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Lackluster results for BLM’s auction

by Carla J. Dolce

DENVER- Put in perspective, last week′s BLM auction of oil and gas leases was lackluster at best.  Held in Denver on May 14, about 80% of the acreage for last weeks′ auction is located in Huerfano County.  The auction was one of the Bureau of Land Management′s regular quarterly auctions of oil and gas leases on parcels of land for which the government owns the mineral rights.   Each lease authorizes the purchaser to produce oil and gas from the government-owned mineral rights.

    According to BLM′s preliminary auction results, of 51 parcels offered, BLM sold only 43, or 84.3%, totaling 42,986 acres.  The average bid per acre was $13.53 with total lease sale earnings of $652,057.  Compare this to BLM′s stellar auction in August 2008 for parcels located in Garfield County.  In that sale, 100% of the parcels, 54,631 acres, sold for a total lease sale earnings of  $113,940,215.50 with an average bid per acre of $2,084.05, more than 150 times as much as last week′s auction.  The high bid in last week′s auction was $56,300 made by Hannon & Associates Inc. for a 562.47-acre parcel just southeast of La Veta.  Last August, the high bid was $25,252,000.00 on a 2,140-acre parcel located north of I-70 near Parachute in Garfield County.

    While the average bid on BLM′s oil and gas leases in Huerfano County was low, some parcels sold for significantly more than others.   One of those was the 40-acre parcel where Deane and Patricia Merryman live located in the middle of Navajo Ranch Resorts.  The oil and gas exploitation rights for their parcel were part of a package totaling 200 acres that included other small parcels just north of Navajo Ranch.  Deane went to Denver to bid on the oil and gas lease for his parcel but was outbid by Hannon & Associates, a Denver firm that bid $110.00 per acre.  This was the third highest per-acre bid price at the auction.

    The generally lackluster results of BLM′s May auction may be a ripple emanating from last February′s 24% fall in wholesale natural gas prices.   The new Colorado Oil and Gas Conservation Commission regulations, which include better protections for wildlife and the environment, may have been responsible for the complete lack of bids for any of the parcels bordering the Greenhorn Wilderness.  The poor results may also be a reflection of the uncertain regulatory environment:  the new COGCC regulations currently being challenged in court and the recent application of water laws to coal bed methane production brought about by last month′s Colorado Supreme Court decision in Vance v. Wolfe.  Finally, oil and gas exploitation in Huerfano County is apparently not as profitable or desirable as it is in Garfield County and in other parts of the state.

    The next BLM auction will be on August 13 with the sale notice listing the parcels being available (posted on  the BLM website) by June 12.  The deadline for protesting the inclusion of any parcel will be July 29, 2009.

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