South Dakota officials grapple with resolution to 40 abandoned natural gas wells

The state has been left with few solutions to resolve the 40 abandoned natural gas wells in northwestern South Dakota.

Plugging the 40 wells in Harding County, 16 of which are located on state property, will take an estimated $887,700. But the state only has about $140,000 it can spend on the project.

The Board of Minerals and Environment is still mulling its options and the state has filed a $15.5 million lawsuit last month against the wells' owner, Texas company Spyglass Cedar Creek, and its partners as penalty for abandoning the wells. However, a timeline of when the state could see that money isn't known. Spyglass and its partners haven't filed any response to the lawsuit, as of Wednesday.

More:South Dakota sues Texas oil and gas company for $15.5 million

But on Tuesday, legislators on the Government Operations and Audit Committee questioned the state's options and how the situation has reached this point when problems with the wells date back to 2012.

The state's rule requires out-of-compliance wells to be resolved within six months, Sen. Ryan Maher, R-Isabel, said when taking issue with the state's enforcement and Board of Minerals and Environment's actions.

"Where's your enforcement ability? Why has this been dragging on? We're now just seeing the first lawsuit," Maher said.

Spyglass began the process to bring the wells into compliance, but the problem all along has been that the company didn't have the money to do so and the company was tied up in litigation for some of the interim between 2012 and now, said Mike Lees, minerals and mining program administrator with the Department of Environment and Natural Resources.

"It's really been a matter of trying to come to a win-win scenario as opposed to bringing the hammer down and doing enforcement that we know they can't comply with due to lack of funds," Lees said.

The DENR either wants to plug the wells or find a new company to bring the wells back into production, and the wells could easily be brought back online, according to Lees. But low natural gas prices and a $18 million mortgage lien against the wells has hindered any potential sales so far, he said.

The state has a right to take over the 16 wells on state land, but the state would be liable for paying the lien. The state received $799,400 in royalties for the four years the wells were in production and that's not worth taking on the lien, said Ryan Brunner, the commissioner of Office of School and Public Lands.

The DENR hasn't attempted to negotiate the lien as a way to move toward a resolution. The Office of School and Public Lands had brief conversations about doing that in 2015, but the creditor is a "complex web" in trying to figure out who could release the lien, Brunner said.

"There has to be a way to overcome those obstacles, so if it's a need for a revision in our law or give attention to the specific situation, I'd sure invite you to come up with a solution," said Rep. Steven Haugaard, R-Sioux Falls.

The state only has $10,000 in bond money from Spyglass — the company withdrew $20,000 of its bond — plus a $130,000 bond from a project that was forfeited by a different company last year. The Board of Minerals and Environment hasn't yet decided if it can use that additional bond money to plug the Spyglass wells. 

Legislation this year appropriating $1 million to plug the wells failed in committee, but the Joint Appropriations Committee is considering visiting the wells later this year.

The Legislature approved an increase to the bond amount required for deep well projects in 2013, but it didn't apply to shallow wells like the Spyglass project. Lees said the Legislature needs to increase the bond amount for shallow wells, which the DENR would support.

Meanwhile, private landowners who have wells on their property are frustrated and Harding County taxpayers are eating the cost of the wells, for which the county has nearly $170,000 in delinquent property taxes.

The need for surface restoration around the wells is minimal, but the DENR is concerned about the potential for gas leaks. About half the wells will eventually have a leak because they're still under pressure, Lees said.