The Colorado Department of Natural Resources, State Land Board, Oil & Gas Conservation Commission (the Commission) is responsible for the issuing of permits and operator compliance of state laws and regulations for oil and gas well drilling, exploration, operation and plugging. The Commission maintains and tracks well data; well mapping, and production of wells; conducts the permitting of well sites, plugging and restoration of well sites; ensures well operations meet the states regulatory standards; and provides a process in the event an operator fails to perform the duties to meet the financial security requirement.
The obligee is the entity that requires the bond or other form of security. The Colorado Department of Natural Resources, State Land Board requires a surety bond prior to the assignment or permit to drill new wells, deepening of wells, and the plugging of wells. The bond ensures compliance of regulations and state laws. Failure to comply with regulations and state laws may result in a claim filed against the surety bond by the Commission. If the Commission files a claim against the 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 surety bond must be in place from the time of the initial permit effective May 2016, up to plugging 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 was in existence prior to May 2016 and has new ownership after this date, a new bond is required to fulfill the permit/assignment conditions. Failure to maintain a bond will result in a claim by the Commission.
The bond also ensures the plugging and surface restoration of the well. When the well is plugged and the land is restored, it must pass inspection in order for the Commission to release the bond. Upon the release, the premium for the bond is no longer required.
Instead of a surety bond, another form of financial assurance may be accepted by the Commission. Acceptable forms of security includes cash or a letter of credit equal to the required bond amount.
A performance surety bond is required based on the number of wells for any well sold, transferred, drilled or permitted after May 2016. An individual bond is required for up to 3 single wells. A blanket bond is required for four or more wells.-Individual Bond: A $10,000 individual bond is required for wells less than a depth of 3,000 feet. A $20,000 individual bond is required for wells equal to or more than 3,000 feet in depth.
The premium that you pay for an Colorado Oil and Gas Well Performance Surety bond is dependent on credit and the number of wells. Bond amounts over $50,000 may require personal and business financial statements. Contact our Surety Bond Specialists for a referral to an agency that writes these bonds.
Colorado requires all new drilling operations to run a minimum resistivity log or other log acceptable to the Commission to describe the stratigraphy of the wellbore. Rule 317.p
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