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VANCOUVER — Canada’s western energy powerhouses are feeling the chill from sluggish natural gas markets. Sales activity at British Columbia’s auction for exploration rights nearly ground to a halt in September, while Alberta and Saskatchewan are being pinched as energy companies scale back their budgets for targeting new natural gas prospects.
The sagging fortunes in natural gas are hitting government coffers already strained by budget deficits. Last month, the B.C. government’s deficit forecast for the 2012-13 fiscal year widened to $1.14-billion from $968-million, largely due to dampened prospects in the natural gas sector. B.C. Premier Christy Clark’s Liberal government will be hard-pressed to present a balanced budget for the 2013-14 fiscal year, as mandated by law.
In late August, Alberta forecast that its deficit could range from $2.3-billion to $3-billion in the 2012-13 fiscal year, or roughly three times higher than originally predicted, largely due to disappointing revenue from oil and bitumen royalties, and also less money raised at land sales.
Saskatchewan is still holding out hope that it will be able to balance its books in 2012-13, despite taking a hit from weaker energy markets and raking in less from auctions.
B.C. is primarily a natural gas play, but the slowdown at monthly provincial auctions in all three westernmost provinces reflects the reality that obtaining new gas exploration rights has fallen out of favour.
David Pryce, vice-president of operations at the Canadian Association of Petroleum Producers, said “Companies are looking at prospects and asking whether it’s economic at lower commodity prices. They have a finite amount of capital to spend, not just on land sales, but also on proving up their resource,” referring to the process of doing additional drilling to confirm natural gas reserves. Producers must also allocate money to get natural gas flowing from existing wells, so that also takes much of the attention away from bidding for new properties at auctions, he added.
This year is shaping up to be the worst showing for selling B.C. rights to drill for petroleum since 1998. In September’s land sale, British Columbia sold just $1.5-million in rights, compared with $17.3-million in the same month last year. Energy producers have spent $92-million to acquire B.C. drilling rights in the first nine months of this year. By contrast, in September, 2008, the province attracted $221-million at its monthly land sale during a boom year.
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