Oil and gas well operator bond cost
The Missouri Department of Natural Resources requires that all well operators within the state must obtain a surety bond in order to be licensed. When an operator is told to provide a bond, the state is referring to either a single well bond or a blanket bond. As the name implies, a single well bond covers only one well on which the licensee will be working and a blanket well bond covers multiple wells. Single well bond amounts are determined by the depth of the well, while blanket well bond amounts are determined by both the depth and number of wells being covered by the bond. The amounts for both types of bonds are as follows:
- Single Well Bond
- 0-500 ft. = $1,100
- 501-1,000 ft. = $2,200
- 1,001-2,000 ft. = $3,300
- 2,001-5,000 ft. = $4,400
- 5,001+ ft. = $5,500 plus $2/foot beyond 5,001 feet
- Blanket Well Bond
- 0-800 ft. = $22,000 covers 40 wells
- 801-1,500 ft. = $25,000 covers 10 wells
- 1,501+ ft. = requires individual single well bond
Because the bond amount varies so greatly and the nature of the bond is inherently riskier than others, these bonds are subject to strict underwriting which will require personal and business financials, well information, and a review of the applicant’s personal credit. A resume may also be required in some cases if the underwriter deems it necessary. Once the underwriter has taken an in-depth look at the application and all attached documents, they will grant either an approval or denial. If the bond is approved, it is typically approved at 3% of the total bond amount.
Why this bond
As well as needing this bond in order to become licensed as an oil and gas well operator, the principal’s submission of a bond also guarantees to the department that it, nor the state’s residents, are at risk of a loss or damage due to the well operator’s failure to abide by the terms established in Chapter 259 of the Missouri Revised Statutes, as well as any other applicable rules and regulations.
If any damage is caused due to the action or inaction of the operator, and the obligee decides that they behaved in a manner conflicting with the terms of the bond, then a claim may be filed against the bond. Once a claim is filed, the surety will pay to settle if the principal is unable to do so. If a surety does have to pay any money to settle a claim, then it becomes the principal’s responsibility to repay the surety for any money paid out.
Oil and gas well operator bond details
If the well operator can provide proof to the state geologist that no drilling has occurred at the site, then this bond may be canceled by providing the department with 30 days’ written notice. Otherwise, this bond shall be renewed annually until the operator can prove to the department that the well has been successfully plugged. The operator must then give the geologist written notice that the well has been plugged, at which point the bond will be released.
Become an oil and gas well operator
The process of becoming a licensed oil and gas well operator in Missouri is relatively straightforward in that an applicant must submit a correctly completed application, pay all applicable fees (see 10 CSR 50- 1.050) and submit a surety bond in an amount deemed adequate by the department.
Within 15 days of receiving the application, the state geologist will notify the applicant if it has been accepted or not. If there is incomplete or missing information, the applicant has 30 days to submit the material. Failure to do so will result in the application becoming void and the applicant will be forced to restart the process.
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- Missouri Department of Natural Resources
- Missouri Revised Statutes: Chapter 259: Oil and Gas Production
- Rules of Department of Natural Resources: Division 50 – Oil and Gas Council: Chapter 2 – Oil and Gas Drilling and Production
- Rules of Department of Natural Resources: Division 50 – Oil and Gas Council: Chapter 1 – Organization, Purpose and Definitions
- Missouri State Geologist – Joe Gillman