B.C. gas-well licences on the rise in 2013

After a slow 2012, higher gas prices are rekindling interest in the province's gas reserves

Well licences have nearly doubled in B.C. this year versus last, driven by improving gas prices and companies looking to bolster reserves for long-term LNG supply contracts

Nearly twice as many new gas-well licences were approved in B.C. in 2013's first six months than in all of 2012.

To the end of May, B.C. had registered 399 new wells. In 2012, 215 were approved. A month-to-month comparison of new wells approved paints an even starker picture: May 2013 (98); May 2012 (24).

Oil-and-gas sector insiders say the reasons behind the spike are twofold: steadily improving gas prices and energy companies such as Petronas increasing drilling activities to display extensive natural gas reserves to secure long-term supply contracts for LNG exports.

At press deadline, natural gas cost $3.25 per 1,000 cubic feet. In January 2012, prices dropped as low as $1.40. Four years ago, however, natural gas bounced between $5 and $6 per 1,000 cubic feet.

"The industry is really responding to the major cue – the recovery of natural gas prices. It appears we are recovering," Geoff Morrison, B.C. operations manager with the Canadian Association of Petroleum Producers, told Business in Vancouver.

"As price improves, the greater the interest in drilling more holes. But certainly people have an eye on LNG. They want to show reserves. Customers want to see that."

Drilling has been particularly active in the Montney, the liquid-rich geological zone that straddles B.C. and Alberta. Generally, natural gas is produced in the formation in B.C., while oil is produced on the Alberta side. A number of gases are produced in the Montney, including condensate, methane, butane and propane.

Condensate is in great demand from companies working in the oilsands because it's used to dilute bitumen – heavy oil – so it can pass easily through pipelines.

Canada's current daily condensate consumption is approximately 275,000 barrels. Of that, more than 100,000 are imported to keep up with demand. Condensate sells for US$95 per barrel.

"Production in the Montney can be done so fast, the condensate is nearly paying for the wells," said Keith Schaefer, owner of the Oil and Gas Investments Bulletin, a weekly investor-focused analysis of the oil and gas sector.

"Gas is never free, but right now it is very, very cheap."•

Story compiled with files courtesy of JuneWarren-Nickle's Energy Group.

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