Reporting on the Montana/Dakota Bureau of Land Management’s May oil and gas lease auction, Petroleum News Bakken said in its May 19 edition that 73,699 acres of Montana leases in McCone County that did not receive bids had previously been leased by San Antonio-based Donco Inc. in BLM’s October 2012 auction, but that the leases were offered again by BLM in the May auction because Donco did not provide payment.
Petroleum News Bakken has since learned that Donco, the parent company of Shale Exploration, did, in fact, provide BLM with full payment for all of those leases. However, Shale Exploration subsequently requested a refund and forfeited its down payment.
In the Oct. 23, 2012, lease auction Shale Exploration, through Donco, was the high bidder on leases totaling more than $13 million. On the day of the sale, Shale Exploration paid the minimum fees due, i.e., the down payment, which amounted to $281,869.50, with the balance due on Nov. 6. After several communications between BLM and Shale Exploration between Nov. 1 and Nov. 6, Shale Exploration hand delivered a check to the BLM in amount of $13,300,138 on the afternoon of Nov. 6.
Then, according to both BLM and Shale Exploration, things got complicated.
First, as BLM was processing Shale Exploration’s funds to individual leases, the agency realized it had omitted one lease from a spreadsheet it had provided to Shale Exploration on Nov. 6 at the company’s request. BLM then asked Shale Exploration to provide payment of an additional $3,360.
There were some additional complications, but ultimately Shale Exploration paid BLM the full amount that was due on Nov. 13.
The dynamic changed
However, once the November U.S. general election was in the history books, the national political agenda had changed for the worse for the oil industry.
After the election there was so much uncertainty regarding rules and regulations governing oil and gas development on federal land that the prospect of developing the McCone County leases became questionable, Sam Tallis, Shale Exploration president and principle, told Petroleum News Bakken.
Consequently, the company decided not to pursue the McCone County leases and requested BLM refund the money, knowing it would forfeit its down payment of $281,869.50.
“Basically it was the uncertainty and onerous nature of oil and gas development on BLM land that led us to the decision,” Tallis said. “And we also had advisement from relationships with major players in the basin.”
And he said there was much more money the company would have had to invest.
“This isn’t the only amount of money you have to spend to put this thing together, you got to go in there and pick up all of the fee acreage too.”
But Shale Exploration still believes there is potential in the McCone County prospect, Tallis said, adding that the company wasn’t the only bidder on the McCone County tracts, which is why the bidding went as high as $300 per acre.
“Do we believe in the area? Absolutely,” he said.
Shale Exploration said it’s looking at other more promising ventures and is currently working on prospects in the Williston Basin and in the Niobrara shale play.
The company also has a drilling program underway in west and south Texas.
Shale Exploration is Apache Corp.’s partner in Daniels County, Mont., where operator Apache has not yet announced whether it will proceed with development of the 400,000 acres it shares with minority partner Shale Exploration.
—Mike Ellerd
