ND oil lease auction brings record $71.6M

An auction of oil drilling rights on North Dakota state land has fetched $71.6 million, a record haul that will go mostly to benefit public schools.

Oil producers and lease brokers paid an average of $1,214 an acre for almost 59,000 acres of land in 12 counties during this week's auction, state Land Department figures show. In Mountrail County, a hotbed of development of western North Dakota's Bakken oil shale, about 9,600 acres were leased for an average of $3,605 an acre.

Both the statewide per-acre average and the sum of money raised set records, said Gary Preszler, director of the state Land Department. The agency manages mineral interests on state lands, and auctions the drilling rights on eligible tracts every three months.

"It represents the future," Preszler said Thursday. "These oil leases don't usually get purchased with the idea of just holding to them. They get purchased with the idea that (buyers) are going to develop them."

The $71.6 million in "bonus" payments give companies the right to drill for oil on specific tracts of land for five years. If development hasn't started within five years, the land may be leased again. Oil production from state land provides additional royalty income.

"When they bid on these leases, the bonus payments that are being paid are just the beginning," Preszler said. "The value in those leases become realized once they drill them, and develop them."

Two state trust funds get most of the bonus and royalty income from state mineral leases. One is the Common Schools Trust Fund, which pays a portion of its earnings to North Dakota's public schools each year. The other is the Lands and Minerals Trust Fund, which the Legislature uses for favored projects.

Preszler said the Common Schools Trust will collect $55.3 million in bonus income from this week's sale, while the Lands and Minerals Trust will get $14.6 million. The remainder will go to a number of smaller trust funds.

Bill LaCrosse, president of Empire Oil Co., of Williston, said his company leased about 7,500 acres during the sale. Empire acquires leases on behalf of clients who develop them.

LaCrosse had expected the auction to be competitive. "We've got very good (oil) prices right now," he said. "It appears the prices are going to hold up, if possibly not get even better."

The Land Department's August auction, which brought in $18.1 million in bonuses, established a record average of $501.80 per acre, Preszler said. This week's auction more than doubled that sum, recording an average of $1,214 an acre.

The $71.6 million in total bonuses also established a new mark, Preszler said. The earlier high was $30.6 million, set during a November 1980 lease auction at which almost 185,000 acres were leased. The 1980 money figure equals about $80.2 million in today's dollars.

Ron Ness, president of the North Dakota Petroleum Council, said oil producers were struggling during the first half of 2009 to attract money for drilling. The state lease sale may portend greater investment flows to western North Dakota, said Ness, who called the results "remarkable."

"The Bakken is reaching development stage, as opposed to exploration stage, so you're starting to see companies make bigger long-term plans," Ness said. "That means more permanent jobs, more long-term revenues."