Kentucky Oil and Gas Well Surety Bonds

The Commonwealth of Kentucky's Department for Natural Resources, Division of Oil and Gas, regulates the bonding, permitting, site construction, drilling, casing, operating and plugging of all wells, plus reclamation of well sites. It also protects rights of mineral owners, conserves and protects the crude oil and natural gas resources of Kentucky, and ensures fresh water aquifers and mineable coal seams are protected from unreasonable damage due to production of crude oil and natural gas.

The Division may require well operators to obtain a security, such as a surety bond, to ensure that all statutes and regulations are followed, and that at the end of a project, all wells are plugged, and the reclamation is complete.

Violations of oil and gas statutes and regulations can result in a bond forfeiture.

Obligee and Bond Conditions

An "obligee" is the entity that requires a surety bond or other form of security. In Kentucky, the obligee is the Department for Natural Resources, Division of Oil and Gas.

In lieu of a single-well or blanket bond, other acceptable forms of securities are: a deposit in cash (certified check, cashier's check, money order or cash), an irrevocable letter of credit, certificate of deposit, or individual property bond.

The bond assures compliance with the rules, regulations and orders of the Department, including proper plugging of wells and filing all required records.

The duration of a bond is from the time it is filed with the Department until the Director of Oil and Gas releases the bond. The bond will be released after the owner or operator has plugged the well in accordance with the law, and according to the rules and regulations of the Department.

If an operator does not comply with proper plugging upon abandonment of a well, or submit all required records within the time limits, a notice of noncompliance will be served upon the operator. The notice will specify what violations need to be addressed. The operator has 45 days to comply. If they don't comply, then the bond is forfeited to the Department.

Surety Bond Requirements

Individual or Single Well Bond amounts are determined by the depth of the well.

• 0 to 500 feet = $500
• 501 to 1000 feet = $1,000
• 1,001 to 1,500 feet = $1,500
• 1,501 to 2,000 feet = $2,000
• 2,001 to 2,500 feet = $2500
• 2,501 to 3,000 feet = $3,000
• 3,001 to 3,500 feet = $3,500
• 3,501 to 4,000 feet = $4,000
• 4,001 to 4,500 feet = $5,000
• 4,501 to 5,000 feet = $6,000
• 5,501 to 6,000 feet = $8000


• Vertical Deep Well $25,000
• Horizontal Deep Well $40,000

The Kentucky Oil & Gas Commission may increase the surety bond amount for any individual well based on projected costs to plug and reclaim the well site.

All surety bonds are made in favor of the Department of Natural Resources.

Surety bonds are issued under the condition that upon abandonment of a well, it is plugged in accordance with the regulations and all records are filed as specified.

The surety bond remains in effect until the plugging of the well is approved by the department, or the surety bond is released by the department.

An operator may petition the department to amend the depth and surety bond amount, and may not drill deeper than stated in the bond unless the petition is approved.

Blanket Bond Amounts for Qualified Well Operators:

• 1 to 25 wells = $10,000
• 26 to 100 wells = $25,000
• 101 to 500 = $50,000
• 501 and over = $100,000

Blanket Bond Amounts for Non-Qualified Well Operators:

• 1 to 100 wells = $50,000
• 101 and over = $100,000

• Have a blanket bond in place, filed prior to July 15, 2006 and have no outstanding, unabated violations
• Demonstration compliance with the statues and administrative regulations of the Division for 36 months
• Provide proof of financial ability to plug and abandon wells covered by the blanket bond

• It has more than 10 violations within a 36-month period
• It has outstanding, unabated violations
• It has a forfeiture of a bond, whether an individual bond or portion of a blanket bond
• It has a permit upon which a bond or portion of a bond has been forfeited and the proceeds from the forfeiture have been spent by the department to plug or reclaim the well, unless the operator has made restitution to the department for all costs associated with the forfeiture, plugging and proper abandonment

Deep Well Blanket (for wells permitted after June 24, 2015)

• 1 to 10 vertical deep wells $200,000
• 1 to 10 Horizontal deep Wells $320,000

Coal-bed Methane (CBM) Regulations require surety bonds for the production of methane gas from coal seams.

• $5,000 individual wells
• $100,000 blanket bond

Permit Requirements

Application fee $300 for each well to be drilled, deepened, or reopened for any purpose relating to the production, repressuring, or storage of oil or gas, and for each water supply well, observation well, and geological or structure test hole.

Each application must include a plat which shows the location and elevation of each well, which must be certified as accurate by a professional land surveyor.

Release of Bond

The Division of Oil & Gas will release an individual bond once it determines that a well site is properly closed. This includes properly plugged, site reclamation (for wells permitted after June 24, 2015) has been completed and approved by the Division, or the well has been transferred and bonded by a successor operator.

• The well must be plugged and abandoned under the direction of the inspector
• All surface production facilities have been removed
• Written notice to the Division has been provided by the well operator final site reclamation has been completed in accordance with the Operations and Reclamation Plan:
  
  • Permanent vegetation has been established
  • Permanent culverts and side ditches are installed and functioning properly
  • Round or shape all disturbed areas to conform the site to adjacent terrain

The Division inspector will make an on-site inspection approximately one year after the area is restored to allow ample time for vegetation to be established. If no problems are observed, the bond will be released.

How Much Will This Bond Cost?

The premium that you pay for a Kentucky Oil and Gas Well Surety bond is dependent on credit and the number and depth of the 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.

Did You Know?

Kentucky claims the first oil gusher in the country, when in 1829, workers boring for salt brine found oil instead.

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