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County continues to see strong mineral lease sales

Posted 11/11/09 (Wed)

By Tina Foreman
Farmer Staff Writer

An auction of state land mineral leases brought in a record $71.6 million with McKenzie County collecting more than $18 million, coming in second out of 12 counties.
The North Dakota Board of University and School Lands held the record oil and gas lease sale on Nov. 3, with 58,926 acres being auctioned off during the daylong sale.
In addition to the record sales total, Mountrail County also broke a record for highest per acre bid with a bid of $8,000 per net mineral acre for two 80-acre tracts. The high per acre bid in McKenzie County was $6,200 for four 40-acre tracts.
The quarterly sale included 20,286.43 acres from McKenzie County which netted an average of $904.43 bonus per acre, falling behind Mountrail County with an average of $3,605.50 bonus per acre.
Prior to Nov. 3, the highest total bonus generated during a quarterly sale was $30.6 million, back in November 1980, when 185,000 acres were offered. The average bonus per acre for the most recent sale was $1,214 per acre, which beat the previous record of $501 per acre, which was generated in August 2009.
“Leases in Mountrail, McKenzie and Williams counties generated the highest amount of interest,” says Gary D. Preszler, North Dakota State Land Department commissioner. “Interest in oil and gas development continues to grow as oil companies find success in both the Bakken and Three Forks formations in western North Dakota.”
The leases give oil companies the right to drill for oil and gas throughout the five-year lease. Bonuses paid are bid per net mineral acre as a one-time payment for the rights to explore for oil and gas. Royalties are received once a well is drilled and producing.
“Money earned from the auction will benefit all citizens of the state,” adds Preszler. “Bonus money and royalties earned with minerals owned by the Land and Minerals Trust is transferred each biennium to the General Fund. Bonuses and royalties earned by the other trusts also benefit each of those beneficiaries. The largest is the Common Schools Trust Fund. The Trust Fund balance, including investment returns, will determine distributions to the public schools. Ten percent of the last five years average asset balance is transferred each biennium to the Department of Instruction to be distributed through the school funding formula to all public schools.”
Although it’s difficult to determine why interest in these leases has escalated, Preszler suggests that in addition to the Bakken and Three Forks interest, the recent increase may just be about timing.
“We don’t select the tracts for nomination. Instead, tracts are offered when someone searches our database of open tracts and submits a nomination form by the deadline,” states Preszler. “But, I can tell you that we had a large number of leases issued in November 2004, having a primary term ending November 2009. Because there was not drilling with those leases, they came back up for lease this November.”
State Land Auctions are held quarterly with the next one scheduled for February 2010. But it’s difficult to determine if this success will continue.
“The continued success of these auctions is difficult to predict,” says Preszler. “It depends on the price of oil and the producers’ ability to continue achieving economic results in their drilling programs. But, the future does look extremely bright for the citizens of North Dakota.”
More information on this sale or the upcoming sale can be found at www.land.nd.gov.