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2010 will be record-setting year for energy development

Posted 4/28/10 (Wed)

By Tina Foreman
Farmer Staff Writer

Throughout the United States, the bleak economy is still a concern to many, even in North Dakota. Fortunately, for McKenzie County and other areas in North Dakota, the Bakken Formation is still going strong allowing the economic hit to this area to be minuscule compared to the rest of the United States.
With 109 active drilling rigs and another land lease sale coming up, the oil fields of North Dakota are still busy with no end in sight.
“As of Friday, April 16, the rig count in the state was 109 rigs and that is likely to continue increasing,” states Ron Ness, North Dakota Petroleum Council president. “It appears that 2010 will be a record-setting year in nearly every category.”
With 18 active rigs, McKenzie County is number three in monthly production among the oil producing counties in North Dakota, and it looks like it could soon take over the number two spot.
“McKenzie County is only 43 barrels per day behind Bowman County, so it is likely to be number two very soon,” says Lynn Helms, North Dakota Industrial Commission, Department of Natural Resources director. “McKenzie County’s production rose 100 barrels per day from December to January and 800 barrels per day from January to February to an average 32,645 barrels of oil per day in February 2010, when it was last reported.”
With oil production on the rise, state land and mineral lease sales are becoming more and more popular, with tracts of land going for record amounts.
In November 2009, an auction of state land mineral leases brought in a record $71.6 million for nearly 59,000 net mineral acres, with McKenzie County collecting more than $18 million, coming in second out of 12 counties. Although it may not set a record like the November sale, the upcoming land and mineral sale scheduled for May 4 and 5 is looking at selling 52,600 net mineral acres at close to the same prices as the November sale.
“I expect the bonus bids to be similar to the February and November sales, or even slightly higher,” says Gary Preszler, North Dakota State Land Department commissioner. “The largest county offering is Williams with over 20,000 acres available. With nearly all of McKenzie County active, there are over 10,400 acres being offered in McKenzie County.”
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.
“The area of the Bakken and Three Forks has already proven productive, and what is still considered prospective, is very large,” adds Preszler. “It will take a long time to fully develop this large area.  Contributing factors for the state’s recent successful sales have been reports of excellent results from recently completed wells over a large area of the state. Additionally, we continue to see new players showing up because of mergers and acquisitions and just wanting to get in on what is regarded as the best oil resource play in the United States.  I expect future Land Department sales to continue to be excellent, but over time the number of nominated acres will diminish as leases are drilled and held by producing wells.”
State Land Auctions are held quarterly. More information on this sale or the upcoming sale can be found at www.land.nd.gov.