicinity of Fort St. John and Dawson Creek.

The purchase twins Shell's position in the same gas field, Deep Basin, on the Alberta side of the provincial border.

"It's the largest cash bonus land sale in Shell Canada's history in B.C.," company public affairs manager Jeff Mann said in an interview.

It's also the biggest B.C. gas rights sale since a September 2003 auction that brought in $418 million - still the all time Canadian record for a single monthly provincial gas rights sale - with Calgary's EnCana accounting for $369 million of that amount with a 140,000 hectare purchase at Cutbank Ridge.

Neufeld said revenue from the sale would help get the provincial government off to a good start in its second term of office, and speculated that new Finance Minister Carole Taylor would welcome the news with enthusiasm.

"The average dollar amount per hectare is way up, too. We still surpass Alberta when it comes to the per hectare value of our auctions," Neufeld said. "We've always said B.C. has been underdrilled. There is lots of opportunity.

"Northeastern B.C. is a huge part of the province - last year we drilled 1,300 wells, compared to 15,000 drilled in Alberta."

Deep Basin was described as an unconventional or "tight gas" deposit making it similar to Cutbank Ridge, Greater Sierra and other deep set natural gas,deposits that characterize the investments that many exploration companies have made in B.C. in recent years.

"It essentially doubles our land holdings for basin-centred exploration. It's sweet natural gas trapped in sandstone or limestone formation with low permeability, meaning that gas or liquid doesn't easily flow through the rock," Mann said.

"It's a technical puzzle because of that permeability."

Mann added that as natural gas prices rise, more technical gas plays are attracting greater attention from industry particularly with gas production topping out in Alberta.

"The conventional natural gas in Western Canada is a mature business so not only are we looking for ways to maintain our level of production, we are actually looking for ways to grow our business.

"This basin-centred gas play is part of our strategy to grow our natural gas business in Western Canada and we're happy to have been as successful as we were in the land sale.

"As the price for natural gas goes up it makes it more economically feasible to look for this more difficult gas."

Shell established an initial land position in Deep Basin in 2004 on the Alberta side of the border.

"Building a strong position in the deep basin is in line with Shell's strategy to expand its Western Canada gas production," said Shell senior vice president of exploration and production Ian Kilgour in a prepared statement.