The combined upper Otter Creek-Pasture Creek area, south of Ashland, Montana, contains large reserves of Federal coal for potential lease sale. A hydrologic study was conducted in the area to describe existing hydrologic systems and generalized groundwater quality, to assess potential effects of surface mining on local water resources, and to evaluate the potential for reclamation of those water resources. Principal aquifers are coal beds and sandstone in the upper Tongue River Member of the Fort Union Formation (Paleocene age), and sand and gravel in alluvium (Pleistocene and Holocene age). Hydraulic conductivity determined from aquifer tests was about 0.004 to 16 ft/d for coal or sandstone aquifers and 1 to 290 ft/d for alluvial aquifers. Dissolved-solids concentrations in water from bedrock ranged from 1,160 to 4,390 mg/L. In alluvium, the concentrations were 1,770 to 12,600 mg/L. Surface water is available from interrupted flow along downstream reaches of Otter and Pasture Creeks, from stock ponds, and from springs. Most stock ponds are dry by midsummer. Mining of coal in the Anderson, Dietz, and Canyon beds would lower the potentiometric surface within coal and sandstone aquifers. Alluvium along Otter Creek, its main tributaries, and Pasture Creek would be removed at the mines. Planned structuring of the spoils and reconstruction of alluvial aquifers could minimize downstream changes in water quality. Although mining would alter the existing hydrologic systems and destroy several shallow wells and stock ponds, alternative water supplies are available.