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.
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.
Single Well Bond amounts are determined by the depth of the well.
The Kentucky Oil & Gas Commission may increase the bond amount for any individual well based on projected costs to plug and reclaim the well site.
All bonds are made in favor of the Department of Natural Resources.
Bonds are under the condition that the wells, upon abandonment, are plugged in accordance with the regulations and all records are filed as specified.
The bond remains in effect until the plugging of the well is approved by the department, or the bond is released by the department.
An operator may petition the department to amend the depth and bond amount, and may not drill deeper than stated in the bond unless the petition is approved.
Blanket Bond Amounts for Qualified Well Operators:
Blanket Bond Amounts for Non-Qualified Well Operators:
Deep Well Blanket (for wells permitted after June 24, 2015)
Coal-bed Methane (CBM) Regulations require surety bonds for the production of methane gas from coal seams.
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.
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 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.
The premium that you pay for a Kentucky Oil and Gas Well Surety bond is dependent on credit and the number of wells.
Kentucky claims the first oil gusher in the country, when in 1829, workers boring for salt brine found oil instead.
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