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As of March 30th, oil and gas well operators in Missouri face new bonding requirements, and some changes to how their bond amount is calculated. The new legislation was passed in February, to ensure that the state of Missouri, and its citizens, are properly protected in case of unlawful practices by oil and gas well operators.Like all surety bonds, the bond for Missouri oil and gas well operators creates an extra layer of accountability for businesses. If the state of Missouri suffers damages from an oil or gas well operator, they can be compensated according to the bond terms. Well operators found to be in violation of the Missouri laws and statutes, particularly Chapter 259 of the Missouri Revised Statutes, that govern their business could face a bond claim, which can have grave consequences for their finances and reputation.
New Bond Amounts
Like before, all oil and gas well operators in Missouri must be licensed, and must also post a surety bond within 30 days of applying for their license. However, the new rules have changed the bonding amounts, with exact requirements varying based on well size. Here’s a quick guide to the new bond minimums for single well operators:
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 operators can obtain one bond that covers multiple smaller wells. The exact amounts vary based on the size, and number, of wells:
Up to 40 wells of 0-800 ft.: $22,000
Up to 10 wells of 801-1,500 ft.: $25,000
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Wells larger than 1,500 feet must be bonded individually. In this case, the bond minimums for each bonded well will follow the single-well requirements listed above.
The full requirements are laid out in 10 CSR 50-2.020, from the Missouri Code of State Regulations.
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Notably, only new oil and gas well operators in Missouri, who are licensed after March 30 of this year, are subject to the new bond minimums. Current operators are still covered by their previous bonds, although if they decide to transfer their wells to a different operator, the new operator must get bonded according to the new guidelines.
New oil and gas well operators must submit their surety bond– or bonds– to the state geologist’s office. The bond must remain in effect until the state geologist confirms a well has been plugged, and can’t be canceled unless the operator can prove to the state geologist’s office that the well was never drilled in the first place.
Bond Cost Explained
At first glance, the bonding amounts for Missouri oil and gas well operators might look high. However, this represents the bond’s amount of coverage, and not the actual cost to the operator. Bond costs, or premiums, are usually a small percentage of the total bond amount. Your premium will depend on your particular credit history and financial situation. This premium is paid to your surety company, who, in exchange, agrees to underwrite the bond and cover any claims.
While the surety company agrees to pay out claims up to the total bond amount, the well operator is then required to fully repay the surety. This is why oil and gas well operators should do everything in their power to avoid claims. The initial cost of a surety bond might be very reasonable, but the cost of a bond claim could be more than your business can bear.
If you have questions about the new bond amounts, or about any of the Missouri regulations on oil and gas well operators, you can contact the Missouri Department of Natural Resources, or the state’s geologist’s office.
Are you a well operator in Missouri? What do you think of the new bond amounts?