Surety Bond Update: New Bill Changes Set Higher California Oil and Gas Well Bond Amounts

oil and gas well bondThe 2016 Assembly Bill 2729 introduced new changes for licensing and bonding requirements for oil and gas wells operators in California, which will become effective come January 1, 2018.

The Bill has set higher bond amounts for oil and gas wells operators who want to use the blanket bond option to ensure legal compliance in the State of California. It also covers new rules and regulations for handling idle wells, which includes fee and provisions for removing unused wells.

The Division of Oil, Gas & Geothermal Resources (DOGGR) at the California Department of Conservation awards licenses to oil and gas wells operators in California.

As part of the licensing requirement, the State requires oil and gas wells operators to post an Oil and Gas Well Bond. It can be for each individual well, or in the form of a blanket bond for handling more than 20 wells.

 

Who needs the Oil and Gas Well Bond?

The State (Obligee) specifies that all operators of oil and gas wells, enhanced-recovery wells, service wells (structure, temperature observation wells), water-disposal wells, core-holes, and gas-storage wells that engage in drilling, plugging, deepening, and re-drilling onshore and offshore (within three nautical miles of the coastline), situated on state and private lands of California are required to procure this type of surety bond.

An oil and gas well operator (Principal) operating both onshore and offshore wells must file two separate blanket bonds for:

  • Onshore wells
  • Offshore wells

 

New amounts for Oil and Gas Well Bonds

The California Oil and Gas Well Bond amount will be based on the number of wells being operated. The bond amounts for individual wells are $25,000 (less than 10,000 feet deep) and $40,000 (deeper wells).

  • $200,000 – 20 to 50 onshore wells
  • $400,000 – more than 50 onshore wells; more than 500, but no more than 10,000, wells
  • $2,000,000 – all onshore wells
  • $3,000,000 – more than 10,000 wells; one or more offshore wells

 

Requirements to obtain the Oil and Gas Well Bond

Aside from a completed application form and financial documents to submit to your Surety, you need to obtain a copy of the official Blanket Oil and Gas Well Indemnity Surety Bond Form required by DOGGR.

 

New bill changes differentiate idle and long-term idle wells

The Assembly Bill 2729 aims to address issues concerning neglected and abandoned wells, which pose hazard risks to the public and the environment.

The new bill determines the difference between idle and long-term idle wells.

  • Idle wells: wells that have not been used for two years
  • Long-term idle wells: wells that have not been used for eight years and above

 

Options for handling idle wells

California oil and gas well operators of idle and long-term idle wells should do one of the following:

  • File annual fees
  • Provide escrow account with a deposit of $5,000 per idle well
  • Post an indemnity bond that indicates the sum of$5,000 per idle well
  • Submit an official plan for the management and closing of all long-term idle wells

The new and stricter legislation targets the improvement of managing and operating oil and gas wells throughout the State. With the new surety bond amounts, its purpose is to increase public safety and ensure environmental policies are followed.

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