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Tennessee Oil and Gas Well Permit Surety Bonds

The Tennessee Department of Environment and Conservation, Division of Water Resources, Oil and Gas Program (the Program) is responsible for the issuing of permits and operator compliance of state rules and regulations for oil and gas well drilling, re-drilling, operations, plugging and abandonment. The Program conducts well location mapping, investigates and inspects wells, ensures well operations meet the states regulatory standards, reviews reports and forms, compiles and tracks well data, and provides a process in the event the operator fails to perform the duties set in the rules and regulations or fails to maintain a bond during the life of the well.

Obligee and Bond Conditions:

The obligee is the entity that requires the bond. The Tennessee Department of Environment and Conservation, Division of Water Resources, Oil and Gas Program requires a surety bond for the plugging of each well and maintaining and restoring well sites. The bond ensures faithful performance and compliance of state regulations and rules. Failure to comply or perform the regulations and rules may result in a claim filed against the bond by the Program. In the instance of a surety bond, if the Program 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.

A surety bond is a form of financial assurance to meet the permit requirement. There are several options of financial assurance to meet the requirement: a surety plugging bond, a cash plugging bond, letter of credit, or plugging bond. The cash plugging bond option requires the bond amount to be paid through a certified check made payable to the state or a cash deposit. The letter of credit plugging bond option will need to be issued by a federally insured bank. The surety plugging bond option must be issued by an insurance company authorized and licensed to do business in Tennessee, which SuretyGroup.com meets this requirement.

A surety bond must be in place from the time of the initial permit up to plugging and abandonment of the well, and has the option of being cancelled by the surety. The premium will renew on the bond on an annual basis for the life of the well. However, if it is cancelled by the surety, the operator has 60 days to replace the bond. Failure to replace to replace the bond can result in the operator being forced to stop well operations, and a claim may be placed against the bond.

If the well changes operators, a new bond is required to replace the bond submitted by the previous owner within 60 days. The Program must review the new owner’s eligibility before approving the change. Failure to acquire a replacement bond will result in a claim, otherwise known as forfeiture, by the Program.

The surety bond also ensures the plugging and surface reclamation of the well site. The well must pass through an inspection process for proper plugging and the surface restored to meet state standards. Upon approval of the bond release, the premium for the surety plugging bond is no longer required.

Surety Bond Requirements:

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

Individual Well Surety Plugging Bond:

$2,000 for wells up to 2,500 feet in depth

$3,000 for wells 2,500 to 5,000 feet in depth

$3,000 + $1.00 for each foot over 5,000 feet in depth

Blanket Surety Bond:

$20,000 up to 10 wells with a maximum depth of 5,000 feet

$30,000 for up to 10 wells with a maximum depth of 10,000 feet

If well depth exceeds 10,000 feet, the well is not eligible to be included in a blanket bond.

Permit Requirements

Complete the Permit to Drill application including operator information, location of well, lease information, type and purpose of well, proposed casing and cementing to be used.
Provide the appropriate surety bond for this application.
Provide a copy of the well location plat.
Complete the Organization Report.
Complete the Surface Owner Certification – landowner notification .
Complete the Pooling Affidavit if well sites have more than one land owner.
Complete the Reclamation Plan commitment form.

How Much will This Bond Cost?

The premium that you pay for a Tennessee Oil and Gas Well Permit Surety Bond is dependent on credit and the number of and depth of wells. 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.

Did you Know?

All well operators are expected to have knowledge and abide by the Tennessee Oil and Gas Rules and Regulations. For questions and concerns contact the Environmental Field Office 615-687-7120.