New Missouri legislation adopted on February 1, 2016 increases the surety bond amounts for oil and gas well operators with single wells and amends the previous blanket bond amounts for operators using a single bond to cover multiple wells.

What is a well operator?

Despite the price of oil’s recent decline, the oil and gas industry is still booming in the United States, with an estimated 1.7 million wells currently active in the United States and almost 179,000 individuals working in oil and gas extraction as of March 2016. Among those individuals are oil and gas well operators who are responsible for a variety of tasks—established by Missouri Revised Statutes: Chapter 259— relating to the oil and gas industry, including but not limited to the drilling, production, plugging, treatment and spacing of wells.

New Bond Amounts for Well Operators in Missouri

Although not a hub of the industry such as Texas or Kansas, Missouri still ranks 24th out of the 35 states that possess oil and gas wells with 6,590 active wells. Therefore the Missouri Department of Natural Resources believes that certain regulations must be put in place for all operators within the state, including the requirement that all oil and gas well operators in Missouri must become licensed before operations may begin. The licensing process mandates, among other things, that the licensee provide a surety bond in an amount based on the depth of the well and, when it comes to blanket bonds, the number of wells in which they will be operating. With the passage of 10 CSR 50-2.020, the following bond amounts are the minimum requirements for new applicants wishing to become licensed oil and gas well operators in Missouri after March 30, 2016:

• Single Well Bond
  • 0-500 ft. = $1,100
  • 501-1000 ft. = $2,200
  • 1,001-2,000 ft. = $3,300
  • 2,001-5,000 ft. = $4,400
  • 5,001+ ft. = $5,500 plus $2/foot beyond 5,001 feet
• Blanket Well Bond
  • 0-800 ft. = $22,000 covers 40 wells
  • 801-1,500 ft. = $25,000 covers 10 wells
  • 1,501+ ft. = requires individual single well bond

Current oil and gas well operators are still covered by their previous bond amounts. However, if they wish to transfer their well to another operator, then the recipient will be responsible for obtaining a bond that meets the current requirements.

For a more in-depth explanation of the licensing and new bonding requirements, please see 10 CSR 50-2.020.

The importance of being bonded

First and foremost, an applicant for an oil and gas well operator license must supply a surety bond before receiving their license. If the bond is not submitted within 30 days of the application, the Department of Natural Resources will determine the application to be null and void, so the application process must be restarted.

It is also important to be bonded because it guarantees to the department that the state and its residents are not at risk for damage or loss due to a well operator’s failure to comply with all rules and regulations, including those established by Chapter 259 of the Missouri Revised Statutes. Should loss or damage occur, a claim may be filed against the bond in order to seek financial restitution. If the surety has to pay out any money to settle a claim, the well operator must then reimburse them—as promised by signing an indemnity agreement at the time the bond was issued. Therefore, should a well operator fail to abide by the terms and conditions of the bond, they may find themselves owing hundreds, if not thousands, of dollars.

Unless the operator can prove to the state geologist that no drilling has occurred (in which case the bond may be canceled by providing 30 days’ written notice to the department) well operator surety bonds may not be canceled. This means operators are liable for any damages suffered as a result of their work for as long as the bond is in effect. Once it can be proven to the department that the well has been plugged, the operator shall provide written notice to the state geologist who will then release the bond.

For more information on meeting these new bond requirements, contact SuretyBonds.com online or call 1-800-308-4358 to speak with a dedicated Account Manager today.