Gaebe: ‘Sold out’North Dakota Trust Lands auction results reflect shift to Bakken fringe Mike Ellerd For Petroleum News Bakken
Although the number of acres leased in the North Dakota Department of Trust Lands’ August auction was the fourth highest in five years, the average price per acre was the second lowest in that the same period and was, in fact, the lowest since November 2008.
However, a vast majority of acres offered in the oil and gas auction were along the margins or even beyond the traditional boundaries of the Bakken petroleum system in North Dakota. Attention is now focusing on these outlying areas as fewer and fewer Trust Lands leases are available in the five Bakken core counties of Divide, Dunn, McKenzie, Mountrail and Williams.
“Some of the interest in the outlying areas may be fueled in part by the fact that the Land Board is essentially ‘sold out’ of acres in the heart of the Bakken production area,” North Dakota State Land Commission Lance Gaebe told Petroleum News Bakken.
A similar trend was observed in June at the Montana Department of Natural Resources and Conservation’s quarterly lease auction where the focus shifted away from the more proven oil and gas production in eastern Montana and toward more speculative areas in central and western Montana as fewer of the more attractive eastern Montana tracts became available. As Petroleum News Bakken reported on June 4, the average price per acre in that lease auction was $18.11 per acre, well below the five-year Montana average of $32.75 per acre and significantly down from the near record average of $80.28 per acre received in the March Montana auction.
Acreage breakdown A total of 54,482.68 acres in 689 tracts were leased in the Aug. 6 auction held in Medora, bringing in a total of $4,824,969.47 for an average price per acre of $88.56, the lowest since the November 2008 auction when 24,284.21 acres were leased at an average of $83.99 per acre (see charts). The average price per acre for all Trust Lands auctions from February 2008 through May 2013 was $1,088.91, but the results of the August auction pulled that average down to $1,003.81. The highest average lease price per acre for all auctions during that period was the $3,525.62 received in the November 2011 auction, which was also a standing record high average price for all Trust Lands oil and gas lease auctions.
Approximately 85 percent of the 54,482.68 acres leased in the August auction are in counties along the Bakken margins, and well over half of the total leased acres are in Slope (17,412.10) and McLean (13,767.14) counties. The remaining approximately 15 percent of the leased acres are in the traditional Bakken core counties of Mountrail (5,186.79), Dunn (3,029.46) and McKenzie (16.00). No leases were up for auction in either Divide or Williams counties.
Gaebe said that the record bids that Trust Lands has received in recent years have generally been targeted in McKenzie, Williams, Dunn and Mountrail counties, but he added that the production potential outside of these areas has been demonstrated by “generous” bids offered in recent auctions, including the Aug. 6 auction. “While much of the acreage offered at the recent state lease auction are outside of the ‘prime’ Bakken production area, many areas of western North Dakota have a history of producing oil and gas, so the continued interest is not a surprise,” Gaebe said. “There may be some speculation at play, but many areas have potential for production as well.”
Successful bidders The highest price paid for a lease in the August auction was $19,100 that Banded Rock LLC of Sherwood, N.D., paid for a 4.85-acre Missouri River riverbed track in Dunn County. The next highest price was $14,700 that TDB Resources LP of Salt Lake City, Utah, paid for a 6.71-acre Missouri River riverbed tract, also in Dunn County. The third highest bid was $5,100 which was paid for two separate Missouri River riverbed tracts in Dunn County, one a 0.07-acre tract acquired by Norwegian American Oil of Minneapolis, and the other a 0.37-acre tract acquired by Leraas Resources LLC, also of Minneapolis. The low price per acre was $1 paid for many the tracts scattered across various counties, including some tracts in far southeast Mountrail County and some Missouri River riverbed tracts in Mercer County.
TDB Resources paid the highest per-acre price in the May Trust Lands lease auction, paying $15,100 per acre for a 3.84 Missouri River riverbed tract, also in Dunn County. QEP Energy paid the highest price of $13,000 per acre in the February auction for two separate Dunn County Missouri River riverbed tracts, one totaling 104 acres and the other 136.79 acres.
As Petroleum News Bakken reported in February, Trust Lands commissioned a survey in 2010 to accurately delineate riverbed tracts along the Yellowstone and Missouri rivers, most of which lie under Lake Sakakawea. The first of those recently delineated riverbed tracts were offered for lease in the February 2013 auction.
Overall, TDB Resources paid the highest average price per acre in the August auction at $14,700 for a total 6.71 acres in one tract in Dunn County. Banded Rock has the second highest average with $4,639.75 for 22.76 acres in three Dunn County tracts. Irish Oil and Gas Inc. of Bismarck was third in average price per acre for a total of $2,900 per acre for 158.34 acres in a single tract in Dunn County.
Empire Oil Co. of Williston came away from the August auction with the largest total leased acreage picking up a total of 23,075.28 acres in 220 separate tracts in Bowman, Golden Valley and Renville counties. Most of the acres that Empire picked up in the auction, some 16,530.54 acres, are in Slope County (see charts).
Right behind Empire was Resolution Consulting of San Antonio, Texas, which was the high bidder on 315 tracts totaling 22,616.76 acres in Dunn, McLean, Mountrail and Stark counties. Over half of Resolution Consulting’s acres are in McLean County (13,355.97 acres). The third largest total acreage went to Herco LLC of Billings, Mont., which successfully bid on 2,751.00 acres in 44 tracts in Dunn, Golden Valley and Mountrail counties.
Most of the bidding activity was for tracts in Dunn County, where the 3,029.46 acres were divided among 15 of the 24 successful bidders in the auction. Resolution Consulting picked up the most Dunn County tracts with 28 totaling 1,944.20 acres, but Irish Oil and Gas spent the most money in Dunn County, paying $459,186.00 for a single 158.34-acre tract.
Overall, Empire Oil spent the most money on leases in the August auction, paying $1,618,546.96 for the 23,075.28 acres it leased in its 220 tracts. Second behind Empire Oil was Herco which spent $1,348,058 for 2,751 acres in 44 tracts. The third highest spender was Resolution Consulting which paid $845,127.10 for the 22,616.76 acres it acquired in the 315 tracks it leased in the auction.
Analyzing the trends Over the past five-plus years, there has often been an inverse correlation between the total number of acres leased at an auction and the price per acre, resulting in some of the lowest acreage sales bringing in some of the highest average prices per acre (see graph). A good example was in February 2011 when a total of only 11,544.06 acres were leased but the average price per acre was $2,089.65. Perhaps the best example, however, was the November 2011 auction which only had 5,020.80 acres, the lowest acreage in any sale back through 2008, but had the highest price per acre over the history of Trust Lands auctions of $3,525.62.
Conversely, some of the largest acreage sales have resulted in some of the lowest average prices, such as the May 2011 sale when 61,041 acres were leased at an average price of $777.55 per acre, and in February 2008 when 34,934.28 acres were leased for an average price of $129.05 per acre. However, it was the August 2013 auction in which this trend was most pronounced over the five-plus year period when the 54,482.68 acres brought in an average price of only $88.56.
While the historic auction results suggest that acreage in the five core Bakken counties tends to bring higher lease prices, that is not always the case. For example, in the record high November 2011 auction, most of 5,020.80 acres leased were in Dunn County and brought in an average $2,037.65 per acre, and 669.32 acres in McKenzie County fetched an average of $7,777.04 per acre, but the 760 acres leased in Billings County brought in the high average for the sale of $8,710.53 per acre.
There are instances, however, when these correlations don’t occur. For example, the highest grossing lease auction through February 2008 was in May 2010 when 53,274.97 acres were leased for $158,099,211.75, resulting in a then record average price per acre of $2,967.61 per acre (see graph).
Next NDTL auction The last North Dakota Trust Lands auction of the year will be on Nov. 5 and will be held in the House chambers in the state capital building in Bismarck beginning at 9 a.m. Central Standard Time. Nominations for that auction close at. 5 p.m. Central Daylight Time on Sept. 20.
In order to be put up for auction, acres must first be nominated for lease and then the tracts are vetted by various state agencies. Prior to closing the nomination period, Gaebe said, it’s difficult for Trust Lands to anticipate how many acres will be nominated and where those acres will be located. Most often, acreages are nominated that have not previously been leased, although occasionally leased acres are re-nominated because there was no production on the lease during the primary five-year lease term. In those cases, Gaebe said, the re-nominated acres could be in the more popular counties.
Regardless of the lease locations, all of the proceeds from the Trust Lands auctions go to fund public education in North Dakota. Gaebe noted that the generosity of the bidders does not go unnoticed, and added that “on behalf of the permanent education trusts, we appreciate the willingness of bidders to bid generously for the opportunity to lease acres.”
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