What are oil and gas surety bonds?
To become a business owner in the oil and gas industry, you may be required to obtain a surety bond to become licensed. Your governing authority may require this bond to guarantee that your business complies with all laws and regulations regarding operating and closing gas and oil wells.
The primary purpose of oil and gas bonds is to ensure proper reclamation takes place after project completion. The bonds hold companies accountable to operating, maintaining, repairing, and managing wells properly. If a company breaks the law, the bond acts as a financial guarantee for the government and the public – parties that may suffer as a result.
Get Your Oil and Gas Bond:
- To become a business owner in the oil and gas industry, you may be required to obtain a surety bond to become licensed.
- The primary purpose of oil and gas bonds is to ensure proper reclamation takes place after a project is complete.
- If a company breaks the law, the bond acts as a financial guarantee for the government and the public – parties that may suffer as a result.
Who needs an oil and gas surety bond?
Many oil and gas producers in the United States will need this bond at some point. Specifically, the following businesses may need oil and gas bonds to begin operating:
- Oil businesses applying for a drilling permit or license
- Contractors participating in drilling, well plugging and maintenance, or cleanup
If you plan to operate in any of the following states, you will likely need to get bonded first. Bond requirements for the following states range from $1,500 (Illinois) to $1,000,000 (Texas). Bond limits may be higher if you have a high number of wells and need a blanket bond.
- North Carolina
- South Carolina
- West Virginia
How do oil and gas surety bonds work?
An oil and gas bond is a three-party agreement between an obligee, a principal, and a surety.
- Obligee: The government entity that requires the bond
- Principal: The oil or gas producer that must purchase the bond
- Surety: The company that issues the bond and financially backs it in case of claims
If the principal fails to meet the standards of the industry or breaks a state law, the governing entity may file a claim against the bond. The surety will investigate to determine if the claim is valid. If it is, the surety will pay out damages to the claimant, which could cost as much as the full bond amount. The principal must then repay the surety for the same amount. The surety simply acts as an intermediary.
What are my requirements for oil and gas bonds?
The surety bond required will depend on your state. You may need a separate bond for every well or a single bond that covers various locations. Be sure to check with your governing authority, which may be the Bureau of Ocean Energy Management, Bureau of Land Management, or a state agency.
Oil companies must obtain a bond before launching drilling operations on federal land. States may also have specific requirements for public and private lands.
Frequently Asked Questions
To obtain your oil and gas bond, you’ll pay a premium – a small percentage of the bond amount required. To calculate your premium rate, your surety provider will consider your personal credit score and business financial history.
Generally, we can issue these bonds for around 3-5% of the bond amount for applicants with strong credentials.
Oil and gas bonds must be renewed annually for the duration of your drilling project. To renew your bond, you’ll pay a premium before the bond expires each year. Your surety provider should notify you as the expiration date approaches. Once your project is complete, you won’t need your bond anymore. But you must obtain a release from your obligee to confirm that you no longer need the bond.
To avoid claims against your oil and gas bond, make sure you abide by all rules and regulations for drilling. Common reasons for claims against this bond include failing to dispose of pollutants properly, failure to properly maintain and plug wells, and failing to return land to its original condition after drilling.
How to Apply for Your Oil or Gas Surety Bond
ZipBonds is the fastest and most secure way to get the license and permit bonds you need. We take out the pain of long, complicated applications. Most of our bonds are approved and processed immediately. Call us at (888) 435-4191 or start the form online to get bonded ASAP.
Founders Ryan Swalve and Zach Mefferd formed the vision for ZipBonds.com when they realized how overly complicated it was to help clients place surety. The frustration of being unable to incorporate the technology they’d used in other insurance-focused projects left them thinking “there has to be a better way.”
Fast forward a couple of years, and that better way is the impetus of everything we do at ZipBonds. We constantly look for innovative ways to improve the bonding process for our clients and agents. Our team comprises individuals who understand all angles of surety – for companies, agencies, and individuals. Incorporating everyone’s point of view to improve the process while simultaneously integrating cutting-edge technology is what sets our business apart.