Interest in South Dakota oil and gas leases continues

2012-05-06T10:05:00Z Interest in South Dakota oil and gas leases continuesJustin Joiner Pierre Capital Journal Rapid City Journal

PIERRE -- Similarities in underlying rock formations continue to fuel speculation that South Dakota might have petroleum reserves like those now fueling the oil boom in North Dakota.

But recent auctions of South Dakota oil and gas leases don't necessarily indicate oil companies will start digging test holes any time soon, people in the industry say.

"My reasoning behind acquiring the leases for my company, ROC Oil and Gas Land Management Co. -- you can consider it my charitable contribution to the state of South Dakota," said Randy Coleman, who bought the vast majority of the lease acres in April's auction.

He said his company would research extensively before investing in expensive test drilling. He said he bought the leases to keep the option of exploring open.

"It is a land play," he said. "It would be ridiculous to pull in a rig on a piece of property when you haven't done your homework as far as interpreting seismic data or reviewing well controls of existing wells that have been drilled and looking at logs."

That research will take time, and Coleman said that it isn’t unusual for companies to buy large numbers of leases but never drill.

"It is a process. The oil and gas business is all a process," he said. "It isn't like Jed Clampett in the Beverly Hillbillies. You just don't poke a hole and out gushes oil and gas. It is a process, and it is a detailed process. It takes a lot of time to justify any merit, if there is any merit."

Extensive exploration is needed to determine how much oil may be had in the state. But not much has happened in recent years.

Bob Townsend, administrator of South Dakota's Minerals and Mining Program, said the department issues between 20 to 25 permits a year for drilling or exploration.

In an April auction by the South Dakota Office of School and Public Lands, oil companies snatched up 75,289 acres of oil and gas leases. Most of these leases were for acres in the northwest corner of the state. It is the second big consecutive auction for the Public Lands department. In the fall, it auctioned off about 67,000 acres, the most in a number of years.

Steve Benson, professor of petroleum engineering at the University of North Dakota, said the lease auction most likely is an indication the oil companies see the area as an opportunity, but he said that many oil companies are secretive about exploratory efforts.

School and Public Lands Commissioner Jarrod Johnson said he hopes the auctions are a sign more exploration will come.

"Who knows how big a volume they will find in our resources?" he said. "Right now, we are not even sure if we have oil in those resources. We are hoping we do. We should. But until we have proven production, woulda, shoulda, coulda is invoked."

Coleman also emphasized the need for exploration but said few companies are willing to take such risks because of the expense involved.

"Who doesn't play it safe?" Coleman asked. "If you just say, 'I am Evel Knievel, and I am just going to get a rig and drill it,' you will be out of business by Thursday."

Coleman said oil companies that take the risk to explore and gain more knowledge about the state's petroleum reserves could help lessen the risk for future exploration.

South Dakota State Geologist Derric Iles said time could play a factor in how much oil companies explore in South Dakota.

North Dakota exploration efforts are seeing a high success rate.

"The real gorilla in the room, if you will, is the success rate they are currently enjoying in North Dakota with their drilling," Iles said. "I believe it is in the 99 percent range for success."

Until drilling in North Dakota becomes riskier or there is some other change, there is little reason for drillers to take a chance in South Dakota.

"That is the problem that we have to overcome," Iles said.

However, as more land is leased and more exploration completed, Iles expects the drilling centered on western North Dakota to expand.

Alison Ritter, a spokeswoman for North Dakota's Oil and Gas Division, said she is seeing drilling move south.

"But that development is still in very early stages," she said.

Ron Ness, president of the North Dakota Petroleum Council, disagrees that oil exploration is moving out of North Dakota. However, he said, more exploration could be coming South Dakota's way if the state continues to increase available information -- about wells, geology and other items -- to potential drillers.

"That is something that North Dakota has been doing a tremendous job of for many years now, and it has just gotten better," he said. "I think South Dakota has been working on a few of those initiatives."

In the past year, South Dakota rolled out its oil and gas initiative map. The map – available online at -- packs several tables of information into an interactive feature. Information there includes the state's permit files for oil and gas drilling and well completion reports for private water wells.

As the possibility of more oil exploration looms, some groups in the state are trying to prepare.

"Everyone I've talked to in North Dakota -- from government officials to business leaders, every one of them -- said the oil boom happened almost overnight and no one was prepared for it," said Branden Bestgen, with a Sturgis firm that hosted last week’s oil conference. "We have a tremendous advantage because we can be prepared. We can start planning now so we don't get mowed over."

Copyright 2015 Rapid City Journal. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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