Bonus payments will net nearly $60 million for school funding; marks the latest success in innovative approach by State Land Board
The Colorado State Board of Land Commissioners has leased 5,638 acres of oil and gas rights in Weld County to a subsidiary of Bonanza Creek Energy, Inc. The agreement will bring nearly $60 million to the Land Board over a five-year period, funds that will go to benefit K-12 education in Colorado.
Located in a producing oil and gas area which overlays the Niobrara formation, the State Land Board recently offered these parcels, known locally as the 70 Ranch property, through a sealed-bidding process. The winning bid from Bonanza Creek was selected in part due to the bonus price offered for the acreage, but also because the company is operating on adjacent lands and has already developed infrastructure with access agreements in place. Bonanza Creek has been active in the Greater Wattenberg field for over a decade and has drilled more than 250 wells in the region.
“We are very pleased to be working with Bonanza Creek on this project,” said Bill Ryan, Director of the State Land Board. “These lands are located in an area where there are many producing wells, and we are optimistic that this lease will generate significant revenues for our beneficiaries through production royalties in years to come.”
The nearly $60 million in aggregate bonus payments from this offering marks the latest in a series of significant transactions for the State Land Board. In March, the Land Board agreed to an oil and gas lease with ConocoPhillips on 21,000 acres of land in unincorporated Arapahoe County on the Lowry Range. In that agreement, the Land Board earned a bonus payment of $137 million. A bonus payment is a one-time payment to obtain a lease. It comes on top of annual lease payments and royalties.
The latest agreement with Bonanza Creek includes a 20 percent royalty for the State Land Board on the oil and natural gas resources produced. With many producing vertical and horizontal wells in the region, these lands are considered to have excellent oil and gas development prospects. The State Land Board holds in trust 10 non-contiguous sections of land in a checkerboard pattern located approximately 8 miles east of the Town of Kersey. The 70 Ranch property was previously part of the National Hog Farm operation, which occupied the property from 1989 until 2011.
State Land Board revenues have continued to grow in recent years. Revenues last fiscal year (2011-12) were $146 million, a dramatic increase from five years ago when total revenues averaged $60 million. Records for lease auctions, including number of parcels nominated and leased, and lease bonus bids, have continually been set and broken over the past two years. While the revenue increases have largely been due to tremendous increases in oil and gas lease bonus income – earned when companies compete for leases in a public auction – the increased revenue is also due to a significant shift in business operations at the State Land Board.
“The list of complex, innovative and successful State Land Board projects continues to grow rapidly. It shows that this team understands how to engage both in strategic partnerships and business development professionally and efficiently,” said Mike King, executive director of the Colorado Department of Natural Resources. “The Board is increasingly collaborating not only with sister agencies within state and the federal government, but also with local jurisdictions and non-profits that work in related fields”
Some of the higher profile projects undertaken by the State Land Board in recent years include the Rocky Flats Section 16 exchange in Boulder County, the Eagle Valley Land Exchange in Eagle County, the Soapstone Natural Prairie Energy by Design project in Larimer County, and the Lowry Range project in Arapahoe County. The projects range from commercial development, to minerals development, to conservation and open space projects. All these projects are expected to bring millions of dollars in revenue for State Land Board beneficiaries.
The State Land Board was established in 1876 to manage more than 3 million acres of land and 4 million acres of mineral rights which the federal government gave to Colorado to generate revenue for public education and some state institutions. The Board’s activities generate revenue annually for its eight trust beneficiaries, the largest of which is the K-12 public education School Trust.
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