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Pennsylvania Oil and Gas Well Permit Surety Bonds

The Pennsylvania Office of Oil and Gas Management is responsible for the permitting of operators to drill new oil and gas wells, operate existing wells, and plugging of wells in compliance of state regulations. Permit requirements include completing an application, providing drilling details, and providing a form of financial security, which includes a surety bond, a letter of credit, certificate of deposit or negotiable bonds.

Obligee and Bond Conditions

The obligee is the entity that is requiring the financial security. The Pennsylvania Department of Environmental Protection, Office of Oil and Gas Management, manages the Oil and Gas Program (Department). However, the Division of Contracts, Procurement and Bonding are responsible for the bonding.

The choice of a surety bond to meet the financial security requirements means that the bond will need to be in effect from the start of the drilling process up to the plugging of the well, or at the time if a well changes ownership. A surety bond can be replaced with another bond or another form of financial security and can be done for reasons such as obtaining a lower annual premium or new ownership, or to go from a single well bond to a blanket bond. The bond must remain in force on a yearly basis, and the consequences for not paying the annual renewal/premium can result in a claim by the obligee. If the surety pays the claim, you- the owner and or operator “listed on the bond as the principal” will be responsible to pay the claim back.

Upon the plugging of the well and surface restoration has been completed, the obligee will in turn release the bond after one year indicating that all compliance has been met and will issue a Certificate of Plugging. No further renewal payments will be due on the bond after this time.

Surety Bond Requirements

The surety bond is a contract to faithfully perform the duties set forth in the 1984 Oil and Gas Act and the 2012 Oil and Gas Act. Operators and or owners must stay in compliance of these regulations when drilling, plugging, restoring, and during operation of the well at all times. The bond also is a means to protect the environment and public health that may be affected by the well.

The surety bond amount is based on the number of wells and the depth of each well. A single well bond covers each individual well and a blanket bond covers multiple wells.

Wells with a depth of less than 6,000 feet:

50 wells or less -$4,000 per well up to a maximum of $35,000

51 to 150 wells- $35,000 plus $4,000 for each additional well up to a maximum of $60,000

151 to 250 wells- $60,000 plus $4,000 for each additional well up to a maximum of $100,000

251 or more wells- $100,000 plus $4,000 for each additional well up to a maximum of $250,000

Wells with a depth of more than 6,000 feet:

25 wells or less -$10,000 per well up to a maximum of $140,000

26 to 50 wells- $140,000 plus $10,000 for each additional well up to a maximum of $290,000

51 to 150 wells- $290,000 plus $10,000 for each additional well up to a maximum of $430,000

151 or more wells- $430,000 plus $10,000 for each additional well up to a maximum of $600,000

Wells drilled prior to April 18, 1985 are exempt from the bond and financial security requirements. The Department has the option to increase bond amounts under the law to ensure additional liability coverage if need be. The person or company name (the principal) on the permit will need to match and be the same on the bond.

Permit Requirements

Complete the application and pay the application fee.
Provide well information including location of the well, type of well, well proximity to water sources, and any special environmental impact.
Obtain a surety bond or provide a form of financial security.
Provide a plat that details the proposed or existing well location.
Provide any other oil and gas well form applicable to the well site.

How Much Will This Bond Cost?

The premium that you pay for a Pennsylvania Oil and Gas Bond are dependent on credit and the bond amount required. 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. If the bond amount exceeds $50,000, business financial statements may be required for underwriting.

Did You Know?

If a surety bond is cancelled by the surety, you “the principal” are required to replace the bond. A bond is generally only cancelled for non-payment of the premium or for a claim against the bond.