SD governor, lawmakers study oil, gas development

By Chet Brokaw

Associated Press

Published: Monday, May 14 2012 3:45 p.m. MDT

PIERRE, S.D. — Gov. Dennis Daugaard and state lawmakers will conduct coordinated studies of what South Dakota should do to prepare for a possible boom in oil and gas drilling, officials said Monday.

Jason Glodt, a policy advisor to the governor, said Daugaard has set up two working groups to study what will happen if the oil boom in western North Dakota spreads south. One will predict the size and location of possible exploration and production, and the other will look at what roads, water systems, housing, schools and other facilities and services will be needed to handle an influx of people and oil rigs.

South Dakota will seek to learn from what has happened in North Dakota, but South Dakota is unlikely to experience as big a boom as its neighbor to the north, Glodt said.

"Realistically, the development will likely be much less than that," he told a legislative panel.

The Legislature's Executive Board last month decided to create a special committee that will study the expected benefits and problems that would be caused by an oil and gas boom.

The board, which handles management and administrative matters for the Legislature, decided Monday that the special committee should focus on taxes and the problems caused when the land and the oil beneath it are owned by different people.

Surface landowners often don't own the rights to the oil beneath their property. They complain they get few financial benefits while having to put up with roads and drilling rigs that disrupt their farming and ranching operations.

The legislative panel also will likely travel to northwestern South Dakota's small oil patch and North Dakota's much larger oil production area.

After North Dakota's oil industry began to boom in the past decade, South Dakota started an effort to encourage more oil and gas exploration in the state. Part of that effort has been to put drilling and geological information online to help companies decide where to explore in South Dakota.

However, officials in North Dakota have advised South Dakota to begin preparing for both the benefits and problems that will accompany increased oil and gas development.

Increased drilling is expected to bring increased truck traffic, housing shortages, skyrocketing rents and the need for additional restaurants, truck stops and other services in western South Dakota. The influx of oil and gas workers will likely require additional law enforcement, firefighting and medical services, and small towns will be faced with demands that exceed their current water and sewer systems.

"There's maybe the prospect of additional revenue from the potential development. There's also the prospect of additional headaches," said Fred Baatz, a research analyst for the Legislature.

Increased oil and gas drilling would boost tax collections for the state and counties, Baatz said. State law now imposes a tax, shared equally between the state and counties, equal to 4.5 percent of the market value of oil produced. And sales and construction taxes also would be applied to oil rigs and associated development, he said.

One of the biggest problems in encouraging oil and gas drilling is a state law that allows ownership of underlying oil and minerals to be severed from ownership of the land's surface. When many South Dakota farms and ranches were sold, the original owners kept rights to any minerals under that land.

Mineral interests passed down through several generations have been divided among many heirs, so companies will be reluctant to drill in areas where it's difficult to track down all the people who hold a share of those mineral rights, said Amanda Reiss, another legislative staffer.

One state law allows rights to minerals and oil to return to the surface owner if they are unused for 23 years, but that provision may be unconstitutional, Reiss said.

Another way to sort out ownership of oil underlying the land would be to have counties assess property taxes on those rights, Reiss said. If those taxes are not paid for a number of years, the oil rights could be sold to an easily identifiable owner, she said.

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