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Assuring Operator Compliance With Oil Well Bonds


What situation counts as inadequate in oil well operations? This matter can be quite ambiguous.

Various states have their own laws and regulations regarding both oil and gas well operations, which means that the process of acquiring a surety bond needs more diligence.

To be more specific, an oil well plugging bond is a surety bond that ensures the compliance of oil well operators with applicable industry regulations. The operators must procure a surety bond when obtaining a permit for an oil well project.

A Sluggish Nightmare

In the event that an oil well operator becomes insolvent, the surety bond guarantees compensation of costs of plugging wells. As it so happens, the occurrence of operators abandoning oil wells, which have not produced oil in a year, has increased over the years.

A sub-standard or abandoned oil well becomes a compelling problem for the environment. Likely issues imparted through these wells include contamination of soil and freshwater. This not only creates a hindrance for the property owners, but also individuals residing in surrounding areas.

Watch-dogging Practices

Well owners/operators are required to provide surety bonds to the State agency that oversees oil and gas operations in a particular State.

The bond covers a number of situations:

  • Pollution of surrounding area during well operations
  • Leakage from the oil wells
  • Proper maintenance of non-functional wells
  • Restoration of all drilled/ dug up surfaces
  • Cleaning and settling any pollution, resulting from the operations
  • Proper plugging of abandoned wells

Parties Involved

Oil well surety bonds are a three-party agreement, same as other surety bonds. The underwriting process involves:

  • A Principal (the owner of the bond, the oil well operator)
  • An Obligee (the state authority assured of compensation)
  • A Surety (the bonding company which underwrites the bond)

The bonding process is essentially a guarantee that the surety company has backed the oil well operator to meet the State’s statutory requirements as outlined in the bond form.

If the principal fails in fulfilling the terms of the statutes, the obligee can make a claim against the surety bond. The resultant compensation payouts are fulfilled by the bonding company—on a temporary basis. The principal is obligated to reimburse the bonding company for any costs.

If a well is sold, the seller must be sure the buyer has acquired a replacement bond, as these bonds cannot be cancelled, but must be replaced until the State releases the obligation completely.

BondPro has extensive experience in the numerous aspects of oil well bonds. As an online bond agency, we help clients throughout the US understand the nuances of their surety bond, and provide various underwriting services at the most competitive rates.

Reach out to our experts now at 918-337-4100 to get your bond process started!

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