(Bloomberg) – A boom in sales of drilling rights in western Canada’s oil heartland of Alberta is fading as U.S. President Donald Trump’s trade war and OPEC+ production increases hammer crude prices.
The average price paid to lease oil sands lands for development tumbled to C$771 per hectare this year, according to provincial data. That’s down 18% from last year’s average, which was the highest since 2007. For lands outside of the oil sands, the price has fallen 25%.
The slumping land prices are an early sign the Canadian drilling boom spurred by last year’s completion of the Trans Mountain pipeline expansion may be coming to an end. With the Trans Mountain project giving producers almost 600,000 barrels of new daily shipping capacity, drillers increased output and snapped up new drilling sites, sending land prices to multidecade highs in 2024.
But the twin shocks of Trump’s global tariffs and OPEC+’s faster-than-expected production increases have sent oil prices tumbling to four-year lows in recent weeks, sapping drillers’ appetite for new production sites.
“Canada is not immune to the world’s oil price pains,” said Trevor Rix, head of the Canadian oil and gas research team at Enverus.
The softening in Canada’s oil patch mirrors the situation in the U.S., where drillers are retrenching and some executives are saying shale production has likely peaked.
But Canada’s producers are expected to keep ramping up output in the years ahead. For oil sands producers, lower oil prices can be countered by increased volumes, and a new liquefied natural gas plant in British Columbia will encourage drilling in oil-rich areas of western Canada, Kevin Birn, chief analyst for Canadian oil markets for S&P Global.
Not only is Trans Mountain not fully filled, the company is already looking to expand capacity on its system. Enbridge Inc. is also working to add 150,000 barrels of daily capacity on its Main Line in the coming years.
Oil sands output will grow by about 500,000 bpd to 3.8 million bpd by 2030, according to S&P Global Commodity Insights. Much of the new oil is likely to flow through Trans Mountain to the Pacific Rim, and it may be matched by growing volumes of natural gas as Canada’s first major LNG terminal is slated to start later this year.
Alberta has seen at least one blockbuster land deal this year. In early March, Synergy Land Services Ltd. paid C$12,016 per hectare for land in the Fort Kent field, near Canadian Natural Resources Ltd.’s Cold Lake oil sands site, which the company has been expanding. That was the highest-priced oil sands land deal since 2007.
One particularly hot area for land sales has been a liquids-rich gas field called Elmworth, just south of Grande Prairie, that produces valuable light oil that can be used to dilute bitumen so it can flow n through pipelines. Drillers paid an average C$1,734 per hectare for leases in and around Elmworth last year, the most in data stretching back to 2003.
Elmworth is situated in the Montney formation, which spans western Alberta and eastern British Columbia and holds 449 trillion cu. ft. of natural gas, 14.5 billion barrels of natural gas liquids and 1.13 billion barrels of oil.
The Montney is “basically like Canada’s Permian,” Amanda Wu, an analyst with Wood Mackenzie, said in an interview. “You are not going to have as crazy numbers as you get out of the Permian, but the inventory that you have in the Montney is huge.”
Elmworth has become appealing after other, nearby liquids-rich gas fields, such as Kakwa, have been drilled up, she said.
In one sale last September, Millennium Land Ltd. — a land company that represents undisclosed drillers in such transactions — paid C$27,556 per hectare for an Elmworth parcel in September, the most in any single transaction since 2013.
Elmworth yielded more than 14,000 bopd last year, AER data show. Veren Inc., which recently merged with Whitecap Resources Inc., accounted for almost 12,000 barrels a day. Gas production was the equivalent of about 106,000 barrels of oil a day, with Strathcona Resources Ltd. as the largest producer. Strathcona earlier this month announced deals to sell its Montney assets to focus on heavy oil. NuVista Energy Ltd. also has drilled on Elmworth lands that Lexterra Land Ltd. purchased in May.
Veren and Millennium declined to comment. NuVista and Lexterra didn’t respond to requests for comment.
