Mineral Rights : Dust Bowl’s Heirs Miss a Big Boom

The taxpayers get $1.46 a month for every cow that grazes on government property near this town where Kansas, Oklahoma and Colorado almost overlap. It looks like a good arrangement all around, considering that the land used to be worthless.

The animals roam the 107,000-acre Cimarron National Grasslands and eat the bluestem, buffalo grass and other vegetation sown here since the Dust Bowl years of the 1930s in what has been a generally successful government effort to stop the land from blowing away.

$50,000 Each Year

The $50,000 or more in grazing fees that Uncle Sam collects each year helps to maintain the whole enterprise--the windmills that pump water for the cattle, the picnic grounds along the Cimarron River, the blinds where bird watchers gather every March to see the annual mating dance of the lesser prairie chicken.

The pastoral scene suggests that the Dust Bowl is over, and in most respects it is. But the interim discovery of oil and gas here has irrevocably linked the past to the future, and this winter the land is playing tricks again--snatching wealth from the heirs of the long-departed homesteaders and parceling it out to the general citizenry on the eve of a drilling boom in Kansas.

A massive but little-noticed transfer of ownership of mineral rights here from private to public hands, a legacy of New Deal-era legislation, is putting the U.S. government deeper and deeper into the oil and gas business. And far more than $50,000 in grazing fees is changing hands.

Firms Bid for Rights

Some of the nation’s biggest oil and gas companies are feverishly bidding for those mineral rights. They are paying Uncle Sam thousands of times as much in bonus money--$18 million to date--as they paid the original landowners and their descendants for leases in years past.

“It’s a rip-off,” said Carol Baldwin of Granada Hills, Calif., who recently lost the rights to the minerals beneath her family farm. She believes her parents were deceived by the government when they sold the land 50 years ago.

“It’s like a fairy tale,” said Kenneth Fowler, superintendent of the 615-student Elkhart, Kan., school district, which is about to realize a multimillion-dollar windfall.

“It’s fate,” said Edgar W. White, a local lawyer.

It’s gas, actually--natural gas.

The dry, exhausted land that drove farmers away during the 1930s turned out to be a corner of what is now the largest producing natural-gas field in the United States. In terms of tax revenues, the Hugoton field, source of 73 trillion cubic feet of gas and a key part of the empire of oilman T. Boone Pickens Jr., has since made this the richest part of Kansas.

There were only faint hints of such mineral wealth when the U.S. Department of Agriculture moved into Morton County, Kan., in 1935 and began offering to bail out farmers from acreage that had turned against them.

Morton County’s topography, culture and semi-arid climate have more in common with Texas or Oklahoma than with wheat-rich Kansas. Farmers learned the hard way that this land was meant for cattle, not grain. For a good time, folks here go not to Wichita but south across the Oklahoma Panhandle to Amarillo, Tex.

Early histories depict the area as a drought-stricken place where it was almost impossible to make a living, a region most people passed through on their way somewhere else. The county straddles the historic Santa Fe Trail from Missouri to New Mexico, but those westward-bound settlers who decided to end their journey here must have regretted it.

Morton County was dead center in the Dust Bowl, that region of 51 million acres where drought and high winds combined to turn the unprotected topsoil into massive clouds of dust that darkened the sky for hours at a stretch. In the mid-1930s, hundreds of such dust storms swept over parts of Kansas, Oklahoma, Texas, New Mexico and Colorado.

“It was like a desert,” lawyer White said, recalling conditions there in 1939, the year his family moved to Elkhart. “There wasn’t a blade of anything.”

Although the Dust Bowl era saw the best-documented mass emigration from the heartland, a similar drought in the 1880s had caused hundreds of farmers to abandon this part of Kansas. So when history repeated itself in the 1930s and agents from the Agriculture Department’s Resettlement Administration showed up with checks in hand, there were more takers than there was government money.

Leonard Roll of Van Nuys, Calif., whose parents, Charlie and Dell Roll, sold the family farm in 1937 and moved on, recalls: “They were broke. There was nothing else they could do but sell out for a lousy $4.50 an acre.”

In all, the government bought about 107,000 acres from several hundred farmers in Morton County between 1935 and 1939, at $3 to $8 an acre. Grass and shrubs were planted, watering trenches were dredged for the wildlife, and woodpiles were built to shelter quail from the hail. What became the Cimarron National Grasslands is also home to deer, elk, pheasant and wild turkeys so big that, one man says, hunting them is like shooting at a Boeing 747.

The grasslands make up less than 25% of the county and are just a fraction of the several million acres across the nation that the government obtained, for conservation and other purposes, through more than 200 land-acquisition programs between 1911 and World War II.

400 Wells Operating

But no other part has proven to have so much mineral wealth beneath the surface. Today, about 400 producing oil and gas wells are scattered among the windmills there.

Drillers found evidence of natural gas here in the 1930s, but fuel prices had fallen so low and people were so broke that there was little serious exploration.

Not many Depression-era Kansas farmers could afford a good lawyer, and the Jones clan was no exception. So, back in 1936, when the government man buying the family farm told William E. Jones to cross out 100 years and write in 50, he did.

“My parents were poverty-stricken and ignorant of the law,” said Carol Baldwin, now 67, who, like many others with Morton County roots, has lived in Southern California for decades. “There were no witnesses or anything. They just initialed the papers.”

The “50” was how many years the family selling its land would retain the rights to any oil or gas that might be found under the surface. Other farmers chose their own terms. The more savvy ones demanded the mineral rights in perpetuity; others reserved them for 100 years. But many, for reasons impossible to trace today, settled for 50 years.

What appears clear is that in most of the transactions at the time, the question of mineral rights was an afterthought in a program designed to halt erosion, bail out farmers and get marginal farmland out of production.

Clock Running Out

For most of the families who retained mineral rights for 50 years, the clock is running out this year. The minerals are reverting to U.S. government ownership. It is an ironic intrusion of the New Deal into the era of Ronald Reagan, who has been trying to get the government to sell its oil and gas reserves rather than take on new ones.

Bill Jones’ children and their cousins cannot document their case, although various members of the family tell a similar story of the government man who made them reduce the 100 years to 50. U.S. records contain no indication of such changes, but government officials concede there was little uniformity to the transactions.

A 1935 letter from the government, copied and stashed away in the files of attorney White in Elkhart, instructed farmer P. R. Low to choose “the number of years that you wish to reserve these rights.” In his written response, Low said, “I did not know what time to put on the oil and gas reservations so made it 50 years.”

In 1943, an oil company paid the Lows a bonus of about $1,900 for mineral leases on their 3,700 acres. Last month, another oil producer paid the government $4.3 million for leases on the same property.

The hard-luck farmers took the few dollars an acre and ran, about half of them to more hospitable sections of Kansas. It appears that perhaps one family in eight eventually ended up in the Los Angeles area. Of the 220 tracts of Morton County land where mineral rights expire this year, about 25 belong to Southern Californians.

Oilmen Paid for Leases

By the early 1940s, as the size of the underground Hugoton field and adjacent reservoirs became clear, oil and gas producers began drilling in Morton County and other parts of Kansas, Oklahoma and Texas. They tracked down the departed farmers and offered them bonuses for leases--typically 50 cents an acre--so they could bring the minerals to the surface and sell them.

In the usual royalty arrangement, an eighth of the revenues from oil and gas went the farmer, and the money began to flow in the 1950s as pipelines were built and production began in earnest.

It was, for various reasons, some of the cheapest natural gas in the nation. As the farmers died and grandchildren were born, the proceeds increasingly were divided among their descendants, but the leases provided a nice income for decades.

“The sad part is our parents died before any drilling was done,” said Lenna Roll, who stayed behind in Elkhart when brother Leonard headed to Van Nuys and sister Elvira to Woodland Hills. “I’m one of eight kids, and it’s been a good income to each of the eight. In the 1970s, it would hit $30,000 or $40,000 a year.”

A few estates realized annual income in six digits after the energy price shocks of the 1970s. Attorney Bernard E. Nordling of nearby Hugoton, Kan., who represents the 2,000-member Southwest Kansas Royalty Owners Assn., cites estimates that royalties on oil and gas from the grasslands totaled $4 million a year when prices peaked in 1979-81.

Lack of Sympathy

Thus, just how grievous a wrong is being done to the heirs of the Morton County homesteaders, after all these years of oil and gas income, is open to debate. And some families sold their mineral rights long ago.

“It’s not exactly a cause celebre ,” says Priscilla Taylor of Huntington Beach, a Wichita native whose oilman father acquired Morton County leases from a farmer decades ago. “It’s real hard to get anyone to feel sorry for people with oil and gas leases.”

Attorney Nordling holds that royalty owners are mistakenly perceived as rich. His association once calculated that in Kansas, the average oil well pays royalties to five people and produces 3.6 barrels of oil daily. At today’s oil prices, that would come to less than $1.50 a day for each royalty owner.

“I once solicited our members for contributions to pay for a lawsuit we were filing, and one lady sent me her last two monthly checks from Mobil. One was for 7 cents and the other was for 9 cents,” Nordling recalls.

Most lease-holders on the grasslands are said to receive just a modest income--between several hundred dollars and, as in the case of Carol Baldwin, $3,000 a year. The payments have been shrinking along with fuel prices since 1981, and they fell sharply last year.

Said John Welch, a real estate specialist with the U.S. Forest Service assigned to the Cimarron project, “We were well aware that some people would suffer because of the reversion, but this is real estate law.”

No Legal Challenges

After a futile effort to get Congress interested in the matter in 1983, the royalty owners appear to have resigned themselves to the loss of their mineral rights. The land transactions signed by their parents are apparently airtight. Not one lawsuit has been filed to block the reversion of mineral rights to the government.

“I anticipated there would be a lot more outcry than there was,” said Jack Weissling, forest supervisor at the Pueblo, Colo., office of the Forest Service, which manages the grasslands.

Maybe they would not have been quite so agreeable had they known what the oil companies know. It seems a bad joke on the late, lamented Dust Bowl farmers that the final family ties to the old homesteads are being severed just as the boom begins.

Morton County, victim of the current agricultural recession, the five-year slide in oil prices and the relatively meager price paid for “old gas” under natural-gas price regulations, is about to share in some of the hottest drilling action in the country.

The reversion of the mineral ownership to the federal government also cancels the longstanding leases for the grasslands’ 400 wells. This set the stage for a bidding war among such major players in the Hugoton field as Mobil Oil, Cities Service, Amoco and Anadarko Petroleum, as well as some smaller independents.

Bidding War Is On

To the astonishment of the government and some of the bidders themselves, the oil and gas industry paid $18 million in three sealed-bid auctions over the last six months to keep their old leases on the National Grasslands property or to wrest them away from other companies.

That was approximately three times the amount expected by the U.S. Bureau of Land Management in Santa Fe, N.M., which is conducting the sales.

In the February sale, BLM officials say, Anadarko Petroleum was so eager to make up for leases it lost in the two earlier auctions that it left nearly $5 million “on the table”--gamblers’ parlance for the fact that it bid roughly twice what turned out to be needed for the 39 leases it got.

“We’ve been estimating the in-ground value of these leases at $1.25 to $1.85 per million cubic feet,” said BLM appraiser Darwyn Pogue. “Anadarko was bidding anywhere from $3 to $7. They came loaded for bear. There are all kinds of poker games going on.”

The rare availability of so many leases to secure, long-term sources of natural gas also presents opportunities to speculators such as Craig Folson of Dallas. A solo operator, Folson bid on tracts with the intent of selling them at a profit to owners of adjacent leases who were not paying attention.

Folson was badly outbid several times by Anadarko and other big firms, but walked away with two leases for less than $6,000. One is adjacent to holdings of a large oil company that was not represented at the sale. “I’ll go to work on them tomorrow,” Folson says.

Coincidence of Events

So why the big bucks for leases, just as the farmers’ descendants are losing their mineral rights? Is it a Big Oil-Big Government plot to cut little people out of the coming boom?

Apparently not. Says Nordling, the lawyer for the royalty owners who has been doing battle with the industry for years, “I think it’s just happenstance.”

The happenstance is the deregulation of natural gas prices and a Kansas state decision last year to permit oil producers to double the number of wells in the Hugoton field. Those actions have made the newly available leases on the federal grasslands far more attractive than they would be otherwise.

The approval of so-called “in-fill drilling” is expected to allow the capture of natural gas that, for geological reasons, might not have been recovered otherwise. Moreover, this gas, classified as “new” under gas-pricing guidelines, is expected to command at least twice the 70 cents per million cubic feet now paid for the Hugoton’s “old” gas.

Already, Mesa Petroleum, the Amarillo company run by financier Pickens, has announced plans to drill 82 “in-fill” wells in the Kansas portion of the Hugoton field this year, and Anadarko plans 94 new wells. Although legal challenges against the state decision are pending, trade publications now see record drilling in Kansas in the next few years--a coming boon to the region’s businesses, the tax base and other beneficiaries of the industry.

The Cimarron Grasslands are less than 5% of the Kansas part of the Hugoton, but District Ranger Joe Hartman says oil producers have already notified him they plan to drill 20 to 30 wells on the federal lands this year. Last year, there were just three.

Public Windfall Ahead

That new economic activity comes on top of the infusion of cash represented by the lease bonuses and the royalty payments that will follow. Under the federal legislation, the money that used to go to the farmers’ heirs will be divided between the United States and Morton County treasuries, with Uncle Sam getting 75%.

Of the money due the federal government, lawyer White says: “They’ll spend that in a few hours--probably in Nicaragua.” But it will take awhile for Morton County, population 3,000, to spend the $4.5 million it is already owed from the three auctions to date. More sales will come as more mineral rights change hands over the next three years.

The voters of Elkhart lately had been turning down school bond issues, but last month they approved one for $1.8 million to build a gym and eight classrooms. The school board has pledged its oil and gas bonus money, more than $1 million so far, toward retiring the bonds.

“I’m saying that 60% of the people who voted for that bond issue wouldn’t have otherwise, and I’m one of them,” declared Roland Caffee, a real estate and insurance man, radio announcer and local booster.

Oil and gas revenues already account for about 80% of the Morton County tax base. The outlook can only improve if production and prices rise as forecast. The gas carried by pipeline throughout the Midwest will create some jobs in Elkhart.

Better Times Expected

“Six months ago, I had seven rentals empty, and today I have one,” Caffee says. “We are on the verge of one of the better times Elkhart has seen.”

It is as if the land is rewarding those who stayed and cutting off those who left. Not only did the oil and gas money make this a more prosperous place after World War II, but the gas was a cheap and ready source of power for the irrigation pumps that have since restored the region to some agricultural respectability.

“Those who stuck it out, the land’s been good to them,” White says. “If you get water to it, it’ll produce 40 or 50 bushels of wheat an acre.”

Even so, there are still patches of the grasslands where grass won’t grow. Earl Tanner of the Forest Service points to several “blow areas,” a few acres that resemble sandy beach amid the yucca and sagebrush. In other spots, the topsoil still shifts with the wind and piles up around fences like little snowdrifts.

“There are maybe 10 acres that never really healed,” Tanner said, stepping over a couple of the cow pies that surround most of the wells. “It kind of gives you an idea of what they were up against back then.”

To Carol Baldwin of Granada Hills, one of those who left for good, it remains a far country indeed.

“It’s real mysterious, sort of like the moon,” she said. “Maybe it’s the coyotes at night or something. All that space is kind of scary.”