A boom in sales of drilling rights in western Canada's oil hub province of Alberta is fading as U.S. President Donald Trump's trade war and OPEC+ production increases pound crude prices.
The average per-hectare cost expended to lease oil sands lands for production fell to C$771 this year, provincial records indicate. That is 18% less than last year's average, which was a record high since 2007. For other lands, the average has declined by 25%.
The falling land prices are a warning that the Canadian drilling boom induced by last year's completion of the Trans Mountain pipeline expansion may be nearing its conclusion. While the Trans Mountain expansion gave producers with almost 600,000 barrels of new daily shipping capacity, drillers increased output and flooded onto new drilling sites, driving land prices to multi-decade peaks in 2024.
But the double whammy of Trump's global tariffs and OPEC+'s faster-than-expected production boost have knocked oil prices to four-year lows in recent weeks, sapping drillers' interest in new sites.
"Canada is not immune from the world's oil price pains," said Trevor Rix, head of the Canadian oil and gas research team at Enverus.
The loosening in Canada's oil sands is taking a cue from the U.S., where drillers are reducing and some executives are reporting shale production to have peaked.
But Canada's producers are also expected to keep ramping up production in coming years. For oil sands producers, lower oil prices can be mitigated by bigger volumes, and a new liquefied natural gas facility in British Columbia will encourage drilling in oil-bearing regions of western Canada, Kevin Birn, S&P Global's chief Canadian oil markets analyst.
Not only is Trans Mountain still not capacity filled, the company is already projecting to expand capacity on its system. Enbridge Inc. is also projecting to add 150,000 barrels per day of capacity on its Main Line in the next few years.
Oil sands production will rise by about 500,000 bpd to 3.8 million bpd by 2030, S&P Global Commodity Insights has projected. The majority of the added oil will flow on Trans Mountain to the Pacific Rim, and possibly be matched by growing volumes of natural gas as Canada's first big LNG terminal opens later this year.
Alberta recorded at least one blockbuster land deal this year. In early March, Synergy Land Services Ltd. shelled out C$12,016 an hectare for Fort Kent field land adjacent to Canadian Natural Resources Ltd.'s Cold Lake oil sands operation that the company has been expanding. That was the highest-priced oil sands land sale since 2007.
One of the hottest land-selling areas has been a liquids-rich gas property called Elmworth, south of Grande Prairie, yielding light oil that is saleable and can be used for the dilution of bitumen so it can pump n through pipelines. Drillers paid an average C$1,734 per hectare last year to rent ground in and around Elmworth, a record in dollars since 2003.
Elmworth occurs in the Montney formation, which is widespread in 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 similar to Canada's Permian," Wood Mackenzie analyst Amanda Wu stated in an interview. "You're not going to see as crazy numbers as you generate out of the Permian, but the inventory that you have in the Montney is huge."
Elmworth is gaining appeal after other, neighboring liquid-rich gas fields, including 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 roughly on par with 106,000 barrels of oil per day, and the biggest producer was Strathcona Resources Ltd. Strathcona announced earlier this month that it entered into agreements to divest its Montney assets so it can focus on heavy oil. NuVista Energy Ltd. also drilled on Elmworth land Lexterra Land Ltd. purchased in May.