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A Wildcatter’s Collapsed Dream is Now the State’s Problem

Posted on: March 31st, 2019
by David Ganje

In this opinion piece I write about public waters and a wildcatter’s abandoned oil well.  The matter did not pan out well for the wildcatter or the state. 

 South Dakota relies on groundwater as one of its main sources of freshwater for domestic, municipal and agricultural purposes.  Groundwater is found in porous subsurface rocks called aquifers.  Aquifers are usually close to the surface. In contrast, oil and gas deposits are usually deeper and are often found several thousand feet below the earth’s surface. Because of this difference in location, oil and gas exploration and production can involve drilling through aquifers to access potential oil and gas production zones.

Oil and gas wells might contaminate groundwater in different ways. One is an event in which an exploration or production well causes separate aquifers to connect; this is particularly challenging where one aquifer may contain useable, potable water and the other contains bad water.   An improperly plugged and non-operating oil and gas well could act as a pathway.  A connection between different aquifers is sometimes called communication in hydrological terms.  A well borehole drilled through a layer separating two confined aquifers represents a possible conduit for the migration of contaminants between the aquifers – if that borehole is not properly plugged. 

The public trust doctrine holds that groundwater and surface water within the state’s jurisdiction must be preserved in perpetuity for the public. The government of South Dakota through its various departments and boards serves as the trustee of this natural resource to maintain waters for the benefit of current and future generations. Neither public nor private interests are allowed to harm waters held in public trust.

The South Dakota Supreme Court in 1964 held that legislation was justified in determining that the public welfare requires protection of the state’s water supply. In a 2004 decision the Supreme Court found the public trust doctrine manifested in the state’s Environmental Protection Act authorizes the state to protect the air, water and other natural resources from pollution impairment or destruction.  In that 2004 case the Court ruled, “In conclusion, the public trust doctrine imposes an obligation on the State to preserve water for public use. It provides that the people of the State own the waters themselves, and that the State, not as a proprietor, but as a trustee, controls the water for the benefit of the public.”

 A public trustee is not a business ‘proprietor.’  The public trustee is required to manage, oversee, preserve and protect a natural resource put under its control.  The public trustee may be any of several different state departments or boards concerning a range of situations.   In a public trust the government’s obligation is protecting waters for the benefit and use of the public.  A trustee’s duty is to preserve and to not abdicate or delegate legal responsibilities.  A public trustee may delegate certain tasks, but not its obligation to protect the resource.  I define a public trustee as a natural resource manager exercising a public conscience guided by equity and the law.  Equity as a principle will not suffer a wrong to be without a remedy.

I present here background in order to discuss the Wasta well issue.  The first matter was described:  the state is trustee of the waters held under the public trust doctrine.  What are relevant supporting statutes and rules which provide a public trustee with remedies?  I will list.  These remedies place financial responsibility on the permit holder, not the state. The state’s Environmental Protection Act is discussed in my prior comments.  In addition the Board of Minerals and Environment (Board) may enforce violations of state oil and gas law, of state oil and gas rules and of its own issued orders.  On the issue of plugging unused or abandoned wells, the operator of a well is civilly liable, if in violation, and is further responsible for plugging a well.  The Board also sets certain statutory performance bonds required of a permit holder.  And by statute “The Board may require additional bond [sic] if the circumstances require.”  The Board has further authority to declare penalties, as well as civilly prosecute a party for money damages and for harm caused to the environment.  This authority is broad and covers all persons and property whether public or private.  And in addition state government, through the DENR, can prosecute an oil and gas permit holder for public nuisance.  The remedies available for a public nuisance are a 1.) a civil money judgment; 2.) a judgment requiring an abatement of the nuisance; 3.) and a criminal prosecution.  The reader will please observe which remedies the state used (and did not use) in addressing the problem under discussion.

A few years ago a wildcatter received its oil and gas exploratory permit.  The company started drilling the exploratory well near Wasta.  The target was the Precambrian formation which lies about 9700 feet below where the deer and antelope play.  In this piece I also refer to the permitted well as the Wasta well. The DENR and the Board were required to scrutinize the applicant’s papers and its background information before considering approval of the permit.  A permit applicant’s competency and the bonding amount are factors the state is obliged to consider.  From the beginning of the process there are questions about the trustee’s due diligence and the applicant’s qualifications. Two bonds were required for the Wasta well all totaling $130,000.  In early papers considering permit approval the DENR stated 1.) the wildcatter submitted no documentation or information substantiating that oil or gas was likely to exist in economic quantities in the locations proposed; 2.) the applicant submitted invalid mineral leases and incomplete application paperwork; 3.) the applicant had no experience drilling oil and gas wells; 4.) the applicant had no experience producing oil or gas; 5.) the applicant did not disclose the identity of a well drilling contractor; 6.) the applicant refused to disclose that oil or gas exists in its target area; 7.) and the state determined the Precambrian formation is a formation from which neither oil nor gas has been found in economic quantities.  This wildcatter was walking on a thin line from the get-go.

Very shortly after drilling began the driller lost drilling fluid circulation in the well, and a drill stem got stuck in the borehole.  In efforts to fix the problem the well borehole collapsed in on itself.  The wildcatter was then unable to access the stuck drill stem.  All efforts came to a standstill, but some surface reclamation was completed.  The well was not plugged following permit requirements and no casing was in place protecting two major aquifers.  Several years later the state began the process of revoking the permit and forfeiting the bonds which totaled $130,000.  Just a few months after the state’s case closed, a remaining investor legally dissolved the wildcatter company. The original principal investors of the wildcatter company, after the project turned sour, vacated or chose not to appear in the jurisdiction.  For those not familiar with legal terms – the original principal investors got the hell out of Dodge before the sheriff showed up.

 In the state’s contested case hearing South Dakota presented two state employees as witnesses.  One was a state hydrologist and the other the state geologist.  No outside experts or specialists were called.  The testimony showed that the Wasta well had not been plugged according to permit requirements, and that no casing was put in place protecting two major aquifers. The hydrologist testified that the upper of the two aquifer is good quality water currently used by well water permit holders.  The hydrologist stated the potential impact of any pollutants or mineralized water going into the upper aquifer was limited.  The witness forthrightly acknowledged that the department did not know exactly what was happening underground at the well site.  The hydrologist also testified there was no baseline water quality data for the area near the well or specifically for the well itself.

The geologist testified that the state does not have any pre-drilling water quality information and does not have post-drilling water quality information for the well site.  The geologist stated, “We have really no ability to make an opinion on pre-drilling versus post-drilling water quality at that site.”  The witness testified the cost of a single new water monitoring well would be about $126,000.  The geologist also indicated because of the slowness of water movement in the good aquifer and because of a dilution effect from any bad water which might be introduced into the good aquifer, the risk to the water-using public was minimal.  And the geologist opined, “We would be ill-advised to spend the money to put in one well which is all the well we have the money for when we don’t know the best depth or best location to put that well.”

After the hearing the permit was revoked and the bond money forfeited.  And the Board decided that:  1.) the cost of an operation to plug the penetrated aquifers would be in excess of 2 million dollars;   2.) the Board did not have sufficient data regarding the lower aquifer to make a precise estimation of water quality; 3.) the well borehole provides a potential pathway for upward flow of water to the good upper aquifer; 4.) it was unknown whether communication “is or may occur” between the two aquifers but that the flow of effected water would be minimal; 5.) and that failure to properly plug the well “still presents a danger of communication” between the aquifers.

Since the hearing the state has not used the bond money or taken other legal or administrative action.  What other remedies listed above were available but not used?  The obligation of the state as trustee is to protect public waters.  Should a demand for perfection in science subvert the trustee’s obligation for oversight and resource preservation?  Should a water monitoring well be drilled only if contamination has been proven? Should other DENR funds be used besides the forfeited bonds to protect and monitor public waters?  Is a public trustee relieved of taking action – except when an established harm is proven?  South Dakota, its leaders and courts over the years since statehood have each spent sweat equity creating a fair system for the use and protection of the waters of the state.  In the Wasta well case the state is sacrificing the good for the perfect.  A public trustee does not fulfill its job by acting only on mathematic principles, or by waiting for scientific guarantees before taking action to protect a natural resource. 

David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law

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