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State board will proceed to a hearing on why Wasta oil well went uncapped

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An oil derrick stands along the horizon southwest of Wasta in 2013 as an RV travels past on Interstate 90. The financial fallout from the failed drilling operation is affecting local firms and the state.

PIERRE | The state Board of Minerals and Environment decided Thursday to hold a hearing to determine whether an oil well hole left unplugged near Wasta poses an environmental danger to drinking water wells in the area.

A lawyer for the company behind the Quartz Northern Points well recently notified the board that the company is insolvent, lacks the money to plug the hole, and is willing to surrender the $130,000 bond it posted for the project.

The drilling rig hired by the company stopped work when the bit lodged several thousand feet deep to the hole near Wasta in northeastern Pennington County. The concern now is that water from the Minnelusa aquifer could affect the Inyan Kara aquifer above it by rising through the well hole. State officials have estimated fixing the broken bit and closing the well could cost about $2 million.

The board authorized the state Department of Environment and Natural Resources to proceed with subpoenas against the people involved in the project and to obtain information about their finances.

The leader of the failed well project, Natali Ormiston of Deadwood, from the Ferley oil-exploration family, had hoped to find oil by drilling 9,700 feet deep. Ormiston’s company was formed in 2013 and had hired Louis Loehr of Gillette, Wyo., as drilling manager.

The board previously issued a notice of violation on the project. The board decided Thursday it would proceed with the Nov. 17 contested case hearing.

Ellie Bailey, a state assistant attorney general, said South Dakota’s “bad actor” law would allow state government to deny additional permits to the company if its permit is revoked.

Bob Townsend, who oversees the state’s minerals and mining program, didn’t sound enthused about holding the hearing but acknowledged there is a question of principle.

“The point is, this is a compliance issue for DENR. Is it an environmental nightmare? No,” Townsend said.

Townsend agreed it “may” become an issue later. “We can’t say it will,” he said.

He added, “The original principals have been long gone.”

Charles McGuigan, South Dakota chief deputy attorney general and the board’s lawyer, said the board has the authority to use subpoena power because it would be a contested case.

McGuigan said the board also could request production of documents from the company as part of the discovery process.

Bailey said the department’s position is that nothing be done at this time and the bond money be used for monitoring in the future.

But the board gradually tilted strongly in learning more about the well and the people behind it.

“I’m still concerned about the long-term effects,” board member Dennis Landguth of Rapid City said.

Landguth wants professional opinions from people who aren’t in the state department.

Townsend said the issue would be total dissolved solids coming from the Minnelusa into the Inyan Kara. If there is a problem, he said, it would be constrained to a radius of 1,000 feet from the well hole.

Landguth asked the price of a monitoring well. Townsend said the department already has data from all of the wells in the area including several at Wall that tap into Inyan Kara.

“Clearly we can monitor those wells now,” Townsend said. “If we see a trend, that will tell us something needs to be done.”

Townsend said he’s not familiar with another case where a well hole went uncapped in South Dakota. “It’s happened a lot in other states,” he said. “To my knowledge this is the only one we currently have.”

Board member Bob Morris of Belle Fourche said the public and prospective operators of wells should be made aware the board doesn’t want the situation to occur again.

“To me the issue becomes a compliance issue and there’s the matter of why,” Morris said. He described the hearing as “a due-diligence inquiry.”

Landguth said he wants an independent evaluation apart from that of the department.

“I just feel we need some additional assurance from someone that agrees with the department in this regard,” he said.

Bailey said the department hasn’t made a formal presentation to this point. She said the board doesn’t have the information at this time and the hearing could serve that purpose.

Board chairman Rex Hagg of Rapid City said the hearing would help the members “to refresh ourselves on those things and take some testimony. … I think we have a duty to do that.”

Morris wants the original permit application filers to come to the hearing and he’d like to see proof it’s an insolvent company.

The formal roll call was 6-0 to allow subpoenas to be issued and information to be sought.

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