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Petroleum News: These sands are hot to handle

Unidentified buyer digs deep to acquire oil sands leases in February sale, stuffing more cash into Alberta government’s jeans
Gary Park
Just when it seems the Alberta oil sands should be cooling off, things heat up.
The latest surprise occurred Feb. 8 when an anonymous buyer forked over a staggering C$464 million for 10 parcels of land on the western fringes of the Athabasca region, outside the zone where raw bitumen can be extracted by surface mining.
That investment surpassed the record C$433 million collected from all oil sands leasing in 2005 and helped propel this year’s oil sands returns to C$846 million after only three of a scheduled 24 auctions.
Now the industry is left to speculate on the identity of the buyer, who is operating under the name of 1122131 Alberta Inc., a practice used by bidders who want to keep their intentions under wraps.
The numbered company accumulated a total of 88,576 hectares (almost 219,000 acres), including C$80 million for one 9,216 hectare lease at an unparalleled average of C$8,677 per hectare.
Analysts such as Mark Friesen candidly conceded they had no idea who was behind the bidding, suggesting it could either be an established player or someone intent on making a bold entry.
Greg Stringham, vice president of the Canadian Association of Petroleum producers, told the Financial Post that the purchase is evidence of the desire by companies to lock up leases while they can.
Among those who have flagged their interest in the oil sands this year, government officials from India, China and Japan have said the oil sands could become an important part of the global supply equation.
Fort Hills also major buyer
Another major buyer Feb. 8 was the Fort Hills Energy Corp., which paid C$60 million for 12,288 hectares about 50 miles north of Fort Murray, increasing the land holdings at its mining operation to 60,000 hectares.
The partners — Petro-Canada 55 percent, UTS Energy 30 percent and Teck Cominco 15 percent — are developing a two-phase, 190,000 barrel-per-day project that is due to start commercial production in 2010.
UTS Chief Executive Officer Will Roach said the partnership decided it should expand its acreage in a prospective area.
He said independent UTS has no interest in being taken over by any foreign-controlled firms, having seen its stock value climb 68 percent so far this year.
New well permit record
The pace of oil sands activity pushed new well permits across Canada in January to a record 4,078, easily beating the 2,618 posted in January 2005 and is driving Alberta government land sales into unimagined territory.
After three auctions this year, Alberta has collected C$1.24 billion from the sale of 867,381 hectares (2.14 million acres) at an average C$1,431 per hectare.
That compares to just C$182 million from 327,398 hectares at an average C$555 for the same period of 2005.
For all of 2005, it posted a record C$2.26 billion, beating the previous high of C$1.1 billion in 1997, and Energy Minister Greg Melchin is forecasting the province could end 2006 with more than C$3 billion in its coffers from land sales.
The Feb. 8 auction generated a record C$651 million in total deals from 284,124 hectares, representing a staggering C$2,292 per hectare, with oil sands leases accounting for C$559 million and 151,817 hectares at an average C$3,684.
Penn West signals extension
An extension of oil sands activities from the Athabasca region of northeastern Alberta to Peace River in the northwest was also signaled by Penn West Energy Trust, which paid C$3.7 million for 8,393 hectares, adding to its undeveloped base of 56,600 hectares supporting its Seal heavy oil project.
Seal is currently producing about 900 barrels per day from a pilot project and is expected to reach 4,000-5,000 bpd by late 2006.
Meanwhile, companies evaluating the prospects of oil sands and bitumen leases accounted for the bulk of 1,418 wells in northern Alberta, pushing the province’s count to 3,569, including 1,536 conventional gas wells, 246 coalbed methane wells and 228 conventional oil wells.
The top oil sands evaluation projects involve the Nexen/OPTI Canada partnership, North American Oil Sands, Shell Canada, Synenco Energy, EnCana, Value Creation, Canadian Natural Resources and Deer Creek Energy, which was acquired by France’s Total for C$1.67 billion last year.
Permits were issued for 1,776 gas wells in Alberta, British Columbia and Saskatchewan — 246 ahead of the same month last year — and new oil licenses edged up to 542 from 516.
Heading the list of permit-holders were EnCana (down 272 to 421), Canadian Natural Resources up 79 at 234), Apache Canada (152), Husky Energy (135) and EOG Resources (79).

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