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Vol. 19, No. 23 Week of June 08, 2014
Providing coverage of Bakken oil and gas

BLM lease prices fall

Montana/Dakotas auction sees increase in acreage but prices fall below average

Mike Ellerd

Petroleum News Bakken

While the number of acres increased more than six fold in the Montana/Dakotas Bureau of Land Management’s May oil and gas lease auction, the high bid of $3,400 per acre was a full 10-fold decrease from the record-setting bid of $34,000 the agency received during its previous auction in January.

Leases on 14,620 acres in 43 tracts in Montana, North Dakota and South Dakota were auctioned to 11 high bidders on May 21 bringing in a total of $4,554,151 with an average of $311.50 per acre.

The high bid in the May auction came from Stewart Geological Inc., of Billings, Montana, for a 15.73-acre tract in Richland County, Montana (see charts and map). Stewart Geological also had the second and fifth highest bids in the auction at $2,200 and $1,300 for neighboring 7.18-acre and 4.58-acre tracts. The three tracts are near Sidney in east-central Richland County near the North Dakota border.

Herco LLC, also of Billings, came in with the third highest bid of $1,550 per acre for a 120-acre tract near Culbertson in southeast Roosevelt County, Montana. Contex Energy Co. of Denver, Colorado, had the fourth highest bid of $1,350 on a 480-acre tract in northwest Billings County, North Dakota. Bids on the remaining 38 tracts were $600 or less and went as low as the minimum of $2 per acre. Those 38 tracts were spread across Richland County, Montana; Billings, Slope, and Golden Valley counties, North Dakota; and in Fall River County in far southwestern South Dakota (see chart and map).

Perspectives

The total of 14,620 acres leased in the May auction was less than half of the six-year average of 31,706 acres per auction dating back through January 2008. Likewise, the total of 43 tracts was far below the five-year average of 72 and the average tract size of 340 acres in the May auction was also below the six-year average of 448 acres per tract.

At 43, the number of tracts leased in the May auction was nearly on par with the 45 tracts leased in BLM’s last auction in January, but at 14,620 acres, the total acreage was considerably higher than the 2,261 acres leased in the January auction. The average tract size in May was 340 acres while in January it was just 50 acres.

Bids were substantially higher in the January auction with an average bid per acre of $7,742 compared to $312 in the May auction. In fact, the January auction marked the lowest acreage in the Montana/Dakotas BLM auctions over the last six years, yet the average price per acre was the highest over that period. The record $34,000 bid in January came from Diamond Resources for a lease on a 53-acre tract in the Van Hook Peninsula in southwest Mountrail County, North Dakota.

The May auction brings the number of acres leased in Montana/Dakota BLM auctions since January 2008 to more than 807,000. Those auctions have brought in just under $401 million in revenue with an average price per acre of $502.

Upcoming auctions

The next Montana/Dakotas BLM auction is scheduled for July 15 beginning at 9 a.m. Mountain Daylight Time in the Billings BLM office. Acreages to be offered in that auction are limited to North Dakota and South Dakota and in South Dakota include both BLM and Forest Service tracts. A total of 15,504 acres in 52 tracts will be offered in the July auction, most of which are Forest Service leases in South Dakota.

In North Dakota, nine tracts totaling 740.48 acres will be offered in Bottineau (120), Divide (19.84), Golden Valley (549.05), McKenzie (31.97) and Mountrail (19.62) counties. In South Dakota there is only one BLM tract, an 80-acre tract in Harding County in far northwest South Dakota. The remaining 42 South Dakota tracts total 14,683.75 acres and are all Forest Service tracts in Fall River County. The next North Dakota Department of Trust Lands Minerals Management Division auction is scheduled for Aug. 5, and nominations for that auction close on June 20. That auction will begin at 9 a.m. Central Daylight Time at a location yet to be announced.

The Montana Department of Natural Resources and Conservation Minerals Management Bureau held its quarterly lease oil and gas lease auction on June 3 (see story on page 1), and that agency’s next auction is scheduled for Sept. 3 in the Montana Department of Transportation auditorium in Helena beginning at 9 a.m. Mountain Daylight Time. Nominations for that auction close on June 17 (see related story on page 1).


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Montana sees second highest average bid

A high bid of $1,500 per acre that Oasis Petroleum paid for a 640-acre tract in Roosevelt County in the June 3 Montana Department of Natural Resources and Conservation, DNRC, oil and gas lease auction boosted the average price per acre to the second highest average of $166.14 per acre over the last six years of DNRC auctions. That average was also well above the six-year average of $32.82 per acre dating back through March 2008 (see table). A total of 7,840 acres were leased in 16 tracts in five counties spread across eastern, central and western Montana (see map).

At a distant second was the $475 per acre that Irish Oil and Gas of Bismarck, North Dakota, paid for a 640-acre tract in neighboring Richland County. And at a far distant third was the $26 per acre that El Tigre Oil and Gas of Edmonton, Alberta, paid for a 640-acre tract in Fallon County. All remaining bids were $7 per acre or less.

Among the other successful bidders in the auction was Herco LLC of Billings Montana, which picked up the most acreage in the auction at 2,560 acres, all in Wheatland County in central Montana. Herco paid a total of $6,720 for an average of $2.63 per acre.

The second highest total acreage was acquired by JP Furlong Co. of Bismarck, which was the high bidder on tracts totaling 2,080 acres in both Wheatland County (1,280 acres) and in Lewis and Clark County on the Rocky Mountain Front in western Montana (800 acres). JP Furlong paid an average of $7 per acre for the Wheatland County leases and $4.70 per acre for the Lewis and Clark County leases.

Big Horn Oil and Gas Inc. of Holladay, Utah, leased a total 1,160 acres, all in Lewis and Clark County, paying an average price of $1.78 per acre. Kermit D. Rulon of Clancy, Montana, was the successful bidder on one 120-acre tract in Lewis and Clark County, paying $3.50 per acre.

Six-year comparisons

At 7,840 acres, the June auction was far below the six-year average of 69,095.36 acres per quarterly auction dating back to March 2008, and the 16 tracts in the June auction also fell well below the six-year average of 172.08 acres per tract. However, the average tract size in the June auction of 490 acres was above the six-year average of 401.53 acres per tract. The total revenue of $1,302,560 was also below the six-year average of $2,267,640.80 per auction.

In terms of average price per acre, the highest average over the last six years came in DNRC’s March auction when 6,011.97 acres were leased for an average of $266.24 per acre. That average was the result of the $2,350 per acre that JBLS Montana Inc. paid for a 640-acre tract and the $2,700 per acre that Steward Geological Inc. of Billings paid for a 21.67-acre tract, both in Richland County. Neither entity acquired leases in the June DNRC auction, but both did pick up leases in the May Montana/Dakotas Bureau of Land Management lease auction. Stewart Geological was the high bidder in that auction (see story on page 1).

Montana’s oil and gas lease auctions are conducted by the Mineral Leasing Section of the Minerals Management Bureau of DNRC’s Trust Land Management Division. The next auction is scheduled for Sept. 3, and nominations for that auction close on June 17 (see related story on page 1).

—Mike Ellerd