WINNIPEG, Manitoba (Reuters) - Alberta’s congested pipelines and production limits are turning oil companies to neighboring Saskatchewan, driving up prices for drilling rights as the region weathers a deep slump.
A survey of senior executives last month by the Fraser Institute said Saskatchewan was Canada’s most attractive jurisdiction for upstream oil and gas investment. Saskatchewan produces 11% of Canada’s oil, compared with Alberta’s 80%, according to the Canada Energy Regulator.
Saskatchewan’s sale of oil and gas rights in the 2019-20 fiscal year has averaged C$506 ($383.78) per hectare, three-and-a-half times the average price in Alberta as of December, although Alberta’s overall sales value is far greater.
Full pipelines and difficulty getting new ones approved resulted last year in a glut in Alberta, causing its provincial government to limit production to support prices.
“The great thing about Saskatchewan is, if I have a well I want to drill, within a month-and-a-half we can be drilling that well,” said Andrew Phillips, chief executive of PrairieSky Royalty Ltd, which acquires drilling rights and allows other companies to use them in exchange for royalties. “In Alberta, it was taking up to six months.”
Oil reserves lie deeper in Alberta than in Saskatchewan, making extraction more expensive.
Saskatchewan’s Bakken field has seen the smallest relative decline in activity in Canada year-to-date, with rig counts off by 21% as of this week, compared with a 32% drop for the country, according to AltaCorp Research.
That field is close to the United States and a connection to the Enbridge Inc Mainline at Cromer, Manitoba, allowing Saskatchewan to avoid the government-ordered production curbs in place in Alberta.
On Monday, Husky Energy Inc cut its capital budget for the next two years, but said it would prioritize spending on Saskatchewan and Atlantic Canada.
The news is not all rosy. Crescent Point Energy Corp, the biggest Saskatchewan oil and gas producer, is cutting costs due to low prices and transport challenges, said David Gowland, manager of government and stakeholder relations.
“To attract investment and remain competitive, provinces really need to examine their entire cost structures beyond simply royalties and land sales,” he said.
Shallow oil plays allow for quick returns on investment, said Paul Mahnic, the Saskatchewan government’s executive director of lands and minerals. He added that much of Alberta’s land has been acquired, making Saskatchewan the “frontier” of the oilpatch, he said.
Alberta has taken steps to improve investor confidence, including a corporate tax cut, review of its energy regulator, and reduction of red tape, said Kavi Bal, a spokesman for Alberta Energy Minister Sonya Savage.
Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Marguerita Choy