Blanket bond amounts increase for California oil and gas well operators

By Todd Bryant

Operators of oil and gas wells in California will need to meet new licensing and bonding requirements as of January 1, 2018.


Operators of oil and gas wells in California will need to meet new licensing and bonding requirements as of January 1, 2018. The changes are introduced with Assembly Bill 2729, which was passed in 2016.

As of next year, well operators will have to obtain higher amounts of blanket bonds in order to stay legally compliant. The bond amount will depend on the number of wells handled.

The bill brings changes to other aspects of oil and gas well management as well. It includes new rules for handling idle wells, which encompass new fees and stricter regulations for elimination of unused wells.

Here are the most important points in the new legislation that California oil and gas well operators should consider.

The new blanket bond amounts for California oil and gas well operators

Oil and gas well operators in California obtain their licenses from the Division of Oil, Gas & Geothermal Resources at the state Department of Conservation. One of the licensing requirements is to post surety bonds, which can be for each individual well, or in the form of a blanket bond for more than 20 wells. The new bill introduces higher bond amounts for operators who want to use the blanket bond option.

The new amounts for blanket bonds are based on the number of wells you operate:

●     For less than 50 wells in use: $200,000

●     For less than 500 wells: $400,000

●     For less than 10,000 wells: $2,000,000

●     For more than 10,000 wells: $3,000,000

The bond amounts for individual wells are $25,000 for a well that is less than 10,000 feet deep, and $40,000 for deeper wells.

In case you decide to use the option for a bond that covers all your wells, you need to provide the bonding on the official Blanket Oil and Gas Well Indemnity Surety Bond form required by the Division.

The purpose of surety bonds as a licensing requirement is to provide extra security that well operators will comply with all applicable laws. Bonds can be used for obtaining financial compensation in case of mishandling of wells or other unlawful actions that lead to damages.

Additional changes in the new bill

Besides the blanket bond amounts increase, Assembly Bill 2729 aims to bring better regulation in the management of idle wells. The goal of lawmakers is to tackle problems with neglected and abandoned wells, which present a hazard to the environment and to citizens.

The new bill differentiates between idle and long-term idle wells. Long-term idle wells have not been in use for more than eight years. Previously, this definition was given for wells that haven’t been used for more than ten years. Idle wells, on the other hand, are wells which have not been used for two consecutive years.

Oil and gas well operators in California currently have four options in handling idle wells. They can:

●     pay fees

●     deposit $5,000 per idle well

●     obtain a $5,000 bond per idle well or

●     provide an official plan for the closing of any idle wells.

The new legislation stipulates that operators can only pay fees or file their official plans for elimination. The requirements for the plan are also stricter.

The yearly fees for idle wells are also increased as follows:

●     For wells idle for three to eight years: $150

●     For wells idle for eight to 15 years: $300

●     For wells idle for 15 to 20 years: $750

●     For wells idle for more than 20 years: $1,500

With the stricter rules for handling idle wells and the increased bond amounts, legislators in California aim to improve the management of oil and gas wells. The new law is meant to provide better protection against mishandling of wells in the state that pose risks to nature and people alike.

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