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What are Requirements for California Oil and Gas Well Surety Bonds?

California's Division of Oil, Gas and Geothermal Resources oversees the drilling, operation, maintenance, plugging and abandonment of oil, gas, and geothermal wells. Oil and gas operators in California must file individual or blanket bonds with the Department. The bonds protect the State of California from financial loss, protect the environment, prevent pollution, and ensure public safety.

A bond covers drilling, redrilling, deepening, or other operations permanently altering the casing in oil, gas, geothermal or service wells. The bond can be forfeited if an operator fails to plug and abandon a well, failure to clean up a spill or screen a sump associated with a well.

The bond must be obtained with a surety agency that is licensed in California. SuretyGroup.com is licensed to write all surety bonds in California, including all oil and gas bonds.

Obligee and Bond Conditions:

The "obligee" is the entity that requires the bond or other form of security. California's Division of Oil, Gas and Geothermal Resources is the obligee for California oil and gas well drillers.

Instead of a surety bond, another form of security may be accepted by the Division. Acceptable forms of security include a certified or cashier's check, certificates of deposit, or savings passbook account number.

If the business is a partnership, then all the names of the partners must be on the bond, stating that they are a partnership, and with the name of the firm listed. If the principal is a corporation, then a seal from the corporation must be affixed on the bond. A seal of the surety must also be affixed.

The name of the principal and the well designation must coincide exactly on both the bond form and on any notice of intention to drill, redrill, deepen, abandon, reabandon, or permanently alter the casing on a well.

Surety Bond Requirements:

Some well operations that require a surety bond include:

Drilling, redrilling, or deepening a well
Mill out or remove casing or liner
Run and cement casing, tubing, liner, or inner liner
Reentry of an abandoned well that is not bonded
Drill and operate a commercial geothermal well
Operate a commercial waste water disposal well
Maintain a well that has been idle for five or more years

There are two types of bonds: Individual well surety bonds and blanket surety bonds.

Individual Oil and Gas Well Indemnity Bond are for single wells, active or idle
Blanket Oil and Gas Well Indemnity Bond are for 20 or more bondable wells

Surety Bond amounts:

Individual wells:
$25,000 - less than 10,000 feet total depth
$40,000 - 10,000 feet and greater total depth
$5,000 - five-year idle well bond
$25,000 - geothermal wells:

Individual low-temperature geothermal wells (may qualify for exemption from bonding if used for domestic or non-commercial purposes)
$2,000 - less than 2,000 feet total depth
$10,000 - at least 2,000 in depth but less than 5,000 feet
$15,000 - at least 5,000 and less than 10,000
$25,000 - a least 10,000 or greater
Onshore wells covered by a blanket surety bond, which is 20 or more bondable wells at any time. If there are less than 20 wells, individual well bonds must be filed.
$200,000 - 50 or fewer wells (does not cover idle wells)
$400,000 - more than 50 (does not cover idle wells)
$2,000,000 - covers all onshore wells, including idle wells

Operators with $200,000 or $400,000 blanket indemnity or cash bond must pay either idle-well fees, maintain an escrow account, or file idle-well bonds at $5000 each.

Operators with $200,000 blanket indemnity bond with over the 50-well limit must file a rider to increase the bond to $400,000 or $2,000,000.

Operators with $200,000 blanket cash bond and well amount exceeds 50 must complete a new bond form for $400,000 and file an additional $200,000 security deposit, or file a $2,000,000 blanket bond.

Offshore wells covered by a blanket surety bond = $1,000,000
Geothermal wells covered by a blanket surety bond = $100,000
Individual Class II Commercial Waste-Water Disposal Wells surety bond = $100,000
Individual five-year idle wells = $5,000

Life-of-Well or Life-of-Production Facility Bond: For operators with a history of noncompliance. The surety bond amount will vary according to the costs of removing a well or a production facility associated with a well.

Permit Requirements:

Before drilling, operators must:

Designate an agent as a company contact.
Submit a completed permit request form, "Notice of Intention to Drill New Well"
Comply with requirements of the California Environmental Quality Act
Submit an individual indemnity or cash bond with the Notice of Intention to Drill New Well, unless a blanket bond has already been filed
Receive Division Approval before begin drilling. The permit must be posted at the drill site at all times.

How Much will This Bond Cost?

The premium that you pay for a California Oil and Gas Well surety bond is dependent on credit and the number of wells. Our rates start at $100 for bond amounts $10,000 and under with good credit. Bond amounts over $10,000 start at 1% of the bond amount with good credit. Contact our Surety Bond Specialists for a free quote.For bond amounts over $50,000, personal and corporate business financial statements may be required.

Did You Know?

A surety bond rider would be needed if there is a name change of the principal, a designation change on the well, or to increase the monetary liability of a bond or previous rider.