1 

## OIL AND GAS OUTLOOK IN INDIAN COUNTRY

Current and Future Status of Oil and Gas Development

In 2012 alone (most recent ONRR data available, Fig. 1), energy and mineral resources generated over $701

million in royalty revenue paid to Indian mineral owners. Income from energy and minerals is by far the

largest source of revenue generated from Trust lands. In the last three years, DEMD working with BIA

realty staff has assisted Tribes in the negotiation of 48 IMDA leases for oil and gas, totaling approximately

2,750,000 acres and about $45 million in bonuses (upfront payments). These leases have the potential to

additionally produce over $20 billion in revenue to the Indian mineral owner over the life of the lease

through royalties and working interests. Table 2 shows the significant impact of energy and mineral

development on reservation economies.

In 2013, DEMD estimates Indian Royalty to be approximately $900 million (the red line in Fig. 1), and within

two years, estimates royalty income will increase to over $1 billion.

Figure 1 Indian Royalty Income project through 2013 (Source, ONRR). In 2012 alone (most recent ONRR data available), energy

and mineral resources generated over $680 million in royalty revenue paid to Indian mineral owners. Nationwide Indian average of

16.88% of the gross oil revenues, far in excess of the nationwide federal national average of 11.29% of the gross revenue (Source:

Office of Natural Resources Revenue (ONRR) website www.onrr.gov/ONRRWebStats ).

Oil and Gas Leasing

BIA Realty and DEMD staff offers a unique, hands

‐ on approach to assisting Tribes and Individual Indian

Mineral Owners in leasing their resources under the Indian Mineral Development Act (IMDA) of 1982

(Tribes) and the Indian Mineral Leasing Act of 1938 (Tribes and Individual Indian Mineral Owners). The

IMDA allows Tribes to lease their resources utilizing a creative agreement that best fits the needs of the

Tribe and a potential industry partner. Tribes have greater flexibility to craft advantageous agreements

than did the standard BIA lease agreement authorized under the Indian Mineral Leasing Act of 1938.

DEMD and BIA Realty staff first provide assistance to Tribes and Indian mineral owners in proactively

marketing energy and mineral resources. This can include sponsoring a tribal representative’s attendance $

‐ $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012Millions 

## American Indian Royalty (excluding Osage)2 and serving as technical representatives for Tribes at industrial trade shows, industry forums where Tribes

can interact directly with prospective industry partners, and providing tribally authorized technical

presentations detailing the geology, geophysics, engineering and resource potential of tribal lands to

potential partners. BIA and DEMD staff then analyzes the economic potential of a proposed energy or

mineral transaction. Then BIA realty staff works to assure that work commitments are met in accordance

with agreed

‐ upon timelines. In contrast, BLM leases of onshore federal acreage lack such work

commitments. IMDA agreements have the additional advantage of allowing Tribes to increase royalty rates

as negotiated milestones are achieved

– a feature absent in BLM leases of onshore Federal acreage.

Unlike BLM’s treatment of onshore federal leases, BIA and DEMD assume a hands

‐ on, proactive approach

in working with Tribes to help them in the development of their resources. By keeping Indian Mineral

Owners well informed, BIA and DEMD are able to adjust transaction terms such as royalty rates, lease

bonuses, and term of lease, to ensure that both the Indian Mineral Owner and their potential partner

operate from the same base of information. This kind of technical assistance during negotiations between

Indian Mineral Owners and potential partners has resulted in achieving a nationwide average Indian oil

royalty rate of 16.88 percent (Figure 4), far in excess of the nationwide federal oil royalty rate of 11.29

percent. Perhaps even more importantly, this assistance in negotiations and the inclusion of rigorous work

commitments as part of these negotiated agreements results in Indian Lands being developed and not

simply leased. In addition, Indian oil and gas leases are usually for a term of five years whereas BLM

administered leases are almost always for a term of ten years. This results in aggressive development of

Indian leases. The following Table clearly demonstrates the efficacy of this approach. Approximately 94% of

Indian leases are productive while only 48% of BLM administered Federal Onshore leases are productive.

Table 1: Total Producing and Non

‐ Producing Leases (as of October 28, 2010) 1

Energy and Mineral

Producing leases Energy and Mineral Non

‐ Producing leases

American Indian 4,335 285

Federal Onshore 24,202 26,114

1 Data from Office of Natural Resources Revenue (ONRR) website www.onrr.gov/ONRRWebStats/Home.aspx3 FIGURE 2. Indian oil sales volume (bbl) through 2012. ( Source: Office of Natural Resources Revenue (ONRR) website)

FIGURE 3. Indian natural gas sales volume (mcf) through 2012. ( Source: Office of Natural Resources Revenue (ONRR)

website). 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 

## Indian Oil Sales Volume (bbl) (excluding Osage)SalesVolume(bbl)



## Year

0 50,000,000 100,000,000 150,000,000 200,000,000 250,000,000 300,000,000 350,000,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 

## Sales Volume (mcf) (excluding Osage)4 FIGURE 4. Comparing Indian royalty income for oil and gas as a percentage of sales volume versus Federal royalty

income for oil and gas as a percentage of sales volume. ( Source: Office of Natural Resources Revenue (ONRR) website).

Impact of Shale

‐ Oil and Shale

‐ Gas Plays

Over just the last four years, the development of shale oil and shale gas in the United States has been very

rapid, and advances in technology continues to improve the economic returns of producing oil and gas in

the U.S. New horizontal drilling applications have accelerated US domestic production of oil and natural

gas. Since 2008, the output of oil and natural gas has increased dramatically from tight shale formations,

truly representing a game

‐ changer for conventional energy development and which has the potential for

being a driver for economic growth and job creation on Indian Reservations.

Other observations about shale

‐ oil and shale gas development and the impact to Indian Country:

• The production of oil and gas on Indian lands has historically provided significant royalty income to

Tribes and individual Indians, but many conventional fields are in decline with ensuing loss of revenue

to Indian economics.

• The economic impact and benefit for Indian Tribes are potentially very large because many Indian

reservations are located in known shale play areas, and contain large amounts of undeveloped or

underdeveloped areas which are a major consideration by industry wanting to lease lands.

• Because of the enormous success with shale gas in the country, the price of natural gas has fallen by

more than a factor of two since 2008, which will impact those Tribes with shale gas potential on their

reservations. However the lower price of gas is benefiting consumers in the lower cost of home heating

and electricity, and also the electric power generating industry who are switching from coal to natural

gas. Eventually this higher demand will create higher prices and new exploration activity for natural gas

by industry. One unanticipated scenario is that natural gas may become so abundant that it be possible

to export as liquefied natural gas, creating new markets for natural gas produced from Indian lands. 8.00% 9.00% 10.00% 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% 17.00%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 % Indian Gross Value 

## Percentage of Gross Value for Indian and Federal Oil and Gas5 • Presently the big impact is the turnaround in oil production in the U.S., which has risen 25% since 2008.

The largest increase in oil supply is coming from tight shale rock formations, and is being produced by

the same horizontal drilling technology used to produce shale gas. The Three Affiliated Tribes in North

Dakota area are currently experiencing a ‘boom’ in the production of oil from the Bakken Formation.

During this past year (2012), North Dakota overtook California and then Alaska as the nation’s second

largest oil producing state.

• This new energy economy which is driven primarily by shale

‐ oil and shale

‐ gas must be recognized by

Indian Tribes as a significant event to plan for, and ask such questions as how it may impact their lands

and environment, how they would participate, what are the risks and downsides, and what it means for

their own economies. The Bureau of Indian Affairs, through their DEMD office, should also be prepared

to offer technical and economic advice as this revival in conventional energy development sweeps

across the U.S. A large mostly undeveloped land base and exploration data will give Tribes a unique

opportunity to participate in shale energy development activities and the subsequent economic

benefits to Tribal economies.

Figure 5 shows a map of the U.S. with Indian Reservations and both the established and emerging oil and

gas shale plays that exists on these reservations.

FIGURE 5. Shale oil and gas plays on Indian Reservations.6 

### Economic Impact of Energy and Mineral on Indian Lands

The following charts provide additional information about the salutary impact of energy and mineral

development on reservation economies:

Table 2: Economic Contributions on Indian Lands

Table 2 : : Table from The Department of the Interior’s Economic Contributions

– July 9, 2012 Chapter 2

– Bureau

‐ Level Economic

Contributions

Increased Level of Support to Tribes and Individual Indian Mineral Owners

The main issues facing Indian Tribes and BIA agency staff are how to keep up with the demand for leasing,

permitting and drilling. A taste of things to come has already occurred in development of the prolific

Bakken shale oil play at the Fort Berthold Indian Reservation in North Dakota. There was a severe backlog

of leases and permits being issued which forestalled the generation of income to the Indian mineral

owners. BIA agency and DEMD staff have worked to eliminating this backlog by providing an experienced

engineer and by hiring five additional staff to supplement BIA realty staff.

By working together BIA and DEMD has been able to physically place a team of technical staff at the

reservation to provide on

‐ site services. Staff functions included realty specialists, environmental specialists

and petroleum engineers. Additional personnel (mostly contractor staff) have been hired by DEMD and are

supervised by a DEMD senior petroleum engineer. GIS and data management support has also be provided

by DEMD through the implementation of the National Indian Oil and Gas Management System (NIOGEMS)

at Tribal offices, BIA Agency, BLM Field Office, and the Office of Natural Resources Revenue (ONRR) to

ensure proper communication and coordination occurs between the various Departmental Agencies, Three

Affiliated Tribes, and Individual Indian Mineral Owners. The overall goals of this effort were to:

• Oversee and expedite the processes within the Department of the Interior related to oil and gas

development on Indian land.

• Access a wide range of technical and management expertise within the Department.

• Bridge management lines of authority to accomplish the office mission through the office of the

Assistant Secretary

‐ Indian Affairs. Commodity Value

($	billions) %	of

Total

Value Estimated	Economic

Impact

($	billions) %	of

Total

Economic

Impact Estimated	Jobs

Impact

(jobs) %	o f

Total

Estimated

Jobs

Impact

Oil,	Gas,	Coal		 3.31	 80.9	 9.63	 79.7	 96,080	 76.4

Minerals .3	 7.3	 .86	 7.1	 15,434	 12.3

Subtotal 3.61 88.2 10.49 86.8 111,514 88.7

Irrigation		 .39	 	 .95	 	 8,791

Timber .04	 	 .56	 	 4,069

Grazing	 .04	 	 .08	 	 1,370

Total 4.09 12.08 125,7447 Table 3 Ft. Berthold Tribal and Allotted Oil and Gas Royalty (Source: ONRR)

Year Tribal Allotted Total Trust Minerals

2008 $ 691,744 $ 1,264,431 $ 1,956,175

2009 $ 2,166,406 $ 5,656,827 $ 7,823,232

2010 $ 8,900,873 $ 28,792,102 $ 37,692,976

2011 $ 27,707,715 $ 106,665,404 $ 134,373,119

2012 (through Aug. 2012) $ 34,669,185 $ 148,839,207 $ 183,508,392

Totals $74,135,922 $291,217,971 $365,353,893

Table 4 Bakken Development Permitting Activity on the Ft. Berthold Reservation ( Source: BIA)

• The permitting activity for “Applications for Permit to Drill” (APD), Rights

‐ Of

‐ Way (ROW) and required

environmental onsites have almost double each year. These permits are required to begin drilling a

well (Spud) and completing for production (1st Production).

• The BIA Fort Berthold Agency has the majority of the workload caused by the ever increasing number

wells required to develop the Bakken/Three Forks resource.

• Bakken/Three Forks resource is projected to require over 2,000 wells at full development;

approximately 20 percent of the wells are currently drilled and/or completed for production.

The level of drilling activity continues to increase from 150 wells drilled through the end of 2010 to 200

additional wells planned for 2011. That represents a doubling of work load that is expected to continue

through 2013, with development rates leveling off to 100 wells per year over the next 5 years. It is

expected that 1000 wells will be drilled to initially develop the Bakken Formation and an additional 1000

wells to complete full development of the Bakken and Three Forks Formations over the next 10 to 20 years.

A similar scenario is beginning to occur on several other reservations that could also potentially create

severe backlogs of leases and permits being issued. These reservations are Uintah and Ouray Reservation

(Northern Ute Tribe) in Utah, Navajo allottees in New Mexico, Osage Tribe, Oklahoma, Blackfeet Tribe,

Montana, and Jicarilla Apache Tribe in New Mexico. BIA and DEMD are acting quickly to prevent future

delays in drilling of wells which in turn would have stalled significant income flowing to the Indian mineral

owner. Year Environmental

Onsites Submitted

APD Approved

APD Pending

APD Spuds 1st

Production

2008 81 43 28 15 18 12

2009 223 93 52 56 48 38

2010 225 181 110 127 93 65

2011 519 282 171 238 162 126

2012 (through

Aug. 2012) 326 106 51 293 149 104

Totals 1,374 705 412 729 470 345