Beckoning the Bakken 

Will the oil boom reach Montana's impoverished Fort Peck tribes?

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Smith pulls up to a pumpjack standing over one of the 10 oil wells owned and managed by the tribes, five of which are in production. It squeaks and whines as the crank drives the polishing rod in and out of the earth. This is not a Bakken well, but a much shallower, decades-old vertical well that produces about five barrels of oil a day, and three times as much salt water. The tribes' five wells produce about 80 combined barrels a day, equating to a little more than $1 million a year in revenue, Smith says. All of the wells on the reservation, including those on non-tribal land, produce a total of around 1,100 barrels a day—less than one percent of the production on the Fort Berthold Reservation in North Dakota.

The enormous production from the Bakken required a revolution in the way oilmen drill. Geologists often describe the formation, about two miles down, as an Oreo cookie—two layers of shale sandwiching a middle layer of lighter-colored sandstone, the reservoir rock. The reservoir rock is thin, making it difficult for a vertical well to plug into a pay zone, and it also holds oil tightly, the two things that kept oil companies from extracting the oil since the Bakken's discovery in the 1950s.

Over the last 10 years, oilmen have figured out how to worm down and approach the middle of the Oreo from the side. They drill a well and then send down a second, flexible drill that bores horizontally, expanding the pay zone exponentially. Then they crack the rock to force oil to flow, a technique called hydraulic fracturing, or fracking, which involves pumping millions of gallons of pressurized water mixed with sand and chemicals down into the well. There would be no Bakken boom without the combined trick of horizontal drilling and fracking.

click to enlarge Tribal Council Chairman Floyd Azure likens oil exploration to gambling, and the tribes are all in. - PHOTO BY AUSTIN SMITH
  • photo by Austin Smith
  • Tribal Council Chairman Floyd Azure likens oil exploration to gambling, and the tribes are all in.

But the Bakken appears to be a different beast below the reservation. The formation is a few thousand feet shallower there, meaning the reservoir rock may not have matured to the same extent. Additionally, the Brockton-Froid Fault cuts across the far-southeastern corner of the reservation, T-boning the Bakken and pooling water. Geologist Jay Gunderson, of the Montana Bureau of Mines and Geology, says it's possible that the fault represents the Bakken's western boundary, east of which oil companies have the best chance of drilling economic wells. But no one's certain. Oil companies are still leasing land well to the west of the fault.

In the past year and a half, an oil company partnering with the Fort Peck tribes drilled two horizontal Bakken wells in that southeastern corner of the reservation. But even there the wells yielded more water than oil, rendering them unprofitable, at least at today's oil prices.

Smith, back in the pickup, says the failed wells present a problem. "As an experienced Texas oilman told me a couple months ago, 'Oh, Forrest, you guys just stubbed your toe on your first two wells, and that happens.' But that's a real painful toe-stubbing," he says.

It's painful because of what it signals to other oil companies considering doing business here.

•••

The first thing Lynn Becker asks upon meeting in his office in Wolf Point is where I stand on oil development. I respond with boilerplate about journalistic objectivity. He says that's impossible, because, after all, I drove 500 miles from Missoula to get here, the minivan burning about 35 gallons of gas.

Becker, a veteran oilman, friendly and sharply dressed, is the vice president of Native American Resource Partners, a private investment firm that in 2009 partnered with the Fort Peck tribes to create the Fort Peck Energy Company. His office is a room he rents inside the Good Shepherd Lutheran Church, which looks more like a residence than a church. He works fulltime in Wolf Point, the reservation's largest town, about 20 miles west of Poplar traveling back home to Denver for a long weekend every couple of weeks.

NARP's business model is based on the belief that the country's 55 million acres of tribal lands are, in Becker's words, "either underexplored or highly unexploited," and that includes the Fort Peck Reservation's 2 million acres. A huge map of the reservation is pinned to the church hallway's wall, and Becker points to entire townships where there are no wells. Elsewhere, the map shows plenty of abandoned wellbores, but most of those didn't reach Bakken depths. So Becker sees the map as essentially blank. Closeology dictates that new holes should be poked all over it.

"Here on the reservation, we just need a great discovery—you know, someone to see that, 'Yeah, the Bakken oil is here for sure, and this is how we're going to get to it,'" he says.

click to enlarge PHOTO BY AUSTIN SMITH
  • photo by Austin Smith

In creating the Fort Peck Energy Company, NARP and the tribes entered into an "area of mutual interest" agreement, essentially meaning that all tribal oil and gas leases would go through the new company. NARP brought to the table access to capital and expertise, and the tribes provided their mineral rights. Each owns half of the company. Becker has said in the past that the deal moved the tribes from "passive development to active management of their oil and gas estate."

In 2010, FPEC went about leasing land. Becker, as manager of the company, assembled a team of about 10 people to solicit and process leases. They focused on the southeast corner of the reservation—the area on the east side of the Brockton-Froid Fault, closest to Montana's productive Bakken wellsand pieced together a 45,000-acre block. FPEC paid most landholders $50 per acre, a price the company set, forgoing the traditional competitive bidding process. A map of the acreage hangs from the wall behind Becker's desk.

In 2011, FPEC sold 20,000 acres of those leases to a drilling company, Australia-based Samson Oil and Gas, for $175 per acre. Samson drilled two test wells, which didn't prove up—the "toe-stubbing" that Forrest Smith talked about. In 2012, FPEC sold Samson an additional 10,000 acres of leases valued at $225 per acre, but Becker says no cash, only acreage, exchanged hands. That deal gave Samson a two-thirds stake in the 45,000-acre block, and left FPEC with a one-third stake. The tribes own half of FPEC's share.

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