As the Bakken oil boom cools because of plummeting oil prices, oil companies are starting to sweep up land in Bowman County, an increasing trend that could reshape the area as a hot spot for oil and gas recovery.
Why? Because it’s cheaper.
The state’s quarterly oil and gas lease auction coming up Feb. 2 is a strong indication that the oil industry is being revived in southwest North Dakota. While some historic wells are currently still producing, it is anticipated by the state that the area will continue to see increased oil and gas activity.
More than 1,500 acres of land in Bowman County will be up for grabs in next month’s auction. That’s about 500 acres more than what was available at November’s auction.
“In Bowman, there are a lot of things going on,” said Drew Combs, director of the Minerals Management Division with the North Dakota Department of Trust Lands. “Everybody’s been hearing for the last years Bakken, Three Forks (Formation). North Dakota has more oil plays than just those.”
But a lot of the guesswork has been taken out of drilling in the Bakken. If a company drills into that, they are more than likely to get something. As excitement built over that fact in the last several years, so did the dollar amounts.
That’s great for the companies willing to invest the big dollars, but Combs suggested Bowman County, where the costs associated with oil exploration and production are cheaper, is becoming “much more interesting.”
Simply put, Combs said it’s a bargain; a person would be financially better off drilling in Bowman County.
“It’s old school oil and gas activity, and everything’s cheaper; cheaper to drill the wells, it’s also cheaper to get leases down there,” he said.
Mineral leases still aren’t any cheaper in the Bakken region despite the low cost of oil. Including all the steps necessary in the Bakken to begin oil recovery, the cost averages about $9 million for one Bakken well.
“(In) Bowman you can drill a well considerably cheaper,” Combs said.
“When you add up all the dollars that you spent for a Bakken well, (with) even a moderately producing well in Bowman County, you’re going to have a better return on your investment.”
But considering Bowman County’s potential wells, guesswork and science is necessary, compared to in the Bakken. “It’s kind of a gamble, but a cheaper gamble” in Bowman County, he said.
That, however, is a reasonable price to pay for a good payoff.
Some companies were forced out of the Bakken play because prices to establish wells were getting too high and they didn’t have the funds to compete. Those smaller companies could easily relocate their rigs to Bowman County and, with a good idea, could build an empire. “It only takes one good (well),” Combs said.
“Bowman County has a lot of potential,” said Allisen Bement, land professional with the N.D. Department of Trust Lands. “There is oil to be found down there.”
The reason it’s now picking up is because so many companies were focused on drilling in the Bakken. It was hard to move a rig five counties down to Bowman to drill a well, Bement said. Plus, on Bowman County’s lands, they don’t have to drill through large rock formations.
“I think you would get good production and good payment for the mineral interest owners,” she said.
“Somebody needs to drill that well and it will bring a lot of others down to the area.”
How it works
The N.D. Department of Trust Lands administers all the tracts of land up for auction and is the trustee of the multiple trusts the different sections of land would pay into.
Compared to a private sale of land by mineral owners, Combs said the ones available at the state’s auction generally pay out 10 percent more in bonus payment.
Plus, there’s no confusion on who owns the tracts of land when they are public.
A bonus payment, which is a common industry practice, is paid to the landowner — in this case it would be the state — for allowing companies to lease the land. It’s a one-time, up-front payment that is part of the negotiations.
When a lease is signed, the owner receives a check.
And when wells on that land start producing oil, a predetermined royalty payment kicks in. For example, if a person agrees to a one-sixth royalty, they would receive the revenue from one out of every six barrels of oil recovered. But if no oil is recovered, no payment is issued.
“There’s always that potential (to become a millionaire) in oil producing areas,” Combs said. Though, he cautioned, most often it’s not likely to make a person rich over night.
Still, Combs said it’s very profitable.
Because the tracts of land up for auction are state-owned, any profit is funneled into a specific trust the land is assigned to. One of the biggest in the state is for education.
When North Dakota became a state, the federal government gifted North Dakota tracts of land for the propagation of schools and for education, Combs explained.
There are a total of about 15 trusts the Department of Trust Lands manage. Land designated as sovereign are directly owned by the state.
The townships in Bowman County with the most tracts of land available for lease include Nebo, Amor, Grand River, Ladd and Minnehaha, mostly concentrated in the center of the county. When profits are made on those lands, the state receives its proportional share depending upon what percentage of mineral rights it owns.
Nominators pay a small fee to get tracts of land listed. The department of trust lands then begins a length process, typically lasting about six weeks, where the land is vetted to ensure there are no issues with the land. Once cleared, it then proceeds to auction.
Nominators are potentially the buyers of the land. They essentially place the first bid — customarily a bid of $1 — when they nominate the tract. Bidding thus begins at one dollar.
Held on the grounds of the N.D. State Capitol, the auction have historically attracted many interested parties, but Combs said his department is moving away from live auctions and starting to place the listings online.
The local benefit
Those in Bowman County expecting a boom the size of northwest North Dakota’s need look elsewhere, but Combs was certain the area would see increased oil activity. However much, he couldn’t be sure.
“The way things are, people are looking for cheaper things to do with the rigs,” he said. “You’ll see increased activity because it’s cheaper drilling.”
While the increasing trend of companies snatching up state-owned land in Bowman County directly benefits the state, Bowman County will also reap the benefits.
Local landowners could see greater financial gain because the state does not always own 100 percent of the mineral rights on certain tracts, so that land’s neighbors or co-owners would also be a fee owner.
A spacing unit is defined as the area necessary for the drilling of one well as established by the North Dakota Industrial Commission, designed to protect the correlative rights inside and surrounding that area.
“They don’t want somebody else sucking the oil from somebody else’s property that they’re not supposed to,” Combs explained.
That area isn’t always entirely covered by the trust lands, so the adjacent property owner with mineral rights on that land would also get a payoff if oil were recovered.
“A lot of times, they’ll use us as a kick-off point,” he said. “They’ll get ours, so they need to get the other mineral owners involved in that spacing unit.”
Added activity in the area could also translate into more local jobs and potentially additional residents.