Gamble on Wasta oil well project leaves state with deep, costly hole

Farm Forum

PIERRE — An attempt three years ago to drill an oil well 9,700 feet deep through multiple water aquifers and a highly dense layer of pre-Cambrian rock near Wasta ended very badly.

The drill bit broke partway down after going through several aquifers. The bit and a long length of drill pipe are still in the hole. Cement plugs to protect the aquifers from each other can’t be installed. The broken bit and pipe block the way.

Worse yet, the project’s developers ran out of money. Now South Dakota officials don’t know what to do next.

The state Board of Minerals and Environment approved permits for two wells at the site in March 2013. The board and its professional staff at the state Department of Environment and Natural Resources knew the project was iffy. They required the developers, led by a woman from Deadwood named Natali Ormiston, to post a bond of $130,000 for the first well.

Normally the board requires a bond of only $20,000 for an oil well.

The $130,000 is deposited in a Pierre bank. So far DENR officials haven’t sought to cash the bond.

It’s not even close to enough money to plug the well, according to Mike Lees, an environmental scientist for DENR.

The cost would be $2 million, he said, because of the broken bit and the 150 feet of drill pipe that remain in the hole about a mile into the earth.

Lees said multi-direction drilling would be needed to get around them. The concern is that one of the aquifers that’s been punctured, known as the Minnelusa, could flow upward into another punctured aquifer, known as the Inyan Kara, through artesian pressure.

The top of the Minnelusa aquifer is about 3,900 feet below the earth and about 800 feet below the bottom of the Inyan Kara aquifer. Lees said a plugging project would need to reach 3,300 to 3,800 feet.

The permit requirements called for cement plugs at specific depths to protect seven aquifer-bearing formations.

Meanwhile, several creditors want DENR to release the bond money to them.

The minerals board members decided on May 19 to talk about the situation again at their June meeting.

“We’re snookered right now,” said board member Doyle Karpen of Jefferson. “I don’t see any magic trick coming.”

The state permits were issued to Quartz Operations, a limited liability company formed by Ormiston in November 2012. After receiving the permits, the company changed hands quickly.

The role of registered agent transferred from Ormiston to Leon Somsen of Yankton on June 5, 2013, then from Somsen to Mark Eske of Sioux Falls on Nov. 8, 2013.

A second company started by Ormiston, called Quartz Oil Exploration LLC, also changed hands during the same period. She transferred the role of registered agent for the second company to Somsen on June 5, 2013.

More than a year later, on Sept. 11, 2014, more activity involving Quartz Oil Exploration ensued. A Somsen-created company called South Dakota Quantum Fund LLC filed notice of disassociation from Quartz Oil Exploration.

The same day in 2011, three men including Somsen filed notices of disassociation for Quartz Oil Exploration. Ormiston, in turn, transferred the role of registered agent five days later on Sept. 16, 2014, to a Pierre legal firm, CT Corporation System.

Just who’s in charge isn’t clear. Lees said on May 19 he’s talked recently with Somsen. Lees said Somsen told him there aren’t any plans to try to plug the well.

Whether the open hole poses a threat to water quality isn’t certain. Lees said approximately 1,000 cubic feet of Inyan Kara water could be affected by Minnelusa water. He said the Inyan Kara aquifer is popular for domestic wells, but the nearest is 6 miles off. The community of Wall, 12 miles away, taps Inyan Kara as its supply.

Several of the state board members are lawyers. One, Bob Morris of Belle Fourche, cautioned against taking action yet.

“I think this needs to stay on our radar,” he said.

Another, Rex Hagg of Rapid City, wasn’t ready to pursue the $130,000 bond yet either. Hagg asked that the state attorney general’s office bring legal advice next month to the board.

Said Lees, “It’s sort of uncharted territory.”

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At a glance

The state board’s permit decision in 2013 included a number of statements that reflected the gamble represented by the Wasta oil well project.

• While oil wells have been drilled in South Dakota and other neighboring states to a depth of approximately 9,700 feet below surface, the target formations of such wells have been above the Precambrian formation.

• The Precambrian formation is a geologic formation from which neither oil nor gas has been discovered in economic quantities in South Dakota or neighboring states, and is not a formation traditionally associated with the discovery of oil and gas.

• The target formation in South Dakota of the proposed wells has not previously been found to contain oil or gas in quantities that would be economic to produce.

• Quartz Operations has not submitted any documentation or information substantiating that oil or gas is likely to exist in economic quantities in the Precambrian formation in the locations of the proposed wells.

• The cost of drilling an oil well to a depth of approximately 9,700 feet in other more easily drilled target formations is approximately $3 million per well.

• Quartz Operations has no experience drilling oil and gas wells, or producing oil or gas.

• Quartz Operations has no producing oil or gas wells or other related facilities in South Dakota.

• As part of the applications for the permits to drill, Quartz Operations submitted a $20,000 statewide plugging and performance bond.

• DENR estimates the costs to the state of plugging each oil well and reclaiming the affected surface land proposed in the drilling permit applications identified above in accordance with plugging and reclamation laws to be approximately $130,000 per well.

• The $20,000 statewide plugging and performance bond is insufficient to pay the costs that will accrue to the DENR for plugging the oil wells and reclaiming affected surface lands proposed in the drilling permit applications identified above, if Quartz Operations fails to comply with its obligations to plug the wells and reclaim the affected surface lands.