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Oil and Gas Surety Bonds

If you're a business owner in the oil and gas industry, you've probably heard about the importance of oil and gas surety bonds. Read below to learn some basic information about these bonds so that your business can be prepared to get the bond coverage it needs.

What are Oil and Gas Surety Bonds?

Oil and gas bonds are license & permit surety bonds. Oil and Gas bonds are required by governing entities to ensure different aspects of operating and closing oil or gas wells are managed and/or completed in accordance to governing laws and regulations.

Some of the Oil and Gas well activities that have been scrutinized for compliance with applicable laws and regulations are as follows:

  • Well drilling, re-drilling, or deepening.
  • Well operation.
  • Well maintenance and repair.
  • Managing prevention of waste and pollution from well operations.
  • Well plugging and surface reclamation.

How does an Oil and Gas Bonds work?

In the event that an oil and gas producer does not meet the conditions or standards mandated by the government, the government entity responsible for overseeing the producer may file a claim against the oil and gas surety bond. As long as that claim has merit, the surety bond provider agrees to honor it and pay out damages up to the bond amount. Should the surety have to step in, however, the surety bonded party (the oil and gas producer) must pay the bond provider back with interest and fees added.

What are the Oil and Gas Bond Amounts?

Surety bond amounts vary depending on the governing entity requiring the bond. An Oil and Gas surety bond may be required for each well although some states allow for a single bond to cover multiple locations. States like Texas, have specific surety bond requirements for owning and operating oil and gas require a specific type of oil and gas bond called a P-5 oil & gas blanket bond.

If you're operating in California, there are new state requirements in place as of January 1st, 2018. Businesses have the option of paying the bond amount per well, or acquiring a blanket bond that covers their entire operation. The new bond requirements are:

Individual onshore well bond requirements:

  • Wells less than 10,000 feet deep: $25,000
  • Wells more than 10,000 feet deep: $40,000

Blanket onshore well bond requirements:

  • 50 or fewer wells: $200,000
  • 51 to 500 wells: $400,000
  • 501 to 10,000 wells: $2,000,000
  • Over 10,000 wells: $3,000,000

Who should get Oil and Gas Surety Bonds?

Most oil and gas producers require a surety bond at some point in order to continue operating legally. Oil and Gas Surety Bonds help maintain the integrity of the industry by holding producers financially responsible for their mistakes and by giving government bodies an enforcement mechanism.

Who are the parties involved in Oil and Gas Surety Bonds?

A surety bond is a contractual agreement between three equal parties. The three parties of a Oil and Gas Surety Bond are:

  • The Principal - The party obligated to obtain the Oil and Gas surety bond and pay for any claims the obligee files against the bond. In this instance, the oil and gas producer is the principal.
  • The Obligee - The party that dictates the details of the Oil and Gas surety bond and has the right to file claims against it. In this instance, the government entity is the obligee.
  • The Surety - The company that issues the Oil and Gas surety bond to the principal and agrees to settle any claims the principal cannot. In the event that the surety pays, the principal must pay the surety back.

How much does an Oil and Gas Surety Bond cost?

The premium amount of an oil and gas bond is calculated as a percentage of the bond amount. There are many factors that go into calculating premium price, including credit and financial history of the business requesting the bond. Quotes for these bonds vary greatly from one application to the next so the only sure way to get an idea of what the surety bond cost for an oil and gas bond will be is to apply for a quote. The Viking Bond Service, Inc. team is committed to providing businesses with the surety coverage that they need at the lowest prices.

How are claims handled for Oil and Gas Surety Bonds?

They involve a rigorous investigation conducted by the surety. Since the surety agrees to disperse compensation for all valid claims, they go to great lengths to prove claims are valid before paying out. If the investigation proves the claim but the principal refuses to pay it, the surety agrees to settle with the obligee. However, that gives the surety the legal right to collect the amount of the claim plus interest and added fees from the principal (who bears the final financial responsibility for all claims).

How to apply for Oil and Gas Bonds?

Oil and gas surety bonds are considered risky and can be difficult to place. Trusted surety bond companies like Viking Bond Service has markets that work with these types of surety bonds nationwide. We can typically obtain a quote for these bonds the same day or within 24 hours of receiving the surety bond application and any required documentation.

Viking Bond Service - Your Surety Brokerage

At Viking Bond Service, we have decades of experience issuing surety bonds of all types. Our surety bond experts combine a strong commitment to client service with the intimate knowledge of the specific bond needs of your business. Every step of the way, Viking Bond Service, Inc., can help your oil and gas company with superior surety bond solutions. Connect with us through the contact form on this page or by calling 1-888-278-7389. Or you can get the bond quote process started right now by completing this quick online application.

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