By LAUREN DONOVAN Bismarck Tribune
People who own part of oil well pro- duction on private land get more money than the state does for wells on state land and the Board of University and School Lands is deciding whether to bring the two closer in line. The board will decide Jan. 26 whether
on its proposed royalty rate increase through today. Currently, the state’s rate is one-sixth the value of every barrel produced at a well and Gaebe said he thinks the state should lease for three-sixteenths of every barrel.
to increase its royalty lease rate for wells drilled in what are commonly known as state school land sections. Generally, the state owns two sections, plus the minerals, out of every 36 sections and the income goes into a trust fund es- tablished at statehood so interest would help fi nance public education. Currently, the trust contains $1.9 bil- lion and distributed $98 million in rev- enue this biennium. Lance Gaebe, commissioner of the
trust lands department, said the board’s decision would be effective for the Feb. 7 quarterly auction of state mineral acres. The new lease rate would add 2 percent
to what the state gets per barrel and more closely mirror what private mineral own- ers are negotiating in their leases, Gaebe said.
The department is taking comments
eral leases in western North Dakota have royalty rates of three-sixteenths or more and are for terms of three years or less. He said the state’s leases are more valuable be- cause they come with a fi ve-year term. The term refers to how long the oil
company has to drill the lease before it expires. Ron Ness, director of the North Da-
kota Petroleum Council, said the increase across all state mineral acres is a move in the wrong direction. He said the higher rate isn’t appropri-
ate for marginal exploration areas and other formations, though it’s probably reasonable for acres in the core of the Bakken formation. He said those higher lease acres should be clearly defi ned and announced ahead of the auctions. “This (three-sixteenth) would be more
Gaebe said the majority of private min-
tracts up for lease. He said it’s a big lease sale — not the biggest — because all un- leased state mineral acres were nominated and auctioned fi ve years ago and many leases have expired. All the lease acres that will be auctioned
next month are in the oil patch, with the exception of tracts in Grant and Hettinger counties. If the state doesn’t act now before this
Gaebe said the board will look at pos- sibly mixing royalty rates so that Bakken leases, for example, might go for one-fi fth or 20 percent, while leases in counties where production is new and minimal would stay at one-sixth. A second option would vary the roy-
sale, it stands to lose market value for years to come, he said.
Thursday, January 26, 2012 ■ Page 7 Oil royalty lease rate discussion planned
more profi table. “The other options are more compli-
cated and could involve double leases for different formations. This has simplicity,” he said. (Reach reporter Lauren Donovan at 701-220-5511 or email@example.com
Unhappy decision Cont. from page 1
of a bite in those fringe areas,” Ness said. Gaebe said the time to make the change is now, with 73,000 acres split into 833
alty rate from one-sixth to one-fi fth de- pending on how far a tract is from known production, less if it’s 20 miles and highest if it’s within fi ve miles. A third option would vary the rate if the lease is for a specifi c oil-bearing for- mation. Bakken wells would lease for three-sixteenths, while other formations would lease for one-sixth. However, Gaebe said he believes a
straight-across-the-board three-sixteenths would be less complicated and potentially
ernor candidate Ryan Taylor said the pipeline would benefi t the state but he said North Dakota should be working on “ways we can do better for ourselves rather than waiting for the federal government.” Republican U.S.
date Rick Berg was also critical of the president’s decision, saying it “put politics over getting Americans back to work.” TransCanada, the company seek-
ing to build the pipeline, said it was not entirely surprised by Obama’s an- nouncement and planned to reapply for a pipeline permit after fi nding a new route through Nebraska. — Tribune staff and wire reports
Senate candi- Democratic North Dakota gov-
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