PIERRE, S.D. — After years of violating contracts with the state, a company operating 40 natural gas wells in northwest South Dakota is getting one last chance.
The state Department of Environment and Natural Resources Board of Minerals and Environment met on Thursday, Dec. 20, in Pierre to discuss the fate of oil and natural gas company Spyglass Cedar Creek LP. The board was originally scheduled to conduct a contested enforcement hearing to possibly rescind the company’s permits, but ultimately gave them one more month to turn their operations around.
Prior to the board’s meeting, a lawyer for Spyglass negotiated a consent agreement with the state’s Office of Attorney General that requires Spyglass to obtain an investor-financed $200,000 bond by Jan. 15, according to Deputy Attorney General Richard Williams, who presented the agreement to the board.
Spyglass agreed to make improvements to bring their wells back into compliance by July 1, and to bring a total of 20 wells back into production by Sept. 1. Spyglass owns and operates a total of 40 wells in South Dakota, drilled between 2006 and 2010.
The company also admitted fault to several violations of its permits, including leaving unproductive wells unplugged and having wells improperly signed or suffering “erosion issues.”
The Texas-based company caught heat earlier this year when their officials cashed out a previous $20,000 bond, claiming they did not remember the purpose of the money and leaving the state with less than $10,000 to maintain its 40 wells located near the town of Buffalo. According to the Rapid City Journal, each well could cost approximately $30,000 to plug, bringing the total bill to plug all 40 to about $1.2 million.
September's incident wasn't the project's first run-in with controversy: The Rapid City Journal reported that, since beginning the project more than a decade ago, Spyglass saw lagging natural gas prices, at least four lawsuits, a lender's bankruptcy and the tax fraud indictment of an executive at partner company New Frontier Energy Inc. of Colorado.
The board unanimously approved the agreement by a roll call vote on Thursday, with chairman Rexford Hagg calling it “the last straw.”
Hagg said that the board has been “generous” with second chances for Spyglass, and the only thing to lose from the agreement is 30 days. If Spyglass doesn’t comply by Jan. 15, their permits can be rescinded by the board without any additional hearings or notice to the company, and the state will have $190,000 in additional bonds to Spyglass’ current $10,000.
“There’s a great part of me that doesn’t have any faith that this will get done, based on the track record,” Hagg said. “But if they can post that bond, I don’t think we’re any worse for wear.”
He added, “If they can get that posted, I think there’s motivation there once they post that bond to address these things in a timely fashion.”
After six years of hearing complaints and requests to take action, Hagg said he thinks an extra $190,000 is worth allowing Spyglass one last month to make things right. If they don’t, Hagg said the board can take the $200,000 bond and confiscate Spyglass’ equipment and wells.
“Whatever we can do by law, I think we’re prepared to do it in January,” he said.
The board’s next meeting is scheduled for Jan. 17.
"Hopefully we all learn from this so it won’t happen again," Board member Doyle Karpen said before the board’s vote, adding “We never should have gotten to this point.”