The South Dakota Mineral and Mining Program Board (Board) is responsible for the issuing of permits and compliance of state laws and regulations of oil and gas well drilling, operation, exploration, and plugging. The Board tracks and maps well locations, production and other well data; addresses water, environment and human health concerns related to wells; ensures that the permitting of the drilling of wells to meet regulatory standards; and provides a mechanism for non-compliance of operator duties through a form of security in which a performance surety bond meets this criteria.
The "obligee" is the entity that requires the bond or other form of security. The South Dakota Department of Environment and Natural Resources, Minerals & Mining Program Board requires that a performance bond be obtained for wells drilled or permitted after July 1, 2013. The bond ensures compliance of state laws and rules. Failure to comply with these terms may result in the shutting down and sealing of property and a claim filed against the performance bond by the Board. If a claim is filed against the bond, you, the owner and/or operator (named as the "principal" on the bond form), are responsible for repayment of the claimed amount if it is paid out.
The bond must be in place at all times and does not have the option to be canceled. The premium will renew on the bond on an annual basis for the life of the well. If the bond is replaced or ownership has changed, a new bond must be filed with the state. Failure to maintain a bond will result in a claim by the Board.
The bond also ensures the plugging and surface restoration of the well. When the well is plugged, the land restored, and passes inspection, the obligee will release the bond and the premium will no longer be due.
Instead of a performance bond, another form or combination of financial security may be accepted by the Board. This can include escrow accounts, letters of credit, trusts, guarantees, or cash deposit’s equal to the required bond amount. The board may also take into consideration as a form of financial security the company net worth when determining the security amount required.
A performance surety bond is required based on the number of wells and the depth of the wells for any well drilled, sold, transferred, or permitted after July 1, 2013. An individual bond is required for each well. A blanket bond is required to cover multiple wells.
The Board may increase the bond amount based on the law at its discretion at any time.
The premium that you pay for a South Dakota Oil and Gas Well Performance bond is dependent on credit, the depth of the well and number of wells. Bond amounts over $50,000 may require business financial statements for underwriting purposes.
Plugging of wells requires surface restoration within one year and may include reclamation such as grading, clean up of drilling wastes, replacing topsoil, seeding, controlling weeds, etc. to return the land as it was before the drilling occurred.
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