I have written frequently about politicians’ unwillingness to protect the public’s share of natural gas production in BC.
That was understandable when the last government was in power. They wanted voters in Northeast BC to continue voting Liberal but, more importantly, they wished to reward wealthy financial sponsors. Christy Clark was installed and supervised by business leaders like Gwyn Morgan.
Why the NDP has decided to fight teachers in 2019 and not the fossil fuel industry is a mystery to me.
The volume of BC natural gas production has increased substantially in the 21st century but public revenues have declined to almost immaterial amounts.
Showing only royalty revenue, the chart above does not reveal the entire decline. Ten years ago, sales of petroleum and natural gas rights brought in $3 billion. Rights sales in the current fiscal year are struggling to meet an annualized sum of $4 million.
The reasons for this are not simple. I have noted that government has been offering many parcels for only three years but then renewing them using uncompetitive administrative measures. However, knowing there was more to this story, I put questions to a respected individual doing business in and around Fort St. John.
To the question, “Why have the revenues from rights offerings disappeared,” he responded:
Part of the reason the rights sales have dropped off is due to multi well pad type drilling followed by production of those. If companies want to increase reserves they simply add on to an existing pad that is located on land they already hold.
The risk factor for drilling has gone away with horizontal directional drilling techniques.
What happens now is that producers are chasing natural gas liquids rather than dry gas. They get dry sweet gas as a bonus, but in some cases it limits production as they cannot get rid of enough gas to fully produce the liquids.
The irony is that most of the wells drilled are gas wells and the royalties paid are based on an old API rating. I think anything above 50 viscosity is called “oil” and royalties are charged accordingly. Anything below is converted to BOE per cubic metre of gas or something for royalty purposes. Again, not sure.
Liquids are light and contain most of the higher value, easily obtained products like propane, butane, ethane, etc. Some is marketed as C5+ and some is C3. Some condensate sold is so light truckers have a difficult time pumping it with non pressurized equipment.
Risk factor as in the old days of wildcat drilling is long gone, so the gamble factor is gone in trying to add to corporate reserves. The odd hotspot for liquid rich gas will attract better money on rights sales for sure, although the geology is better understood and the formations are very widespread and relatively easy to access.
Road access, which never used to play into decisions, now does as it lowers costs. Drill, frac, repeat, is the new way of doing things. And most is done on large pads that can contain up to 24 or more wells that may have a couple of legs each.
There are likely administrative renewals that are happening as a result of the above as companies will hang onto the tenures for a longer period.
Sad to see a resource disappear for so little return.
Categories: Natural Gas