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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

WATER RIGHTS AND WATER LAW WORKSHOP

Posted on: July 30th, 2018
by David Ganje

The Rapid City office of the United States Geological Survey (USGS) Dakota Water Science Center is hosting a public workshop on South Dakota water rights and water law. USGS has invited attorney David Ganje to give the workshop. The program will be held on September 18th at 10 a.m. Mountain time at 1608 Mt. View Road, Rapid City, SD 57702. The workshop is open to the general public. Admission is free but phone reservations are strongly recommended as space is limited. Reservations may be made by calling 605 385 0330.

The leviathan in the Missouri

Posted on: July 30th, 2018
by David Ganje

It is good to be vigilant when dealing with a leviathan of a bureaucracy. It is better however to be pointed with them, carry a big stick, keep notes and exercise financial purse strings. The U.S. Army Corps of Engineers, as a government agency, has been in existence since 1802. It is now and forever shall be. It is a federally created ‘regulatory monopoly.’ The Corps is in effect the world’s largest civil engineering firm. This agency of the Department of Defense is the nation’s largest single producer of hydroelectricity. Hydropower plants and dams are authorized by Congress under the Flood Control Act of 1944, commonly called the “Pick-Sloan Act.” The Act authorized the managing of the Missouri River to provide for flood control, navigation, municipal and industrial water supply, recreation, and hydropower generation.

At the time of Lewis and Clark, the Missouri River was diverse. The river had many channels along with widespread bars, islands, and shallow sloughs. It had natural levees, backwater lakes, oxbows, sandbars and dunes. The Missouri was wide and shallow. A hundred years ago it measured about 2,546 miles in length but now has about 200 miles less due to damning and channelization. Along the Missouri River today the Corps operates a total of 36 generator units capable of producing approximately 2.4 million kilowatts of power.

In an editorial this month Senator Mike Rounds expressed concern about the Corp’s flood management practices. He indicated he will be keeping a close watch on the Corp’s flood control management. This is a polite way of addressing a hardcore problem. The Corps is akin to a government highway department – it is good at constructing highways but is often out of its league when administering the highways, creating good rules of the road, or at establishing operations without causing damage to property owners or the environment. The Corp’s problems are devilishly more serious than the senator suggests. In 2016 the GAO, in a report on the Corp’s operations, concluded that the extent to which the Corps has reviewed or revised current water control manuals is unclear because the Corps did not document its own reviews. The GAO report also concluded that the Corps has revised some water control manuals but that various divisions and districts do not track consistent information about revisions to its manuals, and the extent to which operating manuals have or should be updated is unclear.

The Corp’s own ‘outside consultants’ report that historically the Corps was focused on construction of dams, levees, navigation channels, and other infrastructure. But that future Corp’s operations should be focused on (1) operating, maintaining, rehabilitating, and upgrading existing infrastructure, (2) re-allocating reservoir storage and releases among changing water demands and users, and (3) providing some degree of ecosystem restoration and ecological services in heavily altered riparian and aquatic ecosystems. I submit that the Corps has not yet read this memo by its consultants. By way of example, after preliminary motions a Court of Claims judge this year properly ordered a case to go forward brought by farmers, landowners, and business owners who claim a taking of their property without just compensation in contravention of the Fifth Amendment. This lawsuit is based on actions by the Corps on the Missouri River. The plaintiffs allege that the Corps has changed its management of the river and that the changes caused flooding of their properties.

The Corps has a tendency to do what it pleases unless there is hell to pay. South Dakota has used its disproportionate clout in the recent past to send messages to this leviathan. Controlling the purse strings was the key. Money usually is. A material example of this is the Corp’s continuing attempt to control and manage what it calls ‘surplus water’ in the Missouri River. This is a self-defined quantification of water that does not exist in federal legislation or under the common law of waters in this country. It is an attempt by the Corps to acquire control over water that otherwise belongs to the states and Indian tribes. For a look at my extensive critique of the Corp’s past efforts to grab control of surplus waters see my letter to the Western States Water Council found on my website: lexenergy.net

More than mere vigilance will be required, or what you may have now won’t be no more. Congressional oversight by way of eliminating funding for projects or by way of de-authorizing a project is a good way to manage a federal agency. The risk to upper basin Missouri River states and Indian tribes is that once a quantity of water is regulated and defined by the Corps as surplus water it becomes that much harder to later reinstate the original legal as well as declared beneficial uses of that water. A Prussian general when once asked to notice the beauty of a river nearby, turned and replied ‘an unimportant obstacle.’ The Corps is big brother with all of big brother’s flaws.

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

Water and mineral rights workshop

Posted on: May 30th, 2018
by David Ganje

I was invited last week to speak at a workshop sponsored by the Capital Journal newspaper. The purpose of the workshop was to promote a better understanding of water rights and mineral rights in South Dakota. The Journal should be justly recognized for presenting these statewide issues to the public. More than a couple in the audience came forward afterward and asked me to thank the Capital Journal as the sponsor. Over the last few years the legislature has addressed some of the natural resource matters discussed in the workshop, but many issues remain.

The workshop audience consisted of farmers, water officials and professionals. The questions and comments were telling. A number of questions showed an understanding of some of the rules of the road on water rights and mineral interests. Yet a number of questions reflected a public laboring under ever present and always-circulating urban myths which compel us to do things we shouldn’t. Two subjects of note were discussed in the talk which were of particular interest to the audience based on several comments and follow-up questions.

One of the topics discussed was transferring gravel rights and mineral rights. I submitted that many transfers and sales I have observed often do not follow the proper procedure or use the correct language needed to make a good transfer. And the matter of reserving mineral rights reflects even more mistakes. I noted actual transactions in west river deals and east river deals. The standard sales contract provided by the South Dakota Real Estate Commission compounds the problem. The language in this standard agreement leaves the grantor at risk because mineral interests are not addressed. It’s one thing to be a free-trade state but when the state by its own recommended paperwork misleads the residents of the state it is quite a different matter. When one gives a warranty deed in South Dakota he is giving a ‘warranty’ of his ownership of the surface and all that lies below it. That’s a pretty powerful guarantee. Homework should be done before giving such a guarantee, but as I stated in the talk, it is not. This is further compounded by the fact that title insurance does not cover mineral interests, and indeed some title companies will not search or report mineral interests on a written title policy. The audience by their responses in the workshop acknowledged this was a concern. Wyoming, Colorado and Montana have addressed the problem. South Dakota has not. The purpose of Wyoming’s mineral disclosure law, according to the President of the Wyoming Realtor’s Association, was to avoid the unpleasant surprise encountered by people who bought property thinking that they owned the rights to minerals only to find that a third party would appear on their land, and start digging on the property. By making the buyer aware of the severance of mineral rights, Wyoming’s disclosure law allows a prospective purchaser to make a more informed decision when purchasing.

The second problem raised by the audience surprised me. I spent some time advocating the negotiation and compromise of water drainage disputes. These are the common neighbor versus neighbor as well as property owner versus township or county disputes that often occur. I was espousing Lincoln’s admonition to lawyers that it is a better thing to compromise than litigate whenever possible. I discussed water disputes and the use of mutual written easements. An easement is the right to use another property owner’s property for a specific purpose whether that be for a pipeline, for a right of way or for the drainage of surface waters. Another easement use might be granting a landlocked owner access to a public road. There are two general advantages to entering into an easement. The first is the property remains with the owner – title is not transferred. The second is a bundle of rights that together I call time, purpose and boundaries. Of these, ‘time’ was a surprise to me. The audience was misinformed on the question of a time limit on easements. The vast majority of mutual easements in South Dakota may be limited in time. This issue is overlooked or perhaps glossed over in the course of negotiating an easement. Surface drainage problems are a natural reason for considering the use of an easement. The upper landowner may be able to enter into a drainage easement with the lower landowner if the upper owner’s activity does not fall within the specific limits South Dakota has placed on surface drainage acts. Because the placement of a time limit is not well known, a fewer number of people may consider the use of a mutual easement on a drainage issue. To the point, even with a longer term problem such as surface drainage, a lower landowner need not become married to an agreement to allow drainage over his propery. He can place time limits within the terms and conditions of a mutual easement. A time limit will allow the parties to each review the fairness of the deal 3 or 5 years down the road. This makes it a short term courtship rather than a long term marriage. Nevertheless, by the comments in the audience it was apparent that not all knew such limits could be placed in an easement.

Such information shows the value and purpose of a workshop. I appreciated the opportunity to speak on these subjects. The Capital Journal water and mineral rights workshop was an excellent resource for the community and its readers.

Non-meandered Waters – Chapter 2

Posted on: January 31st, 2018
by David Ganje

The non-meandered waters law of 2017 is about to slide into long-term legal acceptance by the state legislature. A bill is now pending before the 2018 legislature to extend the life of this new set of statutes. The non-meandered water law passed last year at a special session of the legislature is an error-ladened compromise which, if continued without correction, will indeed slide into an indifferent acceptance by the state. The purpose of the law is to open up temporary bodies of water to public use. The law has several good points and is an effort to fix a very unique set of challenges presented by Mother Nature. It also has several clear problems. Its provisions do not have a proper definition of the owner of land, creates different rules and rights for different landowners, does not allow for setbacks and does not provide for a quiet time for recreational use of the waters. I outlined these and other problems in my open letter to the legislature: http://www.capjournal.com/opinions/columnist/a-bill-of-particulars-for-the-legislature/article_ce1b72ee-563e-11e7-93d2-67b295d08c1a.html

This new water law created two sets of laws for non-meandered lakes. The rights, duties and liabilities of landowners under the law’s particularly designated non-meandered lakes are not the same as the rights, duties and liabilities as those of the landowners under all other non-meandered lakes. Many of the non-meandered waters are over private land. The management of non-meandered waters has a more significant, direct and personal impact on private landowners than do other public bodies of water in the state. That is why the special legislative session gave authority in the law to the Game, Fish and Parks Commission to write rules to make everything ‘all right.’ The GFP Commission created new rules. Those rules tell a certain class of landowner how he might petition the Commission to take his public property off the list of waters over which sportsmen might hunt and fish. The waters in one class are automatically, under the 2017 law, open to hunting and fishing. The petition process allows for no real due process. The rules were written poorly. The legislature should correct this. It should discharge its duty and not rush to a muddled consensus on important property rights issues.

In the Fall of 2017 several landowners in Marshall County wanted a 100 yard setback of public activity on the non-meandered water covering their property. They were caught in a legal trap created by the legislature and enforced by GF&P. What they sought was not unreasonable. In fact the new law permits creating a setback for other non-meandered landowners who may do it on their own initiative. Nevertheless the water over the owner’s Marshall County land was a part of those water bodies the legislature declared to be ‘automatically’ open to public use and access. The owners of other non-meandered waters in the state can put up access restrictive buoys and create a setback. But these Marshall County landowners had to petition the GFP Commission before they might do this very act because their land fell within the ‘automatically open’ class of lakes. Additionally these landowners had the legal burden of proof to show that what they wanted was justifiable. Such a burden of proof is not required of other non-meandered landowners. In November the Commission denied the request stating that the landowners had not met their burden of proof to show why such a setback should be granted. Property rights are not an experiment. This law should not be treated like an experiment in resource management. A system creating a second class of landowners who are required to meet a higher legal benchmark to do something their neighbors can already do, all on non-meandered bodies of water, should not be tolerated in a just system.