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Texas Oil and Gas Blanket Bond (P5 Bond)

If you own or operate an oil and gas business in Texas, you've likely heard about oil and gas blanket bonds or P5 bonds, a type of oil and gas surety bond.

What is a Texas Oil and Gas Blanket Bond

The P-5 bond is a license & permit bond required by the Railroad Commission of Texas. P-5 surety bonds are required to ensure different aspects of operating and abandoning oil or gas wells are managed and/or completed in accordance with Texas laws and regulations.

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

  • Proper well operation and maintenance in order to prevent leakage and/or pollution of ground and surface water.
  • Inactive well maintenance to prevent leakage and pollution.
  • Proper well plugging and abandonment.
  • Surface restoration.
  • Proper clean up of pollution associated with the oil and gas operation.

These types of surety bonds are required to ensure that oil and gas operations in Texas follow all of the state rules and regulations that apply to them. This is why oil and gas blanket bonds are an important part of the permitting process. In the event that a company does not abide by the regulations set forth by the state, a P-5 oil and gas surety bond provides a path for recourse and protects the state from financial loss. This encourages responsibility in the drilling world, so that the state of Texas can ensure that businesses operate in the best interests of all Texans.

How does a Texas Oil and Gas Blanket Bond work?

If the Railroad Commission of Texas has reason to believe an oil and gas producer broke a rule or regulation, the Commission may file a claim against the bond equal to the estimated amount of the damages. As long as the claim has merit, the surety company that issues and backs the bond agrees to settle it, up to the bond amount. However, the surety does not hold the final responsibility to the debt incurred settling the claim. That resides with the bonded party - the oil and gas producer. Whenever the surety steps in to settle a claim, the bonded party must pay the surety back the full amount plus interest and fees.

Who should get a Texas Oil and Gas Blanket Bond?

Anyone who operates oil or gas wells in Texas likely needs a oil and gas P-5 surety bond to operate legally. You will learn about the bond requirement while going through the process to set up a well. When that requirement exists, don't wait to get a bond. Waiting may cause unnecessary delays to opening the well. Instead, work with a surety agency like Viking Bond Service that specializes in finding bond applicants quality options in minimal time.

Who are the parties involved in a Texas Oil and Gas Blanket Bond?

Texas Oil and Gas Bonds involve and agreement between three equal parties:

  • Principal - The bonded party, which is the oil and gas producer in this case. The principal must obtain the bond, renew it as necessary, and avoid or settle any claims.
  • Obligee - The bond beneficiary, which is the Railroad Commission of Texas in this case. The obligee has the right to file claims, and as long as those claims hold up under investigation, they are guaranteed to be settled.
  • Surety - The bond company, which issues the bond to the principal and pays for claims when the principal can't or won't. While the surety holds the initial financial responsibility to pay claims, the principal is responsible for paying the surety back the amount spent on settling claims.

How much does a Texas Oil and Gas Blanket Bond cost?

There are several bond amounts associated with the P-5 bond. There are blanket bond amounts of $25,000, $50,000 and $250,000. There is also a calculation available to organizations that solely operate oil and gas wells, $2 for every foot of total well depth. The actual surety bond cost (called the premium) depends on the size of the bond and the credit of the applicant. The premium will be a small percentage of the total value of the bond. The exact amount depends on the applicant's financial history and credit. As expected, riskier applicants pay more, but they're not necessarily denied a bond simply because of bad credit. If you need help getting a bond because of your credit, count on Viking Bond Service to find you options when others can't

How are claims handled for Texas Oil and Gas Blanket Bonds?

The surety will only settle valid claims, which is why they thoroughly investigate every claim they receive. That may involve bringing in lawyers or professional investigators as necessary. If determined to be valid, the surety will settle the claim up to the amount of the bond. Afterwards, they will use whatever means necessary to collect the amount of the settlement from the the principal, plus interest and the cost of the investigation. It's in the principal's interest to avoid claims at all costs.

How to apply for a Texas Oil and Gas Blanket Bond?

You will need to complete a standard bond application, which will ask for information about your business and your background. A credit check will be performed and any required supporting documentation about the business will be requested. Based on your application materials, underwriters at the surety will estimate your credit risk and use that to quote you a price. Once you pay the premium, the surety provides you with a document to prove you have a valid and active bond.

Your Source for Texas Oil and Gas Blanket Bonds

Oil and gas bonds can be difficult to place. Viking has markets that work with these types of bonds. We can typically obtain a P-5 surety bond quote the same day or within 24 hours of receiving the surety bond application and any required documentation. Viking Bond Service, Inc., is committed to providing oil and gas companies in Texas with the surety bond solutions they need to operate a successful business. Our surety bond experts are at-the-ready to assist you every step of the way, from initial consultation to long-term partnerships. We have over thirty years of experience providing superior surety bonds to businesses around the country. To get started, give us a call at 1-888-278-7389 or complete an online application today.

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