Everything You Need to Know About Oil and Gas Bonds

Oil Gas Bonds

If you own a business that operates in the oil and gas industry you’ve probably already heard of surety and gas bonds. Whether you’ve had experience acquiring a bond before or this is your first time our oil and gas bond guide can help you understand everything you need to know about these types of surety bond.

What is an oil and gas bond?

Surety bonds provide a method for individuals and organizations to make a financial claim against a business. The surety bond underwriter guarantees to provide financial compensation to the claimant for all legitimate claims. Oil and gas surety bonds are a type of license bond needed to apply for a license to operate in many states.

The state agency that grants those licenses creates the surety bond requirements. They dictate how large the surety bond must be and they outline what behaviors and obligations the oil and gas operator must follow. If they don’t follow those commitments, the state agency may file a claim against the bond seeking damages in the form of compensation. The damages will be equal to the harm caused (or potentially caused) by the operator who did not follow applicable state laws and codes of conduct.

Upon receiving a claim, the surety agency that backs the bond will investigate it thoroughly. Claims are never presumed to be valid. Instead, the surety looks closely at the merits of the claim, using investigators, accountants, or other experts as necessary. The claim is denied immediately if any of the details do not check out. However, if the claim holds up under scrutiny, the surety agency settles it in full up to the limit of the surety bond.

The final part of the claims process involves the bondholder (the oil and gas operator) paying the surety back the full amount of the claim. The bondholder always has financial liability for claims – the surety only acts and an intermediary to ensure the claimant gets paid. The debt will also accrue interest and have fees added. A surety bond claim is not settled until the agency that issues the bond has recouped the debt from the bondholder – using whatever legal means necessary.

What are the parties in an oil and gas bond? 

Unlike an insurance agreement that involves two parties, all surety bond agreements, including all types of oil and gas surety bonds, involve three parties:

  • Principal – The oil and gas operator that obtains the bond and accepts responsibility for all claims. 
  • Obligee – The state agency that issues oil and gas licenses and has the right to file claims with the surety for damages caused by the principal. 
  • Surety – The surety bond agency that issues the bond to the principal and guarantees payment for valid claims to the obligee. The principal must compensate the surety for any claims it settles with the obligee. 

Who needs an oil and gas bond?

If your business operations involve well drilling, well operation, well maintenance and repair, well plugging, managing environmental pollution caused by the industry, or working with oil or gas drilling in any other capacity you may be required to acquire a license bond in order to operate. Without a bond, it’s impossible to get a license. And without a license, it’s illegal to operate an oil and gas business – and there are strict penalties for breaking the law. If you’re unsure whether you need an oil and gas bond, why you need one, or what the surety bond agreement involves, Viking Bond Service is here to help. Our team can help you investigate your bond requirements, free of charge and with no obligation to pursue a bond. Contact us for expert advice.

What are oil and gas bonds used for?

Oil and gas bonds serve two main purposes, the first is to ensure that businesses operating in the industry follow all of the applicable state and federal regulations in regards to the operation and clean up of all gas and oil drilling activities. This helps protect the environment from contamination caused by the industry. The second purpose is to protect the state from financial loss. The bond will pay compensation up to the bond amount should the business fail to follow required regulations or pay the necessary taxes. For these reasons, oil and gas surety bonds are used widely throughout the industry. Many operators need multiple bonds on a recurring basis for as long as they’re in business. That’s why it helps to have a surety bond partner who can meet any and all bonding needs with ease. Count on Viking Bond Service to be that partner for years to come.

How much does an oil and gas bond cost?

The cost of oil and gas bonds is based on the bond amount and the financial history of the business requesting the bond. The required bond amount varies by state. The exact surety bond cost is determined by underwriters at the surety agency. Known as the premium, the cost typically represents a small percentage of the bond’s total value. How much, exactly, depends on the applicant’s credit score and financial record. The strength of the business and the credit standing of all the owners are taken into consideration. Applicants deemed less credit-worthy will pay higher premiums, but not drastically higher. Some applicants with bad credit will struggle to get approved for the necessary surety bonds – but not by all agencies. Viking Bond Service has a special bad credit surety bond program designed to help more applicants get approved for bonds regardless of their credit. If you have been denied a bond elsewhere, count on us to do everything possible to get you approved. Our bond agents can help you secure the bond you need to operate in your state.

Do you have to renew an oil and gas bond?

Businesses that need a surety bond as part of licensure requirements will need to keep that bond active and in good standing for the license to remain valid. Keeping the bond active involves renewing it on an annual basis. A surety agency like Viking Bond Service will provide a renewal notification long before the bond expires, and again as the date approaches. Renewal works much like the initial application. Underwriters will evaluate your credit risk based on a credit check and updated financial documentation. Then, they will calculate a new premium price. It could be higher or lower than the previous premium based on any changes to the credit standing over the past 12 months. Plan for bond renewal costs as part of the license and budget planning, and work to consistently improve your credit to lower your surety bond costs.

Get the bond you need, today

Viking Bond Service has many years of experience securing oil and gas bonds across the US. Use our online application form to get the process started immediately, and expect to get a quote back within 24 hours. You can also ask questions and get more information first. Use the contact form on this page or call our team of knowledgeable agents at 1-888-278-7389.