Harold Hamm’s Looking For A Partner. You In?

Okay, here’s a chance to own your very own oil well. Actually, four oil wells.  They’re very special oil wells. Oh, you’ll have to share them with others. From what I can tell, you’ll actually really own about 1/60th of these four wells. But hey, that’s something. Especially these oil wells. They’re special. Extra special. For two reasons.

First, because they’re located in a North Dakota State Wildlife Management Area. A very special Wildlife Management Area. Because it has a great view of the Missouri River. Well, actually, some days, when the snow is melting in the Rocky Mountains and the river is high, it’s actually a part of the Missouri River. River creeps out of its banks from time to time. Happened just two years ago. But hey, most of the time the ground is just dry enough to support whitetail deer, wild turkeys, pheasants, foxes and coyotes, and with all that money you’ll be making from your oil wells, you’ll be able to quit your job and go hunting any time you want. And since it’s a North Dakota State Wildlife Management Area, you own it, and you can hunt there any time you want, without asking anyone’s permission.

The second reason these are such special oil wells is because of who your partners are going to be. Does the name Harold Hamm ring a bell? Yes that Harold Hamm, the owner of Continental Resources, the richest man in North Dakota when he’s in the state, “The Man Who Bought North Dakota,” according to Business Week magazine.

Sound too good to be true? Well, maybe. Maybe not. Here’s the deal.

The North Dakota State Water Commission somehow ended up owning 40.09 acres of mineral rights underneath the Lewis and Clark State Wildlife Management Area. I don’t know how. It’s not important. Happened 60 or 70 years ago. They don’t actually own the 40.09 acres of land. The U.S. Army Corps of Engineers does, because technically it’s part of Lake Sakakawea. But the North Dakota Water Commission, whose chairman is the Governor of North Dakota, owns the minerals under those 40.09 acres.

If you don’t know about the Lewis and Clark State Wildlife Management Area, let me tell you where that is. If you’re driving up U.S. Highway 85, just before you get to Williston, about 5 or 6 miles south of town, where Highway 85 bends a little toward the northwest, you’ll drive through a big wetland area on both sides of the road.  As far as you can see, on either side of the road, is the Lewis and Clark Wildlife Management Area. Together with its sister WMA, Trenton, there’s about 15,000 acres of nothing there except wetlands and wildlife. It’s all Missouri River bottomland, the extreme upper end of the Garrison Dam Reservoir, which we know as Lake Sakakawea. It’s the spot where the river turns into a lake. And it floods from time to time. It was completely submerged during the flood of 2011.

The 40.09 acres being leased are about two miles east of the Highway, right smack in the middle of the WMA. The legal description is McKenzie County, ND; S1/2NE1/4, Section 4, T153N, R101W.

I know what you’re thinking. Just a few months ago, the North Dakota Industrial Commission, conveniently chaired by the Governor, the same guy who chairs the North Dakota Water Commission, decided to develop a list of “special places” to be considered for protection from oil development. It’s the Industrial Commission that issues oil and gas well drilling permits, and you’ll recall about a month ago I wrote of the release of that list of about 40 places the Industrial Commission members said they were going to tour, so they had a better sense of what some of these “special places” looked like as they were issuing permits to drill in, or on, or near them. And maybe they’d even give some consideration to not allowing oil development in, or on, or near them. Maybe. Just maybe. And maybe not. Well, the tour never happened, although the Chairman of the North Dakota Water Commission and the North Dakota Industrial Commission did take a day off and drive around out west to see some of these places. No telling whether that will do any good, but at least he made a flimsy effort, replete with a dramatic news conference in the shadow of the Killdeer Mountains, where the Industrial Commission has already granted permission to oil companies to drill, despite protests from local residents.

You’ll also recall I said that of the Oil Patch’s 30 or so State Wildlife Management Areas—plots of land set aside for wildlife, as the name implies—only six were on the list. Lewis and Clark, one of the biggest State Wildlife Management areas in the state at about 12,000 acres, did not make the list. And it’s a good thing, because the Industrial Commission would be pretty embarrassed by the actions this week of the State Water Commission and the State Board of University and School Lands (aka State Land Board), whose chairman is—you guessed it—the Governor of North Dakota, if it was on that list.

Here’s part of an e-mail I received from the State Trust Lands Department (which is governed by the State Land Board, and is acting as the agent for the State Water Commission, because it knows how to do these things) this week:

On Wednesday, September 11th, Energynet.com will begin taking bids on a mineral tract owned by the North Dakota State Water Commission. It is a 40.09 acre tract located in McKenzie County, 153-101 Sec. 4. Go to: http://www.energynet.com/govt_listing.pl, then click on the link for the tract.

Okay, go ahead. Go there. It’s a pretty interesting website. Here’s what you will find. Harold Hamm is going to drill four wells from an “ECO-Pad” located just outside the border of the State Wildlife Management Area. The wells are going to be a couple miles deep, and when each of the pipelines gets down that far, they’re going to curve horizontally under the State Wildlife Management Area and start sucking the oil out. They’re going to suck the oil out from under four sections of land, three of which are under the State Wildlife Management Area, and one which is privately owned. The actual well site, the “ECO-Pad” is going to be on privately owned land. On the map accompanying this article, the section where the minerals are located is in the black box. The spot where the wells are going to be drilled is in the red triangle. (The green and gold shaded area is Corps and WMA land, the white area is private land. Notice how conveniently Harold Hamm found a little corner of privately owned land for his well site, so no one would criticize him for drilling in a Wildlife Management Area. As soon as you cross the river where the red arrow is, you’re in Williston.)

So the bidding began Wednesday afternoon. The bidding closes next Wednesday afternoon. The minimum opening bid was $50. As of Thursday afternoon, the high bid was $270 per acre—a total of $just over $11,000. Must have been a flurry of action overnight. This morning it is at $2,030 an acre—a total of just over $83,000. That’s just the price of leasing these minerals for five years. Expect the bidding to go higher. Much higher. Here’s why.

Turns out there are already four producing wells on the Lewis and Clark Wildlife Management Area, including one already drilled by Harold Hamm, so this is a pretty good bet. Harold’s going to drill four more. The rigs are lined up and ready to go. But these state-owned minerals were posing a problem. See, the 40.09 acres are inside a 2,500 acre spacing unit—about four sections of land—and because Continental is going to drill, whoever owns the minerals in this spacing unit needs to be an active partner in the process, or else forego any money from the oil that is taken out of the ground in the unit. The State Water Commission did not want to become a working partner (which would have meant sharing in the cost of drilling the four wells), so they decided the best way to get some money out of this deal was to lease the minerals to someone who wants to participate in drilling the well.

That’s where you come in. The bidding continues through next Wednesday afternoon. So you can register to be a bidder on the EnergyNet website (it’s easy—I did it and it took me about three minutes) and get in the game. No, I’m not going to bid, but I just wanted to see how all this works. If you are the winning bidder, then you’re going to get a letter from Harold Hamm that says you have 30 days to sign on as a partner in the drilling venture. There will also be a couple of ways to opt out, but since you’ve already invested so much in leasing the minerals, you might as well go all in and join the team. No telling what that’s going to cost, but since you have 40.09 acres out of the 2500, you will likely be expected to invest about 1/60th of the cost, best I can tell. But then you will also get about 1/60th of the money from the oil, too. Bam! You’re in the oil business! I might be getting some of the fine details wrong here, but you get the general picture. I’m sure either the guys at the State Trust Lands Department or old Harold will make it very clear to you how all this works.

This whole EnergyNet website auction thing is actually pretty cool. Drew Combs, who does this kind of work for the Department of Trust Lands, told me it works well for them in cases like these, where there’s an isolated tract that needs to be leased quickly because drilling is ready to begin, and the next regular quarterly  lease sale is not scheduled until November. Combs says he likes it because it opens up the market to people anywhere in the country (or the world, for that matter) and has the potential to bring the state more money for the lease. Doin’ pretty well so far.

They folks at the Game and Fish Department aren’t really excited about all the oil activity on their State Wildlife Management Area, but they’ve got about a dozen other wells on their Wildlife Management Areas around Williston already, so they’re getting used to it. I just hope the deer and the turkeys and the pheasants and the foxes and the coyotes and the ducks and geese and songbirds are too.

P.S.

Here are some things you CAN’T do in a North Dakota State Wildlife Management Area:

  • Build a cabin
  • String a fence
  • Put up a billboard
  • Camp for more than 10 days
  • Have a keg party
  • Shoot off fireworks

Here are some things you CAN do in a North Dakota State Wildlife Management Area:

  • Hunt
  • Fish
  • Hike
  • Watch birds
  • Drill an oil well

Because all it takes to drill an oil well in North Dakota is a mineral lease and a drilling permit from the North Dakota Industrial Commission. Mineral leases are sometimes hard to get. Drilling permits almost never are.

P.P.S.

You might also recall that about a year ago I did a little checking to see how much money the oil industry had contributed to the election campaign of the Chairman of the North Dakota Industrial Commission, State Water Commission and State Land Board. It was about $480,000. Harold Hamm gave $20,000 of that. That’s part of the reason it is so easy to get a drilling permit in North Dakota.

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