Canadian lease rates setting records

Competition for Canadian exploration acreage is driving lease prices to levels not seen since the 1980s, reports Raymond James & Associates Inc.

The firm said higher oil and gas prices have prompted Canadian independent producers to pay close to $300 (Can.)/hectare, topping the 1997 peak of $250/hectare. (A hectare equals 2.47 acres.)

Raymond James said, �The increase in drilling should translate into new highs for oil service capacity utilization and the number of wells drilled in the country.�

It said over the past 2 years, prices for Canadian leases in Alberta, which represents 80% of the overall market, have risen more than 80%.

It said with gas prices above $5/Mcf and oil prices surpassing $35/bbl, Canadian producers are generating record cash flows for reinvestment.

�This increase in spending is also showing up in drilling activity as the number of wells drilled in Canada is up 65% since last year and is on track to match record 1997 levels.�

Raymond James said the robust leasing suggests that producers expect a sustained market for high oil and gas prices that would compensate them for the current lease prices. �This would also suggest much higher levels of drilling activity on the horizon.�

And the firm said exploration and production companies are competing for new prospects.

�The leases from the last 1997-98 upswing in leasing activity are still in effect since leases are primarily issued for a period of either 5 or 10 years.

�This means that a significant amount of the prime acreage is already under an existing lease, therefore the E&P companies fighting over the remaining acreage are starting to pay higher prices.�

Raymond James said not only has the price per hectare increased significantly in the past year, but also the amount of hectares bought with each lease has nearly doubled.