PIERRE | As the state pursues a $15.5 million lawsuit against the Texas-based company that abandoned 40 natural gas wells in western South Dakota, a state board is weighing whether to raise bonding requirements for future energy developers.
The Board of Minerals and Environment struggled Thursday with the question: How high of a bond is too high? The state shouldn't put up so much administrative red tape as to prevent future developers from drilling in South Dakota, but the state needs to protect its environment and public, they said.
The debate comes after Texas-based Spyglass Cedar Creek between 2006 and 2010 drilled 40 natural gas wells near Buffalo, then abandoned them after natural gas prices plummeted and the company's finances went south.
Now idle, the wells have to be plugged — they could pose an environmental risk if they sit unused too long — but the state doesn't have funds available to do so. Spyglass was only required to post a $20,000 bond when it drilled the wells, which company officials since spent after "forgetting" its purpose. Even if the full $20,000 bond were available, the wells are going to cost an estimated $1.2 million to plug properly.
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Board members called the Spyglass saga a "perfect storm," and Department of Environment and Natural Resources Minerals and Mining program administrator Mike Lees said the state has not had similar issues with other oil and gas developers in the state. Still, he said, the department is working with the Governor's Office to look into raising the state's bond requirements in order to prevent a future Spyglass-level issue.
Under current statute, which was revised in 2013, bonds are calculated based on the wells' depth. The bond for a shallow well is $10,000, or $30,000 blanket for three or more wells. The bond for a deeper well is $50,000, or $100,000 blanket for two or more wells.
Even with these new, higher bonds put in place six years ago, the cost to plug Spyglass's 40 orphaned wells would not have been covered. But finding the right number to set bonds at will be a balancing act, board member Robert Morris said Thursday.
"Everybody has to be cognizant of the fact that you can’t make it so difficult that the public policy of the state in fostering development is hindered," Morris said. "Yet, on the other side, make sure we do the right thing to protect the landowners and protect the public and the environment."
Lees said at Thursday's meeting that the state attorney general's office did not have an update on the pending $15.5 million lawsuit.