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Associated Press, Published May 06 2012

Interest in South Dakota oil, gas leases continues

PIERRE, S.D. – 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 purchased the vast majority of the lease acres in April’s auction.

He said his company would do extensive research before investing in expensive test drilling. He said he purchased 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 added that it is not 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 is to 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 about 20-25 permits a year for drilling, exploratory or otherwise, and that has been the case for a while.

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 auction in a row for the state 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 auction of the leases is most likely an indication the oil companies see the area as an opportunity, but he added that many oil companies are very secretive about exploratory efforts.

South Dakota Office of School and Public Lands Commissioner Jarrod Johnson said he hopes the auctions are a sign more exploration will be done in the future.

“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 highlighted the need for exploration, but said not only is it a risky and expensive process, it is a catch-22. 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. But few companies are willing to take such risks.

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

Right now, 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 more risky or there is some other change, there is little reason for drillers to take a chance in South Dakota.

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

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

“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 south out of North Dakota. However, he said, more exploration could be coming South Dakota’s way if it continues to increase the information – about wells, geology and other items – available 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.”

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