Land Issues: Developing the Amber Waves of Grain

It was Will Rogers who famously recommended that people invest in land because “they ain’t makin’ any more.”

Well, they ain’t makin’ any more in North Dakota, either, which is why legislators and residents are grappling with a variety of issues relating to its limited supply of what is, in many cases, highly profitable land.

The state has proven conservative when it comes to using the tax revenue – a reported $668 million in 2010 – from oil and natural gas production. Two years ago, residents voted for a constitutional amendment that led to the creation of the Legacy Fund, which puts 30% of oil and gas tax dollars aside for investment in U.S. bonds. Nor can the fund be spent until June 2017, when a two-thirds vote by the state legislature will be required for spending of up to 15 percent of the principal over a two-year period.

Many point out, however, that an energy boom can disrupt a region’s agriculture and have a negative environmental impact on farming. Municipalities are also beset with logistical issues involving housing, infrastructure and public services. A coalition from the 18-county Oil Patch is reportedly asking for 10 percent of the taxes raised from the Bakken Formation’s eventual $2.4 trillion in revenue to be set aside to handle environmental issues such as treating waste from fracking and long-term development.

The pace of change is quickening. Bloomberg News reported on July 17 that North Dakota will face legal action brought by landowners who say the state has been usurping oil and mineral rights worth millions. Owners of land next to North Dakota’s navigable rivers and lakes claim that they own the mineral rights between the high and low water marks.

North Dakota has been more fortunate than its neighbors in Wyoming, Montana, Nebraska and South Dakota as far as land damaged by the extended drought. In fact, hard-hit cattle ranchers in Wyoming are hoping for permission to move their cattle to North Dakota for grazing. According to the U.S. Department of Agriculture, roughly two-thirds of North Dakota’s pasture and range land is in “good’ or ‘excellent: condition. Ranchers in North Dakota moved their cattle to other states during severe droughts in the 1980s and in 2006.
Meanwhile, Gov. Jack Dalrymple is calling for investment in processing plants to convert the state’s natural gas supplies into fertilizers in order to, among other things, diversify the economy and build a more reliable supply for farmers.

Pandora’s Box

Making the best use of North Dakota’s land has become “kind of a multi-faceted situation, especially with energy development being the primary gorilla we’re dealing with right now,” says Mark Jacobsen, public affairs officer for the Federal Bureau of Land Management’s (BLM’s ) Eastern Montana/Dakotas District. Major effort must and does go into, as he put it, “trying to reach a manageable workload level with the personnel we have, and adding personnel to deal with all of those issues. When you look at a lot of these umbrella-like land issues that we’re facing, it’s a matter of managing the development at a measurable and reasonable pace.”

The explosive rate of growth has, Jacobsen says, opened “a Pandora’s Box of issues when you look at it. BLM is dealing with a workload of applications of permit to drill, and making sure that regulations are followed. In addition, they must ensure that land-owner rights are respected and all of the environmental constraints and concerns and regulations that go along with gas development are adhered to. That’s a snapshot from the federal perspective we are in charge of. It’s (all part of) developing the resources that the nation needs badly,” Jacobsen adds.

Many of his department’s duties and responsibilities have their counterparts on the state side, as well as among tribal organizations. In fact, he underscores, “between agencies a lot of the wrangling has to do with duplication, so we need to do what it takes to reduce that duplicative process.”

Availability, Cost and Infrastructure

According to Jason Zimmerman, the flood-recovery coordinator for the City of Minot, the three primary land issues in North Dakota go hand in hand. “One of them is availability, two is cost, and three is infrastructure.”

The biggest issue with regards to availability, Zimmerman explains, is land that is readily developable, which as he points out goes together with infrastructure. “There is land out there, but these communities that are growing and need additional housing and community services, things like that can’t get the infrastructure until they get the land, and they need to grow it out.” Complicating matters is the fact that time, he adds, is not on planners’ side.

“Obviously, if you could have looked into a crystal ball five or 10 years ago it would have been a little bit of a different story,” Zimmerman points out. “That being said, we are three and four and five years behind in getting that stuff built out to where it should have been. Everything is in a fast-tracked motion right now, but it isn’t that easy, either.”

Priorities in infrastructure are, of course, the basics: sewer, water and roads, primarily in the western part of the state. Says Zimmerman, “If you just take Highway 83 and start heading west to any of your primary communities — Minot, Williston, Dickinson, or even some of the smaller communities in between — some of them are working on building up their infrastructure but they only have so much capacity in their well systems.”

In the Minot area “we’re still recovering from essentially a 400-year flood that happened last summer,” says Zimmerman. “The events demand services within the city as far as the infrastructure, and growing that out. We have to get the 4,100 residents reestablished and back in their homes so we can start developing our plans. Actually we already have our plan for future flood protection, how we’re going to go about funding it and building it.”

In mid-July, the Minot City Council approved a plan for spending federal disaster recovery grant money. The city will receive $68 million in Housing and Urban Development funding for recovery from the Souris River flooding. While city planners intend to use the funds to aid homeowners in making repairs and for repairing infrastructure, some of the citizens insisted that a smaller percentage should be used for administration and infrastructure. Indeed, half of $4.5 million designated for storm sewer improvements was rerouted to help homeowners with repairs.

Beyond that, Zimmerman concludes, the task at hand “is just trying to keep pace with the development. It’s one of those things: everybody wants his piece of the pie in some regards, but it takes smart, managed growth, too.”

Location, location, location is as fundamental a concern in land management as it is in retail success. “By and large, the oil activity is in the west, but the agriculture activity — like sugar beets and corn and soybean – is certainly more intense in the east,” notes Lance Gaebe, Commissioner of the North Dakota Department of Trust Lands. “It’s a productive state all the way across. I don’t know that there is a strong divide, or a strong separation. There are just different kinds of economies in different parts of the state.”

Mixed Blessing

Many of the land issues have come about because North Dakota is, unlike most other states, growing younger. “It’s kind of a recent trend but yes, we have folks coming in from all across the country,” Gaebe reports. “I was commenting today to a coworker: I took a 30-minute drive yesterday and saw license plates from probably 10 other states, which is not something you see real often in a short little drive. I don’t suppose it’s any different than when manufacturing jobs showed up in Detroit, or when we had a gold rush in California.”

People go where the opportunity is, Gaebe notes, and that migration brings with it its own set of challenges that he and others like him need to face. “But it also creates more opportunity for local entrepreneurs and others who are able to find jobs or build businesses, whether it be the hardware store or foodservice, apartments or homes to help host the new North Dakotans.”

Heading the list of concerns, at least in Gaebe’s eyes, is what he terms “protection for future generations — making sure the stewardship of the environment and utilization of resources are conscientious. It’s making sure that land owners are treated fairly by those who are extracting minerals beneath that surface.”

In matters of infrastructure, he continues, the goal is to take care of the basics: “That the roads be able to carry the additional traffic and weight, and that we put in place the power and pipelines to be able to carry products so that we can actually have fewer trucks and semis moving along the road.”

The state’s economic boom has, as most things do, proven to be somewhat of a mixed blessing. Complications in land use have come, Gaebe suggests, “in terms of there being a great deal more interest and potentially more value. Any time there’s more value in something that people previously weren’t aware of, or didn’t care about so much” complications ensue, whether it’s oil and gas rights or something as common as gravel.

In various parts of North Dakota, Gaebe relates, residents are trying to establish, and if possible, document their ownership of land that holds minerals. “And so it’s more complicated in terms of there being more interested parties making sure that they clearly own” particular plots of land.

The Dakota Prairie Grasslands cover more than 1.2 million acres in Southern and Western North Dakota and Northern South Dakota. A good share of those acres, about a million of them, Gaebe suspects, are within the western part of the state. “In some cases, private [land] is within the same acreage as federal land, so there is activity in the same neighborhoods, and it has generated more interest nationally.” There are, he adds, reviews and other processes going on “to try and figure out how to access some of those lands that may not be owned by the federal government, but may be private because the land was acquired during the Dust Bowl era. The minerals might still be owned by a private family, so they have a right to get those. But it can be a challenge to go through the federal process.”

“Clearly, the oil boom had a big impact on our office, and on state lands as a whole,” says Jeff Engleson, Deputy Commissioner of the North Dakota Department of Trust Lands. That said, much of his time is spent trying to help residents sort out questions pertaining to mineral rights.

“The federal government gave the state of North Dakota a bunch of land when we became a state, and that land was to benefit education,” Engleson explains. “For K-12 education they initially gave us 2.5 million acres of land.” Over time the state has sold a good chunk of it. In fact, it now only owns approximately 700,000 acres of surface lands, “but over time we retain the minerals, so we actually own 2.5 million acres of minerals.”

What to do with it? “We rent out the surface land for grazing,” Engleson says, “and we rent out the mineral interests for mineral extraction. It could be coal, it could be gravel, or it could be, obviously, oil and gas. We even have potash leases. A couple of years ago potash was kind of a hot topic around here.” Those funds, together with some tax revenue and a portion of tobacco lawsuit proceeds, are then invested and paid out to education. “We’re up to about $20 million a month in royalty income.”

All the activity has underscored the need for improvement and expansion of the state’s infrastructure. Says Engleson, “A big thing that has caused extra work for us in dealing with this would be dealing with surface issues, like right of way roads, oil pads, all that sort of stuff. We’re very diligent on making sure they put them in reasonably — you know, the best place for the area — and that they get the proper permissions and route pipelines through places that make sense, not wherever they want to.”

Rights-of-way roads isn’t a sexy topic, just an essential one, as Engleson explains. “If you’re building an oil pad you may need to build a quarter mile of road to reach it. All of that stuff takes permission, and we are very diligent when it comes to making sure they put that road and pad in a place that makes sense ecologically. We are entrusted with this land forever, and so we want the revenues. But we also want to protect the land in the long run, too. For us, part of it is really continuing to update our systems and processes to keep up with the volume that we’re doing.”

Indeed, Engleson refers to such infrastructure issues as the biggest that he and his colleagues are hearing about and seeing at present. “There are various infrastructure issues in Western North Dakota, whether it’s roads, enough housing, water and sewer to build that housing. Obviously you get land issues that are more energy related than anything else in the west, while there are various other issues in the east. We all know the Devil’s Lake issue and what that’s doing. It’s a big lake in Eastern North Dakota that is continuing to grow. It has no natural outlet, or the natural outlet is at a very high level. The bottom line is that the lake has tripled in size over the last 10 to 15 years,” swallowing up hundreds of thousands of acres of farmlands, roads and towns.

Despite the challenges, however, North Dakotans find themselves in the enviable position of being able – to a very large extent – create their own future. Perhaps another of Will Rogers’ maxims is called for: Be careful what you ask for — you may get it.

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