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.
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.
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.
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. Our bond agents can help you secure the bond you need to operate in your state.
Important changes to surety bond requirements
California has updated the bonding requirements for all businesses operating gas and oil mining operations in the state. The new regulations come into effect on January 1st, 2018. Businesses will have the option to pay a bond amount per well or a blanket bond covering their entire operations. The new bond requirements are:
Individual well fees:
- Wells less than 10,000 feet deep: $10,000
- Wells more than 10,000 feet deep: $25,000
- Less than 50 wells: $200,000
- 50 to 500 wells: $400,000
- 500 to 10,000 wells: $2,000,000
- Over 10,000 wells: $3,000,000