Report says SD unlikely to have major oil boom

Associated Press

PIERRE, S.D. (AP) — South Dakota will not experience a boom in oil production like the one sweeping across western North Dakota, according to a study released Wednesday by Gov. Dennis Daugaard's office.

The study, presented to a state legislative panel, concludes that South Dakota's oil production most likely will remain steady at the current level of 1.6 million barrels of oil a year. Even under the most optimistic scenario, which assumes extensive additional exploration, South Dakota's annual production will rise only to 3.2 million barrels a decade from now and 6.5 million barrels after that.

In contrast, North Dakota last year produced 152 million barrels of oil.

"We will never see the oil development and gas development that North Dakota has seen, but that doesn't mean we don't have potential," state Geologist Derrick Iles told lawmakers. "I think we do stand to see some increase in oil and gas development in South Dakota."

Daugaard had two teams of state officials studying the potential for oil and gas production in South Dakota and what the state should do to prepare for any growth. In the meantime, the Legislature appointed a committee that has been looking at whether any state laws dealing with oil and gas development should be changed.

Lawmakers said South Dakota's best bet for development is to provide materials and services to North Dakota's oil industry. For example, some South Dakota companies are making prefabricated housing to house workers in North Dakota's oil fields, and South Dakota might be able to supply sand or clay used in drilling.

In addition, many companies in North Dakota's oil industry want to set up support operations outside the oil fields to escape exorbitant costs for housing and other services in the area.

"We could see a large boom in all the other industries that are related to the oil and gas business," said Rep. Roger Solum, R-Watertown, chairman of the Legislature's Oil and Gas Study Committee.

State officials have speculated in the past few years that North Dakota's oil boom might spread south, but the study released Wednesday is the first to make specific predictions.

Iles said the Bakken Formation, which produces most of North Dakota's oil, doesn't extend much into South Dakota, but more oil could be discovered in the Red River Formation that currently produces South Dakota's oil in Harding County in the extreme northwest corner of the state. Two other formations, the Minnelusa and the Three Forks, also hold some promise, he said.

South Dakota is making drilling and other geological records available on the Internet to encourage companies to explore in South Dakota.

But officials note that drillers have little incentive to leave North Dakota for the uncertainty of South Dakota. State and industry officials say 99 percent of drill rigs hit oil in North Dakota's Bakken region, and nine out of 10 wells make money.

Nathan Sanderson, a policy adviser to the governor, said South Dakota is likely to have only one drilling rig operating at a time in the next 15 years, while North Dakota now has more than 200 rigs drilling.

"We're going to be a far cry from North Dakota, even under our best case scenarios," Sanderson said.

Jason Glodt, also a policy adviser to the governor, said oil exploration, increased truck traffic or other associated activities are most likely to occur in a part of northwest South Dakota that includes Harding, Perkins, Corson, Dewey, Butte, Meade and Ziebach counties. Only 52,000 people live in the vast area, it already has little available housing, and ambulance services and fire departments are mostly run by volunteers, he said.

Increased drilling or other activities in the area would stretch water supplies and law enforcement coverage, Glodt said.

However, most of the school districts in the area have space to accommodate an influx of students, he said.

The legislative panel plans to meet again Oct. 30 to consider ideas for bills that might be introduced in when 2013 legislative session opens in January.

The lawmakers are considering raising bonding requirements companies must post to cover the cost of plugging of finished wells and restoring land disturbed by drilling. They also are studying whether sales taxes are applied fairly to material and services used in the oil industry, and whether a mediation service should be set up to help resolve disputes between drillers and landowners.