A total of 27,370 acres were leased in 306 tracts in nine western North Dakota counties in the Feb. 5 North Dakota Department of Trust Lands oil and gas lease auction bringing in a total of $24,609,206 at an average price of $899 per acre. The auction was dominated by tracts between the former high water marks on the two banks of the Missouri River under Lake Sakakawea in Dunn County.
Of the 27,370 acres leased, slightly less than one-third or 9,900 acres were in 106 Missouri riverbed tracts in Dunn County and those tracts brought in a total $21,227,455, a sum that accounted for more than 86 percent of the gross auction proceeds.
The Dunn County lease activity was, in turn, dominated by 22 Missouri riverbed tracts totaling 1,465 acres that fetched a total of $16,536,197 at an average price of $11,291 per acre, all purchased by Denver-based QEP Energy Co.
The proceeds from those 22 Dunn County riverbed tracts accounted for slightly more than 67 percent of the total lease auction proceeds. Without those 22 parcels, the average price per acre for the auction would have dropped from $899 to $312 per acre.
The price QEP paid for of the 22 Dunn County riverbed tracts ranged from $10,300 to $13,000 per acre. The next highest price was $5,700 per acre TDB Resources of Salt Lake City bid for yet another Dunn County riverbed tract consisting of 1.61 acres. The remaining tracts leased for anywhere from $4,600 per acre to a low of $1 per acre.
Proceeds from the Trust Lands lease auctions as well as minerals royalties are funneled to various state programs.
“The money collected from generous bidding in this lease offering and from all of the royalties produced from state minerals go into permanent and special funds that support education and infrastructure enhancements across the state,” Trust Lands Commissioner Lance Gaebe told Petroleum News Bakken.
Drew Combs, the director of the Trust Lands’ Minerals Management Division Director Drew Combs, who oversaw the auction, said he was pleased with the results. “I think the sale went extremely well, and I’d like to thank everyone who participated.”
The next Trust Lands lease auction is scheduled for May 7. Nominations for that sale close at 5 p.m. Central Daylight Time on March 22.
Other auction resultsThe remaining acres leased in the Feb. 5 auction were in Bowman (1,250), Burke (1,458), McKenzie (1,488), Mountrail (734), Slope (4,848), Stark (795), Ward (6,858) and Williams (38) counties (see chart). The next highest average price per acre behind Dunn County was Stark County at $1,381, followed by the 38 acres in Williams County which averaged $1,100 per acre. The lowest average lease prices per acre were $62.57 for the 4,848 acres leased in Slope County and $82.31 for the 6,858 acres leased in Ward County (see chart).
In addition to the 1,465 auction-topping riverbed acres, QEP leased 1,841 other riverbed acres in Dunn County for a total of 3,204 acres at an average lease price of $145 per acre. QEP’s total spend in the Feb. 5 auction was just over $17 million, the highest dollar investment in the sale.
QEP, however, was not the highest bidder in the Feb. 5 auction. That distinction went to Paladin Resources Inc. of Minot, which purchased 5,564 acres in Mountrail and Ward counties.
Herco of Billings, Mont., was the second highest acreage lesser, picking up a total of 5,190 acres in Bowman, Dunn and Stark counties.
The remaining acres were leased by 22 other successful bidders (see adjacent chart).
The average price per acre at the November 2012 Trust Lands auction was $1,998, which was the fourth highest auction average dating back to 1970. The highest ever average price per acre was $3,526 set at the November 2011 auction, followed by $2,968 in May 2010, and $2,090 in February 2011.
Trust Lands leased a total of 16,665 acres at the August 2012 auction at an average price of $701 per acre. In May 2012, Trust Lands leased 10,447 acres at an average price per acre of $1,000, and in February 2012, 69,942 acres were leased at an average price per acre of $1,219.
As Petroleum News Bakken reported earlier in February, the average price per acre in the Jan. 30 Montana/Dakota BLM lease auction was $4,038, and the highest price paid was $19,950 per acre that Wichita-based Slawson Exploration paid for an 80-acre tract in Mountrail County.
Missouri River tractsAll of the Missouri River tracts leased in the Feb. 5 auction are under Lake Sakakawea and lie between the ordinary high water marks on each side of the river that existed before the area was flooded by the lake in the 1950s. Trust Lands has leased riverbed tracts in the past, but the riverbed tracts, including those under the lake, were not accurately delineated.
North Dakota’s Board of University and School Lands commissioned a professional survey that began accurately delineating the riverbed tracts along the Yellowstone and Missouri rivers in 2010, and using historic aerial photographs that survey delineated the Missouri River tracts under the lake. The survey was completed in 2012.
With advancements in directional drilling, Trust Lands has seen renewed interest in the riverbed tracts.
Riverbed tracts are defined as the area between the ordinary high water marks; that total area includes the area between the ordinary low water marks and the area between the high and low water marks on each side of the channel.
While the state’s ownership of the riverbed between low water marks is not in dispute, the area between the low and high water marks, known as the “shore zone,” has been disputed and several entities sued the state claiming the shore zones are owned by adjacent landowners.
But as reported by Petroleum News Bakken in early February, a North Dakota district judge ruled in late January that the shore zones belong to the state of North Dakota.