Currently, 175 applications for permit to drill on Fort Berthold have been submitted for approval and 92 applications for permit to drill have been approved.
The number of the drilling permits approved has increased seven times those approved in 2008.
“Instead of 14 permits approved in 2008, we have 92 approved at the current time,” said Damon Williams, supervising attorney for the Three Affiliated Tribes who spoke about Fort Berthold Reservation oil development at a Tribal Energy Department Conference. The conference was held March 26 at Arizona State University-Tempe.
The number of producing wells on trust land has increased four times that of two years ago.
“Instead of just eight producing wells on trust land two years ago, we now have 41 wells currently producing on both tribal and allottee land on the Fort Berthold Indian Reservation,” Williams said.
“So, it appears that we have finally made it to the starting point of what could be the most economically prosperous time in the history of Three Affiliated and for all the Fort Berthold allottees,” Williams said.
Fox gave a presentation about Three Affiliated Tribes Oil and Gas in Williston March 29. The presentation provided details about the aspects of leasing and drilling on the reservation:
Agencies involved with Indian minerals are the U.S. Department of Interior and the Bureau of Indian Affairs.
There are several laws that regulate oil and gas operations, and leasing minerals on Indian lands. These laws are called CFRs or Code of Federal Regulations.
- 43 CFR 3160. These regulations govern operations associated with the exploration, development and production of oil and gas on federal and Indian lands.
- On oil and gas orders – conducting oil and gas operations on federal and Indian lands.
- 25 CFR Part 211 – BIA (Bureau of Indian Affairs) Standard Lease – Individual tribal and allotted tracks may be leased by the BIA, with consent of the mineral owner(s) 51 percent; multiple tribal and/or allotted tracks may be offered by the BIA in sealed bid or competitive auction lease sales.
- 25 CFR Part 225 – Indian Mineral Development Act Agreement – Indian Mineral Development Act of 1982 allows tribes to negotiate “non-standard” leases, including special provisions.
There are many challenges when it comes to recovering oil in the Bakken, Fox said. These challenges include: Challenging geology, expensive high dollar oil play, pipeline capacity, electric power, housing, infrastructure-roads/gas plants, access to capital and impact on roads.
Drilling process
The process for oil and gas drilling on Fort Berthold Reservation involves:
- Permission to survey. Requires the submittal of a detailed written application to BIA (25 CFR 169.4)
- Cultural/archaeological inventory: Section 106 of the National Historic Preservation Act of 1966.
- On-site: Attended by personnel representing various federal and tribal entities depending on jurisdiction.
- Right-of-way easement: 25 CFR Part 169.
- National Environmental Policy Act (NEPA): NEPA is required for all federal actions including drilling oil and gas wells that involve tribal land or minerals.
- Application for permit to drill: A federal permit is required by the Bureau of Land Management for all oil and gas well drilling activities on tribal trust land.
Leasing Fort Berthold
Currently, 502,862 acres have been leased on the Fort Berthold Reservation, according to Fox.
The total number of acres available to lease is 30,101, and the percent of Indian trust minerals leased is 94 percent.
Here’s a few more statistics on Mandan, Hidatsa and Arikara tribal acreage leased:
- Total trust acres leased: 174,414 acres.
- Total river bed acres leased: 13,642 acres.
- Total drill commitments: 30 exploratory wells.
- Largest lease holds:
- Questar: 53,308 acres.
- Dakota 3/Zenergy: 43,370 acres.
- Spotted Hawk: 31,808 acres.
- Red Willow: 17,368 acres.
- Marathon: 15,423 acres.
Tribal oil and gas activity
There are 29 wells with tribal mineral interest.
The total amount received from tribal oil and gas activity includes:
- $4.8 million, oil and gas production tax.
- $1.2 million, oil and gas extraction tax.
- $3.3 million, oil and gas royalties.
- $49.6 million, oil and gas leases.
Oil and gas tax agreement
The Three Affiliated Tribes and the state of North Dakota have an oil and tax agreement, which went into effect July 1, 2008. The intent of the agreement is:
- Provide for the mutual recognition and respect by the state and tribe of one another’s sovereignty.
- Give recognition to the respective tax jurisdiction of the state and tribes.
- Provide for an efficient method of taxation and regulation of oil and gas production and extraction within the exterior boundaries of the Fort Berthold Reservation.
- Distribute the revenue from those taxes in an agreed upon manner that reflects the governmental roles of the state and the tribes as sovereign parties.
- Avoid litigation relating to each party’s jurisdiction to impose its taxes on oil and gas production and extraction within the exterior boundaries of the Fort Berthold Reservation.
Monthly oil production total by county for January.
The Fort Berthold Reservation includes the counties of Mountrail, McKenzie, Dunn, McLean and Mercer. Recent figures of oil produced in the five counties, which includes reservation production, includes, according to the North Dakota Industrial Commission:
- Mountrail, 2.6 million barrels.
- McKenzie, 824,597 barrels.
- Dunn, 767,491 barrels.
- McLean, 12,121 barrels.
- Mercer, 1,040 barrels.
The road to oil development
The Fort Berthold Reservation is comprised of slightly less than a million acres in its boundaries. The allottees own about 320,000 acres and the tribe owns about 210,000 acres of almost all trust lands, with the rest a mixture of predominately fee land, with some U.S. Army Corps of Engineers land also in it, said Williams, in his speech last month at the Tribal Energy Department Conference in Arizona. Williams is a tribal member.
“However, most of the tribes’ mineral interests lie literally under water as those acres comprise of the lake bed of Lake Sakakawea, a man-made reservoir on the Missouri River,”
Williams said. “You can imagine the issues we face when we develop Indian lands and add a multiplier like drilling under a huge reservoir and to compound matters, the lake itself is controlled by the U.S. Army Corps of Engineers.”
Fox said the Minerals Restoration Act of 1984 returned the minerals under Lake Sakakawea to the Three Affiliated Tribes. Currently, wells are being drilled under the lake in south of Parshall and in the Mandaree areas, he said.
Williams said the Three Affiliated Tribes finds itself in what could be described as its third oil boom throughout its history.
“Oil was initially discovered in North Dakota in 1951 in what is known as the Williston Basin, a well-known oil play that lies under parts of North Dakota, South Dakota, Montana and the provinces of Manitoba and Saskatchewan. However, while there have been 16,000 wells drilled in North Dakota since that time, very few wells were ever actually drilled within the reservation, much less on tribal lands,” Williams said.
A second oil wave hit in the 1970s to ’80s with rising crude prices and increased development in the Williston Basin.
“But that wave didn’t really crash our shores and there was little real impact to the development of the tribal and allottee minerals. A contributing element to this was the decline in oil prices,” Williams said.
Leasing issue
“But perhaps more importantly, the biggest hurdle to lease large amounts of trust land was the leasing issue. In our highly fractionated land base, it was almost impossible for companies to gather the approval of all the landowners of any given tract.
“And even if you could get your leases done, the cost of doing business on the reservation was simply too much. Couple that with a high tax regime with the state and these elements together proved too difficult and most of the oil industry simply did not want to deal with the headaches of working on the trust lands of the reservation,” Williams said.
He said little oil development took place on the reservation, whether tribal or allotted land. He said during those first two waves, only about 29 wells were drilled on trust lands on Fort Berthold in a little over 50 years.
“Of those first wells, only 13 actually produced and only one of those wells was still producing prior to this current wave,” Williams said.
51 percent requirement
He said the year 1997 and U.S. Senate Bill 2069 changed the landscape of Fort Berthold forever.
“We were one of the first tribes to secure a 51 percent leasing requirement for trust lands. It simplified the ability to lease allotted trust lands by requiring a minimum of 51 percent of the landowners were now needed to get a lease approved.
“This was a tremendous fix to the bureaucratic burden that fractionalization has imposed on Indian lands. And while its immediate effect did spur leasing, it really did little to get a real oil activity on the Fort Berthold Indian Reservation,” Williams said.
He said the real catalyst for the third and current oil wave that people are enjoying on Fort Berthold was the success of horizontal drilling in North Dakota.
“The Parshall No. 1-36 well in April 2006, located near Parshall, North Dakota, a small reservation town of 800, was the first real successful well that utilized horizontal drilling in the now famous Bakken Shale Formation,” Williams said.
Prime spot
Williams said Fort Berthold Reservation and the Three Affiliated Tribes are right on top of the formation thought to be the largest continuous oil reserve in the lower 48 states. The U.S. Geological Survey estimates it holds about 300 billion barrels of oil and current technology will probably allow a 2 to 3 percent recovery of that reserve over the entire life of the formation, he said.
The Bakken Formation requires the use of expensive horizontal drilling where basically the well is drilled about a mile vertically, then up to two miles horizontally – all while trying to stay with a very narrow formation, Williams said.
“The process is expensive, somewhere in the $5 million to $7 million per well, and is only cost effective when crude prices stay above a certain amount,” Williams said. He said the oil market, as we know, is very volatile and evermoreso as it has been during the most recent wave of activity, with crude oil prices going from $30 to $146, back to $30, and now hovers around $70 a barrel – all within the past few years.
“This volatility has also affected the leasing terms on the reservation,” Williams said.
The Three Affiliated Tribes signed its first IMDA in 2006 and received a bonus of $30 an acre and 16 2/3 percent royalty.
“That agreement took almost two years from the time it was signed until the first well was drilled,” Williams said.
The Indian Minerals Development Act (as amended) is legislation that was developed over several years by officials with the Interior Department, authorizing Indian tribes and Indians to enter into leases, joint ventures or other agreements for the exploration and development of oil or other mineral resources. The 1982 act (as amended) eliminated restrictions to the terms of an agreement and left it open to negotiation such as joint operations, production sharing and working interests.
“The most successful tribal leases we completed in the last couple of years had bonuses in excess of $700 per acre, drilling commitments and a 22.5 percent royalty rate – some of the highest royalty rates in North Dakota,” Williams said.
He said allottees were receiving high bonus rates, some in excess of $1,000 an acre, and times were looking good.
“But not so fast. As we all know nothing is easy in Indian Country,” Williams said.
He said the first hurdle they had to address was the leasing issue. The BIA was not equipped to handle the volume of leases that needed to be processed so the bonuses could be paid and to get the permitting process under way.
Bonuses are the upfront money paid for leases.
He said the first tribal IMDAs took almost two years to get approved by the Interior Department and some of the allottee leasings were taking six to seven months, up to a year, to process.
“But we slowly got through that. The BIA increased staff and got better at doing leases and the people began to finally enjoy some of their money,” Williams said.
He said the people and the tribe were relatively happy at this point. The tribe had more than $45 million in bonus monies to spend on tribal programs and services. The allottees received a total of $137 million in bonus payments.
“People were able to buy things that they had never had before – newer cars, furniture, basic improvements to their houses, switching from wood to propane heating, new roofs – basic things many people outside of reservations take for granted,” he said.
The next struggle
“But then the real struggle came,” Williams said. “ Essentially, to drill and produce a well on federal lands, companies have to complete a 49-step process. Beginning with the lease all the way to the point of where they can actually drill the well, there is this huge bureaucratic process which must be complied with.”
He said the problem is tribal and allotted trust lands are treated in the same manner as the public lands – restrictions and processes that make it very difficult for anyone to come in and invest in the reservation.
Tribal Energy Office created
“In order to assist industry, the tribe created the Tribal Energy Office to lend assistance for the tribal lands and where requested, to assist the allottees in getting some of their issues addressed and collectively work to push the permitting process through,” Williams said.
Through the efforts of Sen. Byron Dorgan, D-N.D., Williams said they were able to get some assistance on shortening the logjam being created by the federal regulations with the establishment of a virtual One-Stop Shop on Fort Berthold to assist with the process.
He said the BIA also has improved its processes and has worked to adequately staff its positions.
Williams offered a few important issues to keep everything moving forward including:
- Taxes. He said there’s some disagreement over the Three Affiliated Tribes’ oil and gas tax agreement between the tribes and the state. “In an already overburdened environment, to get production on the reservation, why would we have a cumulative state and tribal tax rate of 18 percent with the tribe at 6 1/2 percent? By capping our cumulative rate at 11 1/2 percent of trust lands (sharing 50/50) and taking 1 percent of the state’s extraction tax on fee lands with the reservation. Since the agreement was signed about two years ago, he said it has received revenues which far surpass previous tribal tax revenues.
- Treatment of Indian lands under Code of Federal Regulations. “We are sovereign governments who are encouraged by law and policy to develop self sufficiency and economic independence, but the federal government treats our lands and the lands of the allottees as public lands with the same restrictions as if we were a national park,” Williams said.
“It is fundamentally wrong to ask us to develop our resources, to provide our resources to the greater society, to take over many of the services and programs that the federal government by treaty has agreed to provide as compensation for our lands... and yet tag us policies and procedures where we cannot take advantage of the market forces and negotiate more advantageous agreements. There needs to be an overhaul of the CFR to distinguish more clearly and enhance the abilities of tribes to develop their resources efficiently,” Williams said.
(above article by Eloise Ogden and reprinted with her permission) |
