Canadian natgas firms warn clock ticking on Montney shale deal with First Nations
Nov 1 (Reuters) - British Columbia is nearing a deal with First Nations to restart stalled development in Canada's prolific Montney shale play, gas industry companies said in recent days, adding they have urged the provincial government to move quickly or risk missing the winter drilling season.
New well licenses in the B.C. Montney have been frozen since last year, when a landmark B.C. Supreme Court decision ruled in favour of a claim from the Blueberry River First Nation that the cumulative impacts of natural resource exploration and development had damaged their traditional territory.
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The court agreed that B.C. had violated the nation's rights to use the area for hunting, fishing and cultural activities by allowing so much natural resources development.
The court awarded the First Nation C$65 million ($48 million) and control of 38,000 square kilometres of the Montney, Canada's top gas-producing play where around 25 companies including Canadian Natural Resources Ltd and Tourmaline Oil operate.
Nearly 18 months later, the B.C. government, Blueberry River and other First Nations in the region are still discussing how the province should review and grant permits for natural resource projects.
The province has told companies a deal is close, said Dale Schwed, chief executive of Montney gas producer Crew Energy , adding he remains cautious.
"We've heard that (from the government) a few times in the past," Schwed said. "People are running out of permits. We're now running out of things to do, as are other companies."
A deal would allow companies to develop leases they hold in the region, at a time when Canadian gas prices are strong and production is close to record highs of nearly 18 million cubic feet a day.
The court ruling slowed energy development, with only 73 gas well licenses being issued in B.C. up to September, according to a RBC Capital Markets note, versus 302 over the same period last year. Companies with permits already in hand were allowed to continue drilling.
Amanda Munro, a representative of the Blueberry River First Nation, said there was nothing new to share on the negotiations. Previously, Blueberry River leaders had said they were pleased to start the journey to begin to heal the land, while supporting stability in their region.
A spokesperson for B.C.'s Ministry of Land, Water and Resource Stewardship said talks are continuing and "we hope to have more to say about this soon".
Since August the province has started issuing some drilling permits for leases with existing well pads, and other work that does not require land to be disturbed.
Jeremy McCrea, an analyst with Raymond James, said this was a positive sign. Conversations with management teams indicate companies plan to increase spending in late 2022, suggesting these negotiations will be resolved by then, he added.
BUSY SEASON AHEAD
Winter is the busiest time for drilling in Canada, when frozen ground makes it easier to move heavy machinery. Montney companies that missed the 2021/22 season because of the court decision are anxious not to miss another.
"It's getting to a point of being fairly critical to the development of natural gas in B.C.," said Tristan Goodman, chief executive of the Explorers and Producers Association of Canada, adding that drillers were unsure about securing licenses in time.
Denver-based Ovintiv reallocated capital away from the Montney to the Bakken this year due to regulatory uncertainty around the Blueberry River negotiations.
Laura Lau, portfolio manager with Brompton Group, a Tourmaline shareholder, said the court ruling highlighted political risk in Canada.
"It just feels like in Canada there's always something. We've got to show we have the ability to remove some of these political risks, otherwise people will just invest in U.S. companies instead," Lau said. ($1 = 1.3636 Canadian dollars) (Reporting by Nia Williams; Editing by David Gregorio)