Bonds

PURPOSE: Bonding is necessary before an operator commences oil or gas drilling or operations to insure compliance with the provisions of Chapter 259, RSMo, and the rules of the council, specifically with reference to the proper plugging for abandonment of a well(s). (1) Prior to commencement of drilling or other operations, the operator commencing such drilling or operations shall make, or cause to be made, for each well a good and sufficient bond that— (A) Is secured by an approved financial assurance instrument payable to the state of Missouri, conditioned upon the performance of the duty to comply with all of the laws of the state and the rules and orders of the council; (B) Is submitted on a form provided by the department and approved by the state geologist; and (C) Remains in full force and effect until a letter of release is issued by the state geologist or the bond is forfeited as provided in section (6) below. (2) Bond Amounts. Bond amounts, as determined by the council, shall be no less than the following amounts: MINIMUM SINGLE WELL BOND Depth of Well From To Amount 0' 500' $1,100 501' 1000' $2,200 1001' 2000' $3,300 2001' 5000' $4,400 5001' _____ $5,500 plus $2/ foot beyond 5001 feet Bonds for horizontal wells shall be based on the total measured length of the wellbore from the surface to the depth of the deepest producing horizon. MINIMUM BLANKET WELL BOND Depth of Well Number of Open From To Amount Wells/bond 0' 800' $22,000 40 wells 801' 1500' $25,000 10 wells Wells greater than one thousand five hundred feet (1500') in depth must be bonded individually by a single well bond. (A) A blanket bond amount may be increased by the single well bond amount (which varies depending on the depth of the well—see Minimum Single Well Bond table) for every unplugged well in excess of the maximum allowable unplugged wells per blanket bond as shown in the Minimum Blanket Well Bond table. (B) Operators of all wells permitted prior to March 30, 2016, shall maintain existing bonding amounts for such wells until they are transferred pursuant to 10 CSR 50-2.010(6), deepened, plugged-back, or recompleted pursuant to 10 CSR 50-2.030, or plugged pursuant to 10 CSR 50-2.060(3). (C) Operators of all wells permitted or transferred on or after March 30, 2016, shall comply with bonding amounts stipulated in the Minimum Single Well Bond table or the Minimum Blanket Well Bond table prior to permit issuance or transfer approval. (3) Financial assurance instruments. The state geologist may accept as financial assurance instruments surety bonds, certificates of deposit, and irrevocable letters of credit. (A) Surety bonds shall be subject to the following conditions: 1. Only irrevocable surety bonds shall be accepted. No bond of a surety company shall be cancelled for any reason whatsoever, including, but not limited to, nonpayment of premium, bankruptcy, or insolvency of the operator or issuance of notices of violations or cessation orders and assessment of penalties with respect to the operations covered by the bond, except that surety bond coverage for wells not drilled may be cancelled if the surety provides written notification and the state geologist is in agreement. The state geologist shall advise the surety, within thirty (30) days after receipt of a notice to cancel bond, whether the bond may be cancelled; 2. The surety shall be licensed to conduct a surety business in Missouri; and 3. Both the surety and the operator shall be primarily liable for completion of any remedial actions, including, but not limited to, well plugging, with the surety’s liability being limited to the amount of the bond. (B) Certificates of deposit shall be subject to the following conditions: 1. The certificate(s) shall be in the amount of the bond or in an amount greater than the bond and shall be made payable to or assigned to the state of Missouri, both in writing and upon the records of the institution issuing the certificates, and shall be automatically renewable at the end of the term of the certificate. If assigned, institutions issuing the certificate(s) waive all rights of set off or liens against the certificate(s); 2. No single certificate of deposit shall exceed the sum of two hundred fifty thousand dollars ($250,000) nor shall any permittee submit certificates of deposit aggregating more than two hundred fifty thousand dollars ($250,000) or the maximum insurable amount as determined by the Federal Deposit Insurance Corporation from a single institution. The institution issuing the certificate of deposit must be insured by the Federal Deposit Insurance Corporation (FDIC); 3. Any interest on the certificates of deposit shall be made payable to the operator; and 4. The certificate of deposit shall be kept until the bond is released by the state geologist. (C) Letters of credit shall be subject to the following conditions: 1. The letter of credit shall be no less than the face amount of the bond and shall be irrevocable. A letter of credit used as security shall be forfeited and collected by the state geologist if not replaced by other suitable bond or letter of credit at least thirty (30) days before its expiration date; 2. The beneficiary of the letter of credit shall be the state of Missouri; 3. The letter of credit shall be issued by a bank authorized to do business in the United States. If the issuing bank is located in another state, a bank located in Missouri must confirm the letter of credit. Confirmations shall be irrevocable and on a form provided by the department; 4. The letter of credit shall be governed by Missouri law. The Uniform Customs and Practice for Documentary Credits, fixed by the International Chamber of Commerce, shall not apply; 5. The letter of credit shall provide that the state geologist may draw upon the credit by making a demand for payment, accompanied by his/her statement that the operator’s bond has been declared forfeited; and 6. The issuer of a letter of credit or confirmation shall warrant that the issuance will not constitute a violation of any statute or regulation which limits the amount of loans or other credits which can be extended to any single borrower or customer or which limits the aggregate amount of liabilities which the issuer may incur at any one (1) time from issuance of letters of credit and acceptances. (D) Notification Requirements. 1. In the event the surety company becomes unable to fulfill its obligation under the bond for any reason, notice shall be given immediately to the operator and the state geologist. 2. The surety company or financial institution issuing the financial assurance instrument for bonding purposes shall give prompt notice to the state geologist and the operator of any change in name or address of the institution, or any insolvency or bankruptcy of the institution or any notice received or action filed alleging the insolvency or bankruptcy of the institution or alleging any violations of regulatory requirements which could result in suspension or revocation of the institution’s license to do business. 3. The financial assurance instrument shall provide a mechanism for a surety company or financial institution to give notice per paragraph 2. above. 4. Upon the incapacity of any surety company or financial institution by reason of insolvency or bankruptcy, or suspension or revocation of its charter or license, the operator shall be deemed to be without bond coverage in violation of section (1). The state geologist, upon notification of the institution’s bankruptcy or insolvency, or suspension or revocation of its charter or license, shall issue a notice of violation against any operator who is without bond coverage. The notice shall specify a thirty- (30-) day period to replace bond coverage. If the financial assurance instrument is not replaced in thirty (30) days, an order shall be issued by the state geologist requiring immediate cessation of operations. Operations shall not resume until the state geologist has determined that an acceptable bond secured by an approved financial assurance instrument has been posted. (4) Replacement of bonds. Operators may replace existing surety or personal bonds with other surety or personal bonds. Existing bonds will not be released until the operator has submitted and the state geologist has approved acceptable replacement bonds. (5) Bond Release. Application for release of a bond, and any instruments securing the bond, shall be made by written notice to the state geologist who will issue the letter of release after plugging of the well, or after a new bond, and any instruments securing the bond, is filed by a successor and an appropriate well transfer form is submitted pursuant to 10 CSR 50-2.010(6), and if the requirements of Chapter 259, RSMo, and implementing regulations have been met. (6) Bond Forfeiture. (A) If an operator fails to comply with an order of the state geologist, the state geologist shall issue an order declaring all applicable bonds to be forfeited. (B) If a well is abandoned, plugged, or determined to have not been drilled, and the operator does not respond within six (6) months to reasonable attempts by the state geologist to contact that operator via information provided, the state geologist shall issue an order declaring the applicable bond forfeited. (C) If the state geologist determines that the surety or issuer of a letter of credit or certificate of deposit desires to, and is capable of, completing remedial actions, including, but not limited to, well plugging, the state geologist, under additional terms and conditions as deemed necessary by the state geologist, may enter into an agreement with the surety or issuer of a letter of credit or certificate of deposit on a set schedule of compliance in lieu of collection of the forfeited bond. The remedial actions shall be in accordance with a compliance schedule that meets the conditions of the state geologist. The performer of remedial actions shall also demonstrate that they have the ability to satisfy the conditions. If the surety or issuer of a letter of credit or certificate of deposit fails to complete the remedial actions according to the schedule of compliance, the state geologist shall take action to collect the forfeited bond and any instruments securing the bond. (D) The entry of an order declaring a bond forfeited shall automatically authorize the state geologist, with the assistance of the attorney general, if necessary, to take whatever actions are necessary to collect the forfeited bond and any instruments securing the bond. AUTHORITY: section 259.070, RSMo 2016.* Original rule filed Oct. 11, 1966, effective Oct. 21, 1966. Amended: Filed Sept. 12, 1973, effective Sept. 22, 1973. Amended: Filed Sept. 10, 1979, effective Feb. 1, 1980. Amended: Filed Sept. 13, 1983, effective Dec. 11, 1983. Amended: Filed May 18, 1987, effective July 24, 1987. Amended: Filed Dec. 20, 1988, effective May 25, 1989. Amended: Filed Sept. 15, 2015, effective March 30, 2016. Amended: Filed June 27, 2018, effective Feb. 28, 2019. *Original authority: 259.070, RSMo 1965, amended 1972, 1983, 1987, 1993, 1995, 2012, 2015.