Oil and Gas Wells Bonds Explained
If you are an oil and gas operator and want to launch drilling activities in a certain area, you typically need to get a permit from local or state authorities. Oil and gas wells bonds are a usual requirement in obtaining this permit. They are a type of license bonds.
The purpose of the bonding is to provide an extra layer of guarantee that you will comply with applicable legislation. It ensures you will fulfill your obligations as an oil and gas operator in relation to well closing and maintenance, and other relevant duties you may have.
The oil and gas wells bond functions as a contract between your business as the principal, and two more entities. The obligee is the authority that requires you to get bonded and provides you with a permit to operate. The third party is the surety, which backs your company with the bond.
Questions about Oil And Gas Wells Bond
When is this bond required?
You would typically need to provide an oil and gas wells bond in order to get a permit for drilling, redrilling, deepening, operation, maintenance and repair of wells. The bond is also necessary as a safety mechanism that you will prevent waste and pollution related to drilling, and that you will adhere to the standards for plugging and land reclamation. The bond amounts vary by location and are usually tied to the number of wells that you want to operate in the specific area. They may also depend on the depth of the wells that you want to work on. Your local authorities will inform you about the specific bonding requirements that you have to meet when you apply for a permit.
For example, in California, operators have to provide a bond between $25,000 and $40,000 for individual onshore wells, depending on depth. For blanket bonds for multiple wells, the amounts are between $200,000 and $3,000,000.
In Montana, the bond amounts are between $1,500 and $50,000, set on the basis of the number of wells and their depth.
Virginia oil and gas operators have to provide a bond between $25,000 and $200,000, depending on the number of wells.
What are the bonding costs?
The surety bond amount that you have to obtain to get your permit for oil and gas well operations is determined by your local authorities. It varies by location, depth of wells and number of wells you want to operate.
You have to pay a small percentage of it, called the bond premium, so that you can get bonded. The stronger your financial profile is, the lower your bond price will be. Applicants with a good credit score often get rates between 1% and 5% of the bond amount.
The exact surety bond cost is determined on the basis of an assessment of your personal credit score, company finances, and liquidity and any fixed assets you may showcase. This is how your surety estimates the level of bonding risk that you present. The lower it is, the better your price would get.
Is it possible to get an oil and gas wells bond with bad credit?
Getting bonded with problematic finances can be difficult. Lance Surety Bonds' Bad Credit Surety Bonds program is designed for applicants struggling with low credit scores, tax liens, bankruptcies, and civil judgments.
You can benefit from it by covering a bond premium in the range of 5%-15%. The rates are slightly higher due to the increased coverage risk. As we foster partnerships with the top A-rated, T-listed surety companies, we are still able to find a great bonding option for your specific case.
How do I get bonded?
In order to obtain your oil and gas wells bond, you can do the following:
You will then receive a free, no-obligation quote from us
If you are happy with it, you can buy the bond online
You will get a digital and a hard copy of the bond
Would you like to learn more about the bonding process? You can consult our in-depth How to Get Bonded page.
Lance Surety Bonds' experts are here to help with your queries or bond application. You can contact us at (877) 514-5146.
Still Have Questions? Check Our FAQ Pages
What Our Clients Have To Say?
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