Texas P-5 Oil and Gas Bond

A Texas P-5 bond provides financial protection to the state and stakeholders involved in oil and gas operations. If an operator fails to fulfill their obligations, such as completing drilling activities or properly plugging abandoned wells, an injured party may file a claim against the bond. In such cases, the surety bond company will compensate the affected parties up to the bond amount. The operator is then responsible for reimbursing the surety for the claim amount paid.

In a surety agreement for a P-5 oil and gas bond in Texas, there are typically three parties involved:

• Principal: The operator or individual/company seeking the oil and gas permit that must obtain the bond and follow its terms
• Obligee: The Texas Railroad Commission, the entity requiring the surety bond 
• Surety: The bonding agency that issues the P-5 oil and gas bond to the principal

These three parties work together under the surety agreement to ensure compliance, protect stakeholders, and provide financial security in the context of oil and gas operations in Texas.

Oil and gas operators in Texas must obtain P-5 bonds as part of the permitting process. This includes individuals, partnerships, corporations, and LLCs involved in drilling, reworking, or plugging wells within the state. You can purchase your bond from a surety provider licensed to do business in Texas (like ZipBonds).

The cost of a Texas P-5 bond varies depending on factors such as the bond amount required and the applicant’s creditworthiness. The Texas Railroad Commission determines the bond amount, which can range from a few thousand dollars to several hundred thousand dollars per well, depending on the depth and type of operation. 

The premium for the bond, which is the amount you pay, is a percentage of the total bond amount (typically 1% to 10%). A higher credit score generally results in a lower premium rate.

To obtain a drilling permit in Texas, you must apply with the RRC. The application process includes providing the following information:

• Name and address of the operator
• Type of oil and gas activity that will be conducted
• Location of the oil and gas activity
• The estimated number of wells that will be drilled
• The estimated depth of the wells

General Application Process

• Gather required documentation: Prepare all the necessary documents, including the permit application form, proof of financial responsibility (P-5 bond), well plans, and any other supporting documentation specified by the Texas Railroad Commission.
• Secure a P-5 bond: Contact a reputable surety bond provider experienced in oil and gas bonds, such as ZipBonds. Work with them to obtain the required P-5 bond, ensuring it meets the specific requirements set by the Texas Railroad Commission.
• Submit the application package: Complete the permit application form, attach all required documents, and submit the package to the Texas Railroad Commission. Pay any applicable fees associated with the application.
• Review and approval: The Texas Railroad Commission will review your application and conduct a compliance review. They will assess your documentation, financial responsibility, and adherence to regulatory requirements. Once approved, you will receive your oil and gas permit.

Other Helpful Resources

• Requirements and Responsibilities (Form P-5)
• Instructions for Individual and Blanket Performance Bonds
• Drilling Permits