Energy speculators finding bargain rates on public-land leases

MILES CITY, Mont. — Robert B. Price, the chief executive of a London-based oil and gas company, came up with a creative tactic to grab bargain drilling rights to a sprawling piece of federal land in eastern Montana.

He first asked the Interior Department to auction off rights to as much as 200,000 acres in Montana through a process that allows energy companies to identify the public land they would like to develop. But when the auction took place last December, Price sat on the sidelines and waited for the clock to run out — betting no one else would bid.

His gamble worked. With no other bidders showing interest, the government allowed him to secure drilling rights on nearly 67,000 acres east of Miles City in a special noncompetitive sale the next day. His cost: just $1.50 an acre a year in rent, compared with the more than $100-anacre average paid by bidders, on top of rent, in competitive auctions in Montana in the final four years of the Barack Obama administration.

“We’re still interested in much more,” said Price, reached by phone before he was scheduled to fly to London to meet with his investors.

The maneuver is one of many strategies energy speculators like Price are using as President Donald Trump’s administration oversees a burst of lease sales on federal lands in the West.

Major oil and gas companies like Chevron and Chesapeake Energy are frequent buyers of the leases. But the Trump administration has put so much land up for lease that it has also created an opening for low-price buyers like Price.

The plots of land the speculators bid on typically sell for such dirt-cheap prices because there is little evidence that much oil or gas is easily accessible. The buyers are hoping that the land will increase in value nonetheless, because of higher energy prices, new technologies that could make exploration and drilling more economical or the emergence of markets for other resources hidden beneath the surface.

In some cases they hope to resell access to deep-pocketed oil companies at a premium. In others they are hoping to raise money to search for oil or gas on their own. Either way, they are the latest in a long line of speculators willing to take a shot — sometimes a very long shot — at a big payoff in America’s oil fields.

The percentage of leases being given away through noncompetitive sales, like the one that Price engineered, surged in the first year of the Trump administration to the highest levels in over a decade, according to an analysis of federal leasing data by Taxpayers for Common Sense, a nonpartisan group that highlights what it considers wasteful actions by federal government agencies.

In the case of Price — whose investors include Halliburton, the oil-services industry giant — he is convinced that there is an unusually high level of helium mixed in with natural gas that could be drilled in eastern Montana. Because helium sells at a much higher price than even oil, he is selling investors on the potential for lucrative returns. But the prospect of him delivering remains in doubt.

The surge in noncompetitive transactions has intensified debate over how well the federal government handles the task of auctioning off access to taxpayer-owned lands. Taxpayers get 12.5 percent of revenue produced from any oil or gas extracted from leased public land — or nothing but rent payments if speculators fail to develop the land successfully.

More than 11 million acres of land leased by the federal government lies idle — or about half of all the land out on lease — property that may

or may not ever be drilled for oil and gas.

The speculation, critics say, allows companies to lock up millions of acres of federal land in leases, complicating efforts to set it aside for other uses, such as wildlife conservation areas or hunting and recreation zones.

“People come to Montana and stay in Montana not because of the best weather or highest wages or the best beaches,” said John Todd, the conservation director at the Montana Wilderness Association. “They come here because we have access to ample public land, most of it that is in the same shape as it was when Lewis and Clark came here or before that.”

Because the speculators can resell the leases, they could also reap the gains from any increase in the value of their landholdings, gains that otherwise would go to American taxpayers, said Ryan Alexander, president of Taxpayers for Common Sense.

“We should not be flooding the market so it is easy for companies to sit back and wait to get to leases at firesale prices,” Alexander said. “The acceleration of leasing is doing just that. The industry is getting a great deal and taxpayers are not.”

The bidding process typically begins when an oil and gas company asks the Interior Department to open up a new chunk of taxpayer-owned land to drilling.

Once the department agrees, it schedules an Internet-based auction for registered bidders. Hot competition for the most sought-after land, where there are proven energy reserves, can drive these so-called bonus bids up close to $100,000 per acre, as happened in New Mexico in September. But to ensure that there is at least some upfront payment, the Interior Department requires a minimum per-acre bid of $2.

But if no one bids, the land is then transferred into a program that allows anyone to approach the department within two years of the auction, without an upfront bid payment.

The only money that needs to be put down is the $1.50-per-acre annual lease payment for the first year of a 10-year lease, and a $75 filing fee. This is how Price managed to secure access to land in Custer County, east of Miles City, part of the 116,000 acres of federal leases his company, Highlands Montana, says it holds.

“We’re a small company. We didn’t want to get in a bidding process,” said Price, whose company has raised at least $6 million from investors since 2016.