Montana oil and gas industry welcomes resumed federal lease sales

PROMO Energy - Oil Rig Gas Well - iStock - ssuaphoto
Published Friday, April 29, 2022
by Bob Pepalis | The Center Square contributor

(The Center Square) - Montana's oil and gas industry welcomes the continuation of lease sales on federal lands, but it could still be tough economically, industry representatives say.

Earlier this month, the U.S. Bureau of Land Management (BLM) posted notices for resumed lease sales after a federal judge halted the Biden administration's executive order freezing lease sales on federal lands.

The BLM, however, increased royalty rates to 18.75 percent and said the onshore lease sales would only be offered at 20 percent of eligible acreage. 

Alan Olson, executive director of the Montana Petroleum Association, told The Center Square that the signals coming from the Biden administration aren't encouraging.

"The industry listens to the signals coming out of the administration and believe me that the Biden administration is not sending out very strong signals that they want this industry to proceed," he said.

Whether companies will take part in lease sales depends on where the land is located, according to Olson.

"If they're located in some of these regional shale plays, they'll take advantage of it," he said. "If they're located in an area where a company is trying to put together an exploration package, it could work out."

But if it's near an exploration site, the leases could gum up the works, he said.

"You need to have some control over the mineral acreage before you can do geophysical exploration," Olson said.

Federal acreage in the middle of private and state mineral holdings could scrub exploration activities.

"It's tough to operate on federal land the way it is, negotiating access agreements, right-of-way agreements for roads, pipelines, things like that," Olson said.

Federal leases must begin at the permitting phase, with archaeological studies, wildlife studies, air quality studies and other requirements.

The increased royalty costs make it tougher economically, according to Olson. He said a federal drilling permit costs $10,950. That doesn't include study costs, and a lease doesn't guarantee a well will be produced.

Montana's drilling permits are based on well-depth, starting at $25 for a shallow well and going up to $125 for a deep well, he said.

Companies won't just go into federal land lease and drill. They will put together a project that could be thousands of acres. The first well might be a dry hole.

Olson said it will probably take a year to get a drilling permit on federal land. "If the stars all aligned," drilling could begin in a year and a half.

These federal onshore land leases also won't take care of rising oil and natural gas prices, Olson noted.

"President Biden, he's encouraging everybody and demanding our industry go out and just open up the taps on these wells. Well, that's not the way the industry works," he said.

Montana's oil and gas industry was hit hard in 2020, with many companies going bankrupt and many jobs lost.

Production has stabilized a bit, but it's been on a steady decline since the mid-60s, according to Olson. 

Some drilling is happening in the Bakken formation in the Williston Basin and there's interest in some outlying areas. In the Bakken shale play area in Montana, the scattered small parcels of federal land make leases less of a problem.

A project that injects CO2 for enhanced oil recovery opened the valve on the CO2 pipeline last week, Olson said.

"But if we're going to go out and do any worthwhile exploration for crude oil or natural gas, this federal leasing issue could be a problem," he said.

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