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Louisiana Oil and Gas Well Performance Surety Bond

The Louisiana Department of Natural Resources, Office of Conservation (the Office) regulates oil and gas production in the state, including exploration and production activities and intrastate gas storage. The Office issues operator permits, collects and tracks active and inactive well data and maintains well field maps, conducts inspections for new wells, plugging of wells and site remediation of well sites, and provides a financial assurance element in the event an operator fails to perform the duties to meet the state requirements.

Obligee and Bond Conditions

The obligee is the entity that requires the bond. The Louisiana Department of Natural Resources, Office of Conservation, requires a form of financial assurance before any new drilling of wells, deepening, operation, plugging and abandoning of an existing well. The bond ensures compliance of regulations and state laws. Failure to comply or perform by the state laws and regulations may result in a claim filed against the bond by the Office. In the instance of a surety bond, if the Office 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. Other forms of financial assurance/responsibility are forfeited when a valid claim has been made.

The Office allows for several options to meet the financial security requirement, which includes a performance surety bond, certificate of deposit or an irrevocable letter of credit. The option to pledge an irrevocable letter of credit requires form FS-LCMW to be completed by a qualified financial institution. The option to pledge a certificate of deposit requires form FS-CDMW to be completed. The option of a performance bond requires form FS-PBMW to be completed by a surety.

The performance surety bond must be in place from the time of the issuance of the permit up to the plugging of the well and does not have the option to be cancelled. 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 financial security conditions. Failure to maintain or replace the bond or financial security will result in a claim by the Office.

The performance surety bond also ensures the well will be properly plugged and surface remediation completed. The plugged well must pass through an inspection process and the surface reclaimed to meet state standards. The Office will release the financial security after the plugged well passes inspection, which in the case of a performance bond, renewal premium will no longer be required.

Surety Bond Requirements

A performance surety bond is required and the bond amount is based on the depth of the wells, the number of wells, and whether the well is on land, coastal waters or offshore waters.

Individual Well by Footage

Depth	Land Locations	Water-Coastal	Water-Offshore
<3,000 ft	$2 ft	$8 ft	$12 ft
3,001 – 10,000 ft	$5 ft	$8 ft	$12 ft
>10,000 ft	$4 ft	$8 ft	$12 ft

Blanket Performance Bond–Prior to August 12, 2016 (grandfathered)

Number of Wells	Land Locations	Water-Coastal	Water-Offshore
<10	$25,000	$250,000	$500,000
11-99	$125,000	$1,250,000	$2,500,000
>100	$250,000	$2,500,000	$5,000,000

Blanket Performance Bond–After August 12, 2016

Number of Wells	Land Locations	Water-Coastal	Water-Offshore
<10	$50,000	$250,000	$500,000
11-99	$250,000	$1,250,000	$2,500,000
>100	$500,000	$2,500,000	$5,000,000

The performance bond will need to be filed with the Louisiana Office of Conservation
Attn: Financial Security 9th Floor PO Box 94275
Baton Rouge, LA 70804--9275

The Office may request additional financial security for grandfathered operated wells if the operator has been noncompliant.

Permit Requirements:

Complete the permit application and pay the permit fee. Submit one original and two copies of the application.
The well application will need to include the type of permit that is being applied for, type of well, well information, applicant and operator information, provide a list of all permits or construction approvals applied for, well construction and specific type of well information .
Provide an original and one copy of either form MD-10R (new well) or MD-10RA (conversion).
In addition to completing the application, a technical report for the proposed well must be submitted as an attachment. The application should be submitted with the assistance of a professional geologist, engineer or hydrologist. Submit one original and two copies.
Provide an original and two copies of a certified location plat for each well.

How Much will This Bond Cost?

The premium that you pay for a Louisiana Oil and Gas Well Performance Surety Bond is dependent on credit and depth, location of wells and the number of wells. Contact our Surety Bond Specialists for a referral to an agency that writes these bonds.

Did you Know?

An operator must request in a letter to the Office to release the financial security when the well has either been plugged or if the well is changing ownership. The letter will need to include the type of financial security to be released (bond, CD, or letter of credit).