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Utah Oil and Gas Well Surety Bonds

The Utah Department of Natural Resources, Division of Oil, Gas and Mining (the Division) 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, deepening, and repairing. The Division conducts permitting, plugging and restoration of well sites; production of wells and well location mapping; investigates and inspects wells; ensures well operations meet the states regulatory standards; reviews reports and forms; and compiles and tracks well data. The Division also provides a process in the event an operator fails to perform the duties set in the rules and orders 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 or other form of financial assurance. The Utah Department of Natural Resources Division of Oil, Gas and Mining requires a surety bond for the plugging of each dry or abandoned well, repairs to wells, 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 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 surety bond is a form of financial assurance to meet the permit requirement. There are several options of financial assurance that meet the requirement: a surety bond or a collateral bond or irrevocable letter of credit. The collateral bond can be cash or a certificate of deposit made payable to the state. The irrevocable letter of credit option will need to be issued by a federally insured bank in Utah. The maximum amount the state can accept from a certificate of deposit or cash is $100,000. The surety bond option must be issued by a company that is authorized to do business in Utah and meet the A.M. Best rating of A- or better, which the Suretygroup.com meets.

A surety bond must be in place from the time of the initial permit up to plugging and abandonment of the well, and does not have the option of being cancelled. The premium will renew on the bond on an annual basis for the life of the well. If the well changes operators, a new bond is required to replace the bond submitted by the previous owner. The Division must review the new owner’s financial eligibility before approving the bond. Failure to maintain a bond will result in a claim by the Division.

The surety 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.

Surety Bond Requirements

A surety bond is required based on the number and depth of wells. The Individual Surety Bond covers a single well. A Blanket Surety Bond covers multiple wells.

Individual Well Surety Bonds:

$1,500 for wells up to 1,000 feet in depth

$15,000 for wells 1,000 to 3,000 feet in depth

$30,000 for wells 3,000 to 10,000 feet in depth

$60,000 for wells more than 10,000 feet in depth

Blanket Surety Bond:

$15,000 for wells less than 1,000 feet in depth

$120,000 for wells more than 1,000 feet in depth

The blanket bond requirement can be met with both a surety bond and collateral bond if necessary.

If operator qualification is required for a new blanket bond, the operator must provide audited financial statements for the previous two years and demonstrate at least a 1.20 ratio or greater for current assets to current liabilities and, the total liabilities to stockholder equity ratio is less than 2.50.

The Division has the authority to approve bond coverage for a lesser amount in instances of good cause. Operator’s requesting a reduced bond amount will need to submit the Request for Agency Action form for approval to the bond requirement.

Operators with wells on state, federal or Indian leases must provide a copy of any surety bonds that have been issued to the Division.

Permit Requirements

Complete the permit application including type of work and well, location of well, lease information, proposed casing and cementing to be used.
Provide a plat or map prepared by a licensed engineer or surveyor.
Provide a drilling plan.
Provide the water use rights approval obtained from the Division of Water Rights.
Operators that are not the lease owner need to complete Form 5, Designation of Agent or Operator.

How Much will This Bond Cost?

The premium that you pay for a Utah Oil and Gas Well 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. Bond amounts over $50,000 may require personal and business financial statements. Contact our Surety Bond Specialists for a free quote.

Did you Know?

Utah was ranked 11th in the nation in crude oil production and 13th in natural gas production in 2016.