OURS: State needs larger bonds from energy companies

OURS: State needs larger bonds from energy companies


A rancher looks inside a structure above a Spyglass natural gas well on his land in Harding County. 

So what has state government learned from its experience with Spyglass Cedar Creek of Texas?

Spyglass is the energy company that abandoned 40 natural-gas wells in Harding County, leaving the state and landowners in a difficult position. Abandoned wells can cause environmental damage and are costly to cap as anyone who has followed the Journal’s coverage of this saga knows.

South Dakota only requires energy companies to post a $10,000 bond for wells shallower than 5,500 feet and $30,000 for a blanket bond that covers an unlimited number of wells. For deeper wells, it’s $50,000 per well and a $100,000 for the blanket bond.

In the case of Spyglass, a $30,000 bond was required.

The problem, however, is that amount of money won't come close to covering the cost of capping the wells, which the state estimates will be around $1.2 million. So, who is on the hook for the rest of it? It is not the out-of-state company, which has already complied with the state’s requirement.

So that likely leaves taxpayers stuck with the bill if the wells are capped unless the state finds funds elsewhere. If they are not capped by the state, innocent landowners get stuck with an expensive problem that has the potential to devalue or pollute their land.

Compare that to how the state handles private citizens who owe it money.

If an individual owes as little as $50, the state can deny that person a hunting or fishing license or the opportunity to make a camping reservation at a state park. If the debt is greater than $1,000, it can suspend the driver’s license and vehicle registration of the debtor. The state also will enlist the help of its Obligation Recovery Center, an out-of-state collection company. It appears no stone is left unturned in the effort to hold citizens accountable, a policy many in South Dakota likely support.

So, the state holds individuals accountable but not energy companies that seem to be coming here in greater frequency if the recent gold-exploration projects in the Black Hills are any indication.

At least some members of the Board of Minerals and Environment seem to realize that energy companies need to be treated more like people.

In September, the administrator of the Minerals and Mining program for the Department of Natural Environment said his department will ask the Legislature to increase bonding requirements to $50,000 for a single bond and $100,000 for a blanket bond for an unlimited number of wells regardless of depth.

Yes, the needle has moved but only incrementally. In fact, one can argue that it encourages energy companies to post the $100,000 bond for the opportunity to do unlimited drilling.

In the case of Spyglass, the proposed change would still leave the state with a $1.1 million obligation. So, what's really changed? What's the best path forward if the state wants to hold energy companies more accountable?

There are those in state government who want to see that. Mike Lees, administrator of the Mineral and Mining program, asked at a recent meeting if it should be "the taxpayers' responsibility to pay for the Spyglass mess?"

John Scheetz, a member of the Board of Minerals and Environment, blamed lawmakers for the inadequate bonding requirements and asked them to address it. "The Legislature should take responsibility," he said.

Most South Dakotans understand and support incentives for businesses in the state. What is troubling, however, is when the state asks those same taxpayers to subsidize exploration projects that are as likely to fail as succeed.

The Legislature needs to look at the Mineral Board's proposal as a starting point. According to Lees, other states don't offer blanket bonds, which seems prudent. The state should also base the bond on the projected cost of capping each well a company drills.

Otherwise, the state of South Dakota has learned little from this affair and taxpayers still have to worry about being on the hook for failed exploration projects.

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