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State minerals board says oil company OK to drill without landowner consent

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By Bob Mercer

Capitol Correspondent

PIERRE — A holder of mineral rights lost her dispute Thursday over sharing risk on an oil well in Harding County.

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The state Board of Minerals and Environment ruled in favor of Luff Exploration.

For business reasons, the company proceeded in drilling the well, even though Linda Golden hadn’t yet accepted or rejected the company’s offer.

Luff had agreements with all other property owners in the 960-acre unit.

Luff employee Clayton Chessman said the drilling rig and crew were in the area and could proceed. Chessman said the well project replaced another one that was planned in North Dakota.

The state board adopted a rule in 2004 that deals with situations in which mineral holders don’t reach agreement with oil developers.

In those instances, an owner who doesn’t have a lease agreement must pay approximately 200 percent of his or her proportionate share of the project costs.

Golden’s lawyer, Scott Sumner, of Rapid City, argued the rule didn’t apply in this instance. He showed that Luff started drilling during the 30-day period set for Golden to consider Luff’s offer.

Golden ultimately never responded to Luff’s letter.

“I think the board has the discretion to say yes or no to risk compensation, and set the rate,” Sumner said.

Luff attorney John Morrison, of Bismarck, said the company followed the state rules.

“They have the effect and force of law. They are presumed valid,” Morrison said.

The hearing took more than three hours and Chessman was the only witness. The board eventually voted 6-1 in favor of Luff.

The lone dissent came from Rex Hagg, of Rapid City. “The cart got before the horse,” Hagg said. He told the Luff representatives, “You put yourself at risk by going ahead.”

Board member Bob Morris, of Belle Fourche, saw it differently. He said the rule provides certainty. “Should one person hold up even the drilling of a well for months?” Morris asked.

Lee McCahren, of Vermillion, one of the board’s long-time members, recalled that such cases came up frequently before 2004.

“We used to do this every month, for years. That’s why we adopted the rules,” McCahren said.

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