South Dakota oil country: Harding County looks to the future

By Sid Pranke

The No. 3 Saloon in Buffalo, S.D. is a popular place for crafting mineral rights deals. Photo courtesy: No. 3 Saloon & Grill (www.number3saloon.com).

The No. 3 Saloon in Buffalo, S.D. is a popular place for crafting mineral rights deals. Photo courtesy: No. 3 Saloon & Grill (www.number3saloon.com).

Buffalo, S.D. — Western North Dakotans used to living with an oil boom might not be overly impressed with the oil activity in Harding County, but it’s the biggest thing South Dakota has going right now, and Buffalo is thriving because of it.

All of Harding County, located on the North Dakota-South Dakota border about two hours south of Belfield, N.D. on Highway 85, has been impacted by much heavier traffic since the Bakken boom, a reality county officials have faced by asking for an increased highway patrol presence in the area.

Heading down one of the main drags in Buffalo, you’ll come across Saloon No. 3, where many a mineral rights land agreement has been crafted between local property owners and oil speculators.

On a recent Friday afternoon inside the saloon, a land man was in the middle of his pitch to a group of older men and women who were in the market to lease their mineral rights. With his maps spread across the table, the pitch man predicted each family member would receive $4,000 a month in royalties, if all went as planned. “So it wouldn’t be millions—not a gusher,” he said. “Well, that still sounds pretty good,” responded one of the land owners. There was plenty of back-and-forth going on, but no word if a deal got sealed that day.

Mineral rights leasing is still a big topic of conversation around Buffalo, even though oil production has been going on in Harding County since the ’50s; sellers go so far as placing ads on eBay. About a year ago, Texas-based Bedrock Oil and Gas bought about 500 square miles (67,000 acres) of leases auctioned off by the South Dakota Office of School and Public Lands, which handles leases and sales for public land; another 200-plus square miles of school and public land in northwest South Dakota counties have been leased out in 2012.

The No. 3 Saloon in Buffalo, S.D. is a popular place for crafting mineral rights deals.

“What happens a lot of times is, an oil company will lease up a whole big area and then they’ll lease them out to other energy companies. So Bedrock Oil and Gas bought up all these minerals, but they may turn around and farm them out to somebody else; who knows who?” says Harding County commissioner Bob Johnson.

Johnson says mineral rights leases being sold in Harding County involve both public and private lands, and that leases generally run from three to five years. The money sellers make depends on the deal they make, for both the acreage involved and the royalties for actual oil production.

“It’s just all over the place. I heard some getting $100, others get $50 an acre. And I’ve heard $15 an acre—that’s awfully low,” Johnson says. Royalties can range from 12 to 18 percent: “A lot depends on where you’re at—if you’re in an area where they’re drilling wells, you’ll get more.”

Just two miles north of town is South Cave Hills Road. Head west and traverse down a scenic winding road about seven miles; you’ll reach Continental Resources’ offices.

Along the way, there are cattle grazing out on the range adjacent to commanding buttes; in the whole mix are the steady movements of oil well pumping units dotting the landscape.

And while the oil business isn’t booming in Buffalo, the town has a nice, reliable industry that has brought back the community’s young people to claim the higher-paying jobs the oilfield has created.

Kathy Glines, Harding County’s auditor since 1990, says between the two biggest oil companies in the area, Continental Resources and Luff Exploration, along with several roustabout and electrical companies, significant employment opportunities have been created.

“Any time you get young people back to your community, it’s always a good thing. It lets us old people rest,” she laughs. “You get that vested interest. They care about the community, because they grew up here.”

Harding County has about 200 oil producing wells right now, and has been averaging one to two rigs a month. Almost all the oil wells in Harding County are horizontally drilled in the Red River formation, but there is no hydraulic fracturing (fracking) involved as there is in the Bakken formation up in North Dakota, Glines says. “The oil companies started the secondary recovery with horizontal drilling in the early 2000s,” she says. “We had a lot of activity then, because they were re-entering the wells.”

According to South Dakota Geological Survey databases, an oil well in South Dakota uses 15,000 gallons of water, compared with one to three million gallons of water to frack a North Dakotan well.

From all its oil activity, the county has been receiving between $2 million to $3 million in severance taxes for each of the past several years, Glines states. South Dakota’s 4.5 percent severance tax is a production tax, of which 50 percent goes back to the county in which the oil is produced. Severance tax revenue only can be used for roads, bridges and education, Glines explains, a state law that dates back to the ’70s.

Buffalo built a school with some of that money, and with younger families coming back to town, the building will be able to handle increasing enrollment that is expected as more children reach school age, Glines says.

She says Harding County also uses the money to offset the oil industry’s impact on its county road system, with a total annual road budget of more than $4 million. “Some years you’re ahead, some years you’re behind. The weather and everything else factors in,” as well as the oil impact, she says.

Planning and zoning has been a part of the Harding County modus operandi since the ’70s, and now the rest of South Dakota is seeing the advantage in beefing up its planning process for any oilfield impacts, as well.

South Dakota Governor Dennis Daugaard’s office released a 91-page “Oil & Gas Development/Preparedness” report in September 2012, and Glines says part of the planning is due to watching what has been going on in western North Dakota.

“I think a lot of people have this panicked vision that any of our communities could turn into a Williston … which I personally don’t see happening, unless there’s a lot more technical advances in the drilling process,” she says. “I mean, they’re trying to learn from the—I don’t want to say mistakes, but by what those communities (Williston and Dickinson) have learned to be better prepared.”

Buffalo and other South Dakota communities want to exercise more control over any growth in their area, Glines states. “Of course, a lot of the communities up there (in western North Dakota) did plan for it; they just didn’t plan for the magnitude.”

South Dakota Rep. Roger Solum (R-Watertown) was among the South Dakota legislators who visited the North Dakota Petroleum Council annual meeting in Medora in September 2012. The visit provided S.D. legislators with the opportunity to network with oil company representatives and others to spur business ideas.

One of those ideas presented to the S.D. legislators was to start producing sand for hydraulic fracturing.

“They (the N.D. Petroleum Council) had suggested maybe rather than import from Wisconsin or wherever they get it from, maybe we can find some closer sources that would have type of sand that they use in their (fracking) operations,” Solum says. “We just need to find those type of industries in South Dakota that could help the oil boom.”

Manufactured housing is one of those industries. While in North Dakota, Solum says he and his group spent the evening at a crew camp, a facility “that was manufactured by Superior Homes right in Watertown, S.D.,” where Solum lives.

Solum says South Dakota’s approach to developing products and services for North Dakota’s oil industry is “What more can we help you with? Help us help you,” adding that the N.D. Petroleum Council has encouraged the southern neighboring state “to dive right in.”

Solum says the South Dakota panel likely will propose legislation higher bond requirements for oil drillers, mediation services for landowners and developers, a provision that would allow counties to set up trust funds for unindentified mineral rights owners and legislation related to state highway safety and law enforcement.

Though South Dakota’s oil industry is a fraction of North Dakota’s, there doesn’t appear to be any sort of rivalry going on, as is the myth dating back to which state was admitted first to the Union.

Glines puts it this way: “I don’t see as much of a rivalry between North Dakota and South Dakota, as I do between East River and West River in either state. I know in North Dakota it’s the same thing—there’s that issue of ‘Should the money go West River or should the money go East River?’” Glines says she sees other similarities between the western halves of each state.

“It’s a different lifestyle,” she comments. “It’s more tourist-oriented, it’s more ranch-oriented, it’s more cowboy-oriented and it’s more wide-open-spaces-oriented. And you get East River, it’s farming, it’s a lot of population.”

So, does this mean North Dakotans are no longer jealous of Mount Rushmore, the Corn Palace and Wall Drug?

This article previously appeared in The Drill in Dickinson, North Dakota. Republished with permission.

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