Among the nominations in the North Dakota Department of Trust Lands Minerals Management Division’s Nov. 4 oil and gas lease auction were 7,487 acres in 56 tracts in west-central and southeast McKenzie County (see map), but unlike past auctions when acreage in the county typically leased at a premium, the McKenzie County acreage in the November auction did not attract much interest.
While two tracts in the county topped the auction bringing $6,600 and $6,300 per acre, those were small tracts of less than eight acres each. The remaining 54 McKenzie County tracts, which ranged in size from four to 160 acres, brought from $10 to $875 per acre. Overall, the 56 McKenzie County tracts averaged only $396 per acre.
Minerals Management Division Director Drew Combs told Petroleum News Bakken that he sees three possible reasons for the low lease prices in McKenzie County. First he said lower crude oil prices certainly could be a factor but doesn’t know just how much that might have affected the lease prices.
Topography in the region, he said, could be another factor. Many of the McKenzie County tracts are in rugged terrain that can make construction difficult and drive up costs, he said. “That’s rough country and it could be hard in some places to even find a decent place to build a pad.”
But perhaps more importantly, Combs said, is that many of the tracts are adjacent to federally owned land that would require a federal drilling permit for a given spacing unit. “We have a lot of tracts out there that are completely surrounded by BLM land,” Combs said, adding that the requirement for federal permits could well make the leases less attractive.
There was more interest during the auction for tracts in Williams and Divide counties. In Williams County, four tracts totaling 320 acres leased for an average of $3,049 per acre with a high bid of $4,700. In Divide County 1,133 acres were leased in 16 tracts for an average of $799 per acre with a high bid of $1,550 (see chart).
Auction details
Combined, 12,166 acres in 120 tracts were leased in nine western North Dakota counties for an average of $418 per acre, an average well below the five-year Trust Lands auction average of $1,213 per acre.
At 7,487, McKenzie County had the most acreage in the auction followed by Divide County with 1,133 acres in 16 tracts. The remaining tracts were in the following counties: Bottineau (874 acres in 18 tracts averaging $24 per acre), Dunn (776 acres in 14 tracts averaging $799 per acre), Billings (720 acres in five tracts averaging $190 per acre), Renville (480 acres in three tracts averaging $5 per acre), Williams (320 acres in four tracts averaging $3,049 per acre), Mountrail (297 acres in three tracts averaging $210 per acre) and Hettinger (80 acres in one tract bringing $31 per acre).
The two highest bids of $6,600 and $6,300 came from Mainstream Investors of Minot that were paid for two adjacent 7.96 and 7.95-acre tracts in central McKenzie County (see table). Northern Energy Corp. of Bismarck had the third highest bid of $4,700 for a 79.8-acre tract in Williams County. Irish Oil and Gas of Bismarck paid $2,500 for three 80-acre tracts, also in Williams County.
Northern Energy picked up the most acreage securing leases on 3,306 acres in 31 tracts in five counties for an average of $223 per acre (see table). American Land Services of Bismarck spend the most money paying a total of $1.59 million for 2,888 acres in 19 tracts in McKenzie and Bottineau counties for an average of $551 per acre.
Detailed results of the Nov. 4 lease auction are available on the Mineral Management Division’s website at www.land.nd.gov/minerals/oilandgasleasing.aspx.
