As oil tops $65 a barrel, exports continue to increase and production of wells that were once closed down in the Bakken Oil Field rev up once again, the plan of United States oil dominance is coming to fruition.
This week it is expected that U.S. oil inventories will rise for the first time in 11 weeks as production is already on par with that of Saudi Arabia, the biggest producer in the Organization of the Petroleum Exporting Countries (OPEC). U.S. output has jumped more than 17 percent since mid-2016 and is expected to exceed 10 million barrels per day soon.
As of Tuesday, Jan. 30, only Russia produces more, averaging 10.98 million barrels per day (bpd) in 2017.
Also on Tuesday, ExxonMobil announced that it would be investing billions of dollars to boost oil production domestically, including in the Permian Basin, an oil-rich shale play in Texas and New Mexico. Exxon also plans to build new manufacturing sites and improve infrastructure. In a news release, the company hailed the recent tax cuts which “enhanced” Exxon’s investment plan, adding that they will “complement the substantial capital spending in the United States that ExxonMobil has teed up in the coming years.”
The NAPE Summit, the industry trade show that focuses on networking for domestic and international deals is being held in Houston, Texas, Feb. 5 through 8. It is at that conference that deals are made for leases to open land to oil production.
It is expected, according to an industry insider, that rights to land in Sioux County, N.D., (just north of Corson County) is in the crosshairs of major oil companies.
If the leases to those lands are purchased by the oil companies, rigs could be appearing as soon as three months after the sale has been finalized.
With the possibilities of rigs pumping just north of the border, more and more it seems as if oil exploration in South Dakota is closer than once anticipated.
But perhaps the most interesting and alarming news that was revealed a couple of weeks ago is that a Delaware LLC, named Water and Land, purchased 500 acres on Standing Rock. That would not be an outstanding sign that there is something ominous on the horizon if that is all the information that is out in the public. The red flag is the address of this LLC; PO Box 1860, Bentonville, Arkansas, as it is listed on the property transfer from Sioux County.
That is the address of Walton Enterprises, the Wal-Mart Corporation. The 500 acres is on Standing Rock, near the site of the Dakota Access Pipeline protest last year.
Paul and Leona Thomas sold the land to Water and Land, LLC, on Dec. 27, 2017.
Research into finding out just what Walton Enterprises wants to do with this land has not come up with satisfactory answers, but we will continue in February for the next segment of this series.
What does all this mean for S.D.?
It all comes down to money and deals made with the entities involved, the oil companies, representatives of landowners, the Standing Rock Reservation, according to some industry insiders, was a smokescreen for back door deals between Standing Rock and Energy Transfer Partners, which owns that pipeline. It was not supposed to be the international event it grew into, but got out of hand through social media.
According to a 2017 story in the Washington Examiner, Energy Transfer Partners held negotiations with the tribe as the protest was ramping up and two lawsuits were brought by the tribe in an effort to reroute or block continued construction of the 1,200-mile project.
Energy Transfer Partners had made a number of offers to the tribe, including the installation of water quality sensors, construction of a fresh water storage facility to store water in case of a pipeline leak, and other means of ensuring water quality. But something got in the way of the negotiations to close down the protest movement. According to the Washington Examiner story, the tribe wanted to tax the oil shipments through the pipeline as a means to what was referred to as “easy money,” in the Examiner story, but Energy Transfer Partners wouldn’t agree to it.
Instead, the protest went on, growing into a monster that got out of control, closing roads on the reservation and causing the tribe to lose casino revenue important to the daily operations of the tribe. It turned out to be a backlash for the tribe.
Now the tribe must deal with big oil coming onto the reservation.
Standing Rock is now on the verge of entering into territory of which they are not familiar. They have the experiences to tap into of the Three Affiliated Tribes of the Fort Berthold Reservation in North Dakota for dealing with big oil. That did not go well for the tribe when the oil boom hit and the tribe lost billions of dollars because of multiple land agents purchasing mineral and oil rights from individual landowners. It has been speculated that more than $1 billion was lost through these deals alone. This is money the tribe will never be able to recover, despite multiple lawsuits filed by tribal members against those who spearheaded the low-ball leases.
To understand how these deals work, one must first understand that leases on Indian land are different than leases on non-Indian land.
According to the Federal Indian Lease and Land Management website, leases for oil rights generally work like this: A company purchases the right to drill for oil underneath an acre of land by paying a one-time upfront payment, called a bonus, and a percentage of the profits earned on the well, known as a royalty. On Indian lands, additional laws also apply, dictating who can negotiate for whom and how the government has to oversee the agreements.
When it comes to leases to drill for oil, even those negotiated directly between the tribal council and the oil industry, the Bureau of Indian Affairs is required to make sure the leases meet certain standards.
Prior to 1959, the majority of Indian leases were issued at a 12.5 percent royalty rate. Since then, most Indian leases have been issued for 16.66 percent. But as the demand and price for oil and gas increases, Indian leases have been able to command royalty rates as high as 25 percent in some areas. In 1982, Congress enacted the Indian Mineral Development Act (IMDA), authorizing Indian tribes to enter into forms of agreements for oil and gas development in addition to leases under the IMDA.
While the IMDA and tribal civil penalties create significant control over oil and gas developments, the developments are also subject to federal control. In particular, the BIA has regulations that govern Indian mineral agreements, leases and permits for the development of Indian tribal oil and gas, geothermal and solid mineral resources.
These regulations do not apply to non-Indian landowners on the reservation. Their lease agreements can sometimes pay royalties of 25 percent or more, according to the Land and Oil Lease Rights website.
In the next part of this Oil in Western South Dakota series, the financial relationship between tribes and the oil companies, and the land purchase by Walton Enterprises will be explored, as well as more information on land mineral rights sales in Corson County.
– Katie Zerr –