The Michigan Department of Environmental Quality, Oil, Gas and Minerals Division (the Division) is responsible for the issuing of permits and operator compliance of state laws and regulations for oil and gas well operations, plugging, deepening, converting and drilling. The Division conducts permitting, plugging and restoration of well sites; reviews reports and forms; compiles and tracks well data, production of wells and well location mapping; investigates and inspects wells; 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 conformance bond requirement.
The obligee is the entity that requires the bond or other form of financial assurance. The Michigan Department of Environmental Quality, Oil, Gas and Minerals Division requires a conformance bond prior to the drilling of any new wells, deepening of wells, and the plugging of wells. The bond ensures compliance of regulations and state laws. Failure to comply or perform the regulations and state laws may result in a claim filed against the financial assurance by the Division. In the instance of a surety bond, if the Division 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.
The conformance bond is a form of financial assurance to meet the permit requirement. There are several options for the conformance bond: cash or a securities deposit, or letter of credit made to the state, a statement of financial responsibility or a surety bond (Form EQP 7200-3).
A conformance bond must be in place from the time of the initial permit up to completion of the well, and does not have the option to be canceled. Final completion is defined as
“the time when locating, drilling, deepening, converting, operating, producing, reworking, plugging and proper site restoration have been performed … and the conformance bond released.” 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 permit conditions. Failure to maintain a bond will result in a claim by the Division.
The conformance bond also ensures the plugging and surface restoration of the well. The well must pass through an inspection process for proper plugging and the surface restored to meet state standards. Upon the release, the premium for the bond is no longer required.
A conformance surety bond is required based on the number and depth of wells. The single well conformance bond covers individual wells. A blanket conformance bond covers multiple wells.
A maximum of 100 wells may be under a blanket conformance bond. Any additional wells require a single well conformance bond or another blanket conformance bond.
The maximum bond amount required for the total number of wells will not exceed a $250,000 conformance bond.
The conformance bond will need to be submitted to:
Michigan Department of Environmental Quality
Oil, Gas and Minerals Division
Permits and Bonding Unit
P.O. Box 30256
Lansing, Michigan 48909-7756
The premium that you pay for a Michigan Oil and Gas Well Conformance Surety Bond is dependent on credit and the number of and depth of wells. Bond amounts over $50,000 may require personal and business financial statements.
Michigan utilizes an online reporting and application system called EForms. This system makes for timelier processing of permit applications, tracking of applications, data accuracy, and allows applicants to edit, change and resubmit applications.
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