Mineral rights sale brings in $41.4 million

More than 100 show up to bid on thousands of acres in 3 states

Phaedra Haywood | The New Mexican

7/16/2008 - 7/17/08

About 110 people crowded into a conference room at the U.S. Bureau of Land Management in Santa Fe on Wednesday to bid on thousands of acres of mineral rights on federally owned land in New Mexico, Texas and Oklahoma.

Bids on the rights — which are being sold primarily for oil and gas production — started at $2 but increased steadily. The auctioneer presided over the live auction with practiced finesse, acknowledging the yellow bid cards, head nods and lifted fingers that drove the prices higher. As the bids rose to $10, $100 and upward to thousands per acre, heads swiveled from bidder to bidder, each anxious to see who was bidding on what.

The auction, one of four the BLM holds annually, raised a record $41.4 million, more than any other sale conducted in Santa Fe since 1982, when the process was changed from one of sealed bids to a live auction, according to BLM spokeswoman Donna Hummel.

Of the 78 parcels sold during the sale, 49 are in New Mexico. None of the mineral rights are in Santa Fe County. The BLM is revamping its management plan for the area, and no sales will be made until that process is completed, likely in two to three years. That plan rewrite is a routine process unrelated to recent interest in oil drilling in the county's Galisteo Basin.

About 52 percent of the funds generated from the sale of leases in New Mexico goes to the federal government. The other 48 percent (about $15.6 million in this case) goes to the state. The highest bid at Wednesday's sale was $5,000 per acre for an 80-acre parcel in New Mexico's Eddy County, and the right to extract minerals on that parcel went to R&R Royalty Inc. a Corpus Christi, Texas-based firm.

"Right now, prices are much higher because the price of the product is so much higher," said Bob Armstrong, owner of Armstrong Energy Corp., a independent oil and gas producer based in Roswell. "Two years ago, $1,000 per acre was high; that was really something."

Ken Gray, a mineral rights broker who purchases leases on behalf of Devon Energy, said he was an "unsuccessful bidder" Wednesday. Gray purchased one parcel, for about $500 per acre, a price he called "dirt cheap in the scheme of things" but had come seeking nine others he didn't win. "There are no reason for those kinds of prices," he said.

Many said oil prices hovering around $140 per barrel were the reason for the price increase.

Gray suspects speculators, excited by rising oil prices and what he called a "perceived shortage" of fossil fuels, have something to do with it, too. "I don't think it's completely a supply and demand thing," he said. "The public should know that there is a cost of doing business that's related to the price, and this is part of it."

Cody Lee, an independent broker who sometimes buys leases in his own name to help his employers stay under the radar, attributes some of the rising costs to environmentalists.

Lee, who lives in Albuquerque and grew up attending lease sales with his father, said the Internet has given "obstructionists" the ability to distribute less than a full picture to the public. The oil and gas industry, in contrast, "does an awful terrible job of trying to defend itself," he said.

Lee said the industry is a "complex and terrifying" business. But he said he believes the hydrocarbon use has been the "greatest liberator of human freedom" in the past 100 years. "Our ability to live well is a direct response to hydrocarbons," he said.

Tony Herrell, deputy state minerals director for the BLM's Santa Fe office, said the agency's mission to manage multiple uses on public lands is a tough one. "It's very important to listen to everything, be patient and value respect above everything," he said. "Eighty percent of land management is emotion management."

Herrell said he'd like to see the public's increasing interest in energy issues be answered with more information in a way that would eliminate some of the polarization surrounding the debate. "The concept of the common good has been lost, and we need to bring that back," he said. "Now it's all about the private rights."

Herrell said the number of protests being filed on the lease sales is growing. The basis of many of them, he said, is environmental.

Most BLM land that ends up on the auction block for mineral interests is nominated for auction by industry, Herrell said.

Hummel said the parcels the BLM decides to offer leases on are advertised on their Web site 45 to 60 days before the sale. Protests on the sales can be filed up to 15 days before the sale.

Herrell said when the BLM receives protests they can either remove the parcel from the sale, impose restrictions that might satisfy the protester or dismiss the protest. Protests that are dismissed can be appealed.

For more information on the BLM's lease sales visit: www.blm.gov.

Contact Phaedra Haywood at 986-3068 or phaywood@sfnewmexican.com.