The Arizona Department of Environmental Quality, Oil and Gas Conservation Commission (the Commission) is responsible for the issuing of permits and operator compliance of state laws and regulations for oil and gas new well operations, re-entering an abandoned well, drilling, and production. The Commission conducts inspections for permitting, plugging and restoration of well sites; compiles and tracks active and inactive well data and mapping; manages abandoned well plugging and reclamation; and provides a process in the event an operator fails to perform the duties to meet the performance bond requirement.
The obligee is the entity that requires the bond or other form of security. The Arizona Department of Environmental Quality, Oil and Gas Conservation Commission requires a performance bond before drilling of new wells, re-entering an abandoned well, or assuming the responsibility of an existing well. The bond ensures compliance of regulations and state laws. Failure to comply or perform the regulations and state laws may result in a claim filed against the bond by the Commission. In the instance of a surety bond, if the Commission files a claim against the surety bond, the owner and/or operator (named as the principal on the bond form) will be responsible for repayment of the claimed amount if the claim is paid out by the surety.
A performance bond is a form of security to meet the permit requirement. There are several options for the performance bond: a certified check, certificate of deposit, or a performance surety bond.
A performance bond must be in place from the time of the initial permit up to completion of the well, and does not have the option to be canceled. The premium will renew on the bond on an annual basis for the life of the well. If the well transfers to new ownership, a new bond is required to fulfill the permit conditions. Failure to maintain a bond will result in a claim by the Office.
A performance bond also ensures the well is properly plugged and the surface restored to its natural space. The plugged well must pass through an inspection process and the surface restored to meet state standards. The Office will release the bond when the plugged well passes inspection and the premium for the bond will no longer be required.
A performance surety bond is required based on the number of wells and or depth of the wells. Operators must choose between an individual well performance bond or a blanket performance bond covering multiple wells.Individual Well Performance Bonds:
If an owner of a well plans to transfer or change ownership, the Commission must be informed in writing of the proposed change including the well location, date, name, phone number, and address. The new owner will need to obtain a new bond to replace the existing bond unless a blanket bond was on file for the new owner. Failure to submit a new bond results in the initial owner assuming future liability for the well.
The premium that you pay for an Arizona Oil and Gas Well Performance Surety Bond is dependent on credit and the number of wells. For bond amounts over $50,000, personal and business financial statements may be required.
Operators that plan to drill an oil or gas well must first obtain a lease from the mineral owner. The lease gives the operator the authority to perform well related duties including exploration, drilling, disposing, etc.
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