NDTL negotiates leasesOasis and Trust Lands agree on lease price and royalties for riverbed tracts Mike Ellerd Petroleum News Bakken
In what North Dakota Department of Trust Lands Minerals Management Division Director Drew Combs calls “a little unprecedented,” Trust Lands and Oasis Petroleum have agreed on a negotiated lease price of $8,000 per acre at a 20 percent royalty rate on 721 sovereign state mineral acres in seven tracts in McKenzie and Williams Counties.
The acreages in the seven tracts were never nominated for lease because they involved Missouri River riverbed tracts that were not part of Trust Lands’ inventory until the ordinary high watermark delineation study that began in 2009 revealed the tracts. Oasis had private mineral leases in the area and in 2010 approached Trust Lands expressing the company’s interest in leasing the seven tracts. However, at that time the tracts were on “pending” status because the riverbed survey was not complete. Because of expirations and obligations Oasis had on other leases in the area, Oasis developed the “pending” tracts without having the ability to nominate the unleased riverbed acreages.
The riverbed survey was finished in 2012, and while many of the riverbed tracts have since been leased through Trust Lands’ quarterly auctions, the seven in question have not. Rather than nominate the tracts for auction, Oasis approached Trust Lands with an offer to negotiate leasing the tracts directly. Trust Lands determined that it had no legal obligation to offer the leases in a public auction and agreed to negotiate with Oasis.
Details of the deal In those negotiations, Oasis noted leases in the area averaged approximately $4,409 per acre in 2010, but since then lease prices have increased and a nearby tract was leased in the May auction for $14,000 per acre. Oasis also noted that the royalty rate to the state in the area was 1/6 or 16.67 percent in 2010, and that the current royalty rate in the area stands at 3/16 or 18.75 percent. With that background, Oasis offered to pay $8,000 per acre and pay a higher royalty rate of 20 percent. Trust Lands felt the offer was acceptable and in the best interest of the state to accept.
State Land Commissioner Lance Gaebe then took the offer to the Board of University and School Lands, which is comprised of the governor, attorney general, secretary of state, state treasurer and the superintendent of public instruction. In its June 4 meeting the board voted to accept the offer.
“It all boils down to fair is fair - do we hold Oasis over a barrel?” Combs said of the negotiated leases. “In the end we made more money,” he said, adding that over the expected life of wells in the leases the state will make more per well with the higher royalty rate of 20 percent versus 18.75 percent. That, he said, far outweighs the lower lease price of $8,000 per acre versus the $14,000 paid for a nearby lease in May.
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