Oil and gas producers have declined to bid on controversial coalbed methane (CBM) land leases in southeastern B.C., costing the provincial government millions of dollars in lost revenues.
Producers made no bids on two CBM licences near Fernie and north of Glacier National Park in Montana during a land sale August 25. (Although the event is known as a land sale, in fact, only sub-surface lease rights are sold.)
Government officials told Business Edge that the two parcels were made available because, sometime in the last year, at least one company – and probably more – requested that they be put up for grabs.
B.C. Energy Minister Richard Neufeld downplayed the absence of bids, insisting that companies often show interest in properties and then decline to bid. Land is only made available after producers request it, he added.
He said the fact that the government took longer to complete its public consultation process before making the land available may have prompted companies to focus their attention elsewhere.
“It’s still there,” Neufeld said in an interview. “When companies come forward in terms of wanting us to put it up for sale, we’ll do that.”
According to one government spokesman, 10 per cent of available land has gone unsold in the last year. “It happens all the time,” said the official, who asked not be identified. There are many reasons why companies back out – ranging from geological factors to corporate takeovers to economic circumstances, he added.
Neufeld also denied that recent public opposition to CBM development influenced any producer’s bidding decision. “I don’t think it was a factor at all.”
The province still managed to sell $9 million worth of rights in the August 25 sale, but only about 38,000 of 72,000 available hectares were sold.
If the southeastern CBM land is not developed, the province also stands to lose royalty fees that producers would have had to pay if they found commercially viable quantities of CBM.
Because of concerns that salt water from CBM developments would flow south into the Flathead River, Montana Governor Judy Martz had threatened to complain to Ottawa on grounds that the development violated a 1909 Canada-U.S. treaty, which bars either country from polluting each other’s waters.
But Neufeld questioned how Martz could complain about B.C.’s CBM activities when Montana is drilling hundreds of CBM wells.
“I think there’s probably a bit more politics involved in (Martz’s complaint),” he said.
Companies declined to bid even though the province offers a $50,000 royalty rebate on each CBM well and other incentives to producers. But Neufeld said the royalty-incentive program is still working because producers are developing CBM elsewhere in B.C.
“We know that the interest is there,” said Neufeld.
Fernie’s town council had also accused the province of trying to develop CBM too quickly.
“(The absence of bids) will tell you how the industry perceives the resource in certain areas,” said Mike Gatens, chairman of the Canadian Society for Unconventional Gas (CSUG). “It’s high risk.”
Gatens, also the chairman and chief executive officer of MGV Energy Inc., one of Canada’s largest CBM developers, said he could not speculate on why a company would not bid. But, he added, generally while the resource potential is very large, the risk of developing that potential is also very high.
Gatens said his own company elected not to bid because it has not done work in the area and is interested in other B.C. tracts that are being developed by other producers.
Noting that B.C.’s difficult terrain also poses a lot of uncertainty, Gatens added the lack of interest shows that the potential rewards must be much greater than the risk.
“It’s one thing to (develop CBM) out in the plains,” said Gatens. “It’s another thing to do things up in the mountains.”
The province had made 19,803 hectares available for CBM development after reducing one licence to 11,623 hectares from 13,226 hectares a day earlier.
Shell Canada spokesman Jeff Mann said the company still intends to proceed with its plans to develop four CBM wells near Fernie. Shell and partner Elk Valley Coal Co. have expressed interest in exploring for CBM beneath Elk Valley Coal land between Sparwood and Fernie.
Mann said Shell was not affected by last week’s government tender process because Shell plans to conduct its activity on freehold land controlled by Elk Valley Coal.
“The B.C. provincial government has given several freehold coal rights owners the right to nominate part of their land for natural gas exploration,” said Mann. “We are working on an agreement with Elk Valley Coal for the right to nominate part of that land,” he added.
Shell has announced plans to seek a provincial permit in September, undertake construction work in October, drill between mid-October and November, and run tests possibly until next spring.
The absence of bids comes after the Suzuki Foundation recently called for a moratorium on CBM development across B.C.
Citing the example of the Powder River Basin in the U.S., Dale Marshall, a Suzuki Foundation policy analyst who authored a joint Suzuki-Canadian Centre for Policy Alternatives report on B.C.’s energy plans, said CBM development should be frozen because it requires more wells to be drilled in smaller areas on marginal plays, more roads and generators, and poses risks to water quality.
But CSUG’s Gatens said it does not make sense to stop the exploration and evaluation and piloting of a resource if you want to regulate it and understand how to deal with it.
Noting that the call for the moratorium is one of several that have been made recently, he said decisions about CBM projects have to be made based on the specific areas in which they are proposed.
“The geology is different everywhere,” said Gatens, who has consulted with companies, landowners, environmental groups and other stakeholders in the Fernie area. “People who try to generalize about CBM are doomed to fail. If they’re all the same, then why aren’t we out there developing every single one of them?”
(Monte Stewart can be reached at monte@businessedge.ca)
