Surety Bond Encyclopedia

Oil and Gas Lease (Single Well) Bond - BLM in All States

Brief Summary

If you are about to spud a well on a federal lease, BLM wants a lease bond on file first, and the minimum is now $150,000. A surety bond lets you meet that figure for an annual premium instead of handing BLM a cashier's check or certificate of deposit for the full amount.

Before any surface disturbing work tied to drilling on a federal oil and gas lease, the lessee, operating rights owner or operator must be covered by a bond under 43 CFR 3104.10. An individual lease bond must be at least $150,000 under 43 CFR 3104.1. It covers all wells and operations on that one lease, not just a single well, and it is filed on BLM Form 3000-4 with the BLM State office that has jurisdiction over the lease.

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How to Apply for an Oil and Gas Lease (Single Well) Bond:

Identify the federal lease serial number the bond will cover.
Decide who will be principal: the lessee, the operating rights owner or the operator.
Complete the bond application and provide financial information the surety requests.
Execute BLM Form 3000-4 with the surety in an amount of at least $150,000.
File the original bond and the surety's power of attorney with the BLM State office with jurisdiction over the lease.
File the bond before any surface disturbing activity related to drilling begins.

Detailed Information About the All States Oil and Gas Lease (Single Well) Bond:

One lease, every well on it

BLM does not write bonds well by well. The individual lease bond in 43 CFR 3104.20 is conditioned on compliance with all the terms of the lease, so it backs plugging and reclamation for every well you drill on that lease. If you are drilling one well on one federal lease, this is the bond you post. If you hold or operate several leases in the same state, a statewide bond of at least $500,000 under 43 CFR 3104.30 can replace the separate lease bonds.

The amount went up in 2024

BLM's leasing rule effective June 22, 2024 raised the individual lease bond minimum from $10,000 to $150,000. Since that date BLM will not accept a new lease bond below $150,000. Operators holding an older, smaller lease bond can keep operating and filing APDs under it until June 22, 2027, which is the deadline in 43 CFR 3104.1(c) to raise it through a bond increase rider or a replacement bond with an assumption of liability rider. Missing that deadline can lead to wells being shut in, lease cancellation and referral to the Interior suspension and debarment program.

Who posts it and what it guarantees

The operator, a lessee or a sublessee can be the principal. An operator can also be covered under a lessee's bond if the surety files a consent to include the operator. The bond guarantees complete and timely plugging of wells, reclamation of the lease area and restoration of lands or surface waters harmed by lease operations, along with the other lease terms.

BLM can demand more than the minimum. Under 43 CFR 3104.50 the authorized officer may raise the amount for an operator with past violations, unpaid royalties owed to ONRR, or plugging and reclamation costs that exceed the bond. An operator whose earlier bond was drawn on within the past five years for failure to plug or reclaim will be required to post the estimated cost of the new operation if that is higher.

Filing

Use the current BLM Form 3000-4, Oil and Gas or Geothermal Lease Bond. The surety must appear on Treasury Circular 570. File the original bond and the surety's power of attorney with the BLM State office that has jurisdiction over the lease.

What it costs

You pay a premium to the surety, not the face amount. The rate depends on the principal's credit, financial strength, plugging liability and operating history, and it is quoted after underwriting.

Eligibility and Requirements for an All States Oil and Gas Lease (Single Well) Bond:

A surety listed on Treasury Circular 570.
Minimum penal sum of $150,000 for an individual lease bond.
Bureau of Land Management, U.S. Department of the Interior as obligee.
Current BLM Form 3000-4.
Surety consent filed if the operator is to be covered under a lessee's bond.
Possible higher amount set by the authorized officer under 43 CFR 3104.50.

All States Oil and Gas Lease (Single Well) Bond FAQs:

Can I bond just one well instead of the whole lease?

No. BLM lease bonds are conditioned on compliance with all terms of the lease, so a single individual lease bond covers every well and operation on that lease.

My existing lease bond is $10,000. Do I have to replace it now?

Existing lease bonds under $150,000 must be increased or replaced by June 22, 2027. Until then you can keep operating and submit new APDs under the existing bond. Any new lease bond filed today must be at least $150,000.

Should I use a statewide bond instead?

If you have several federal leases in one state, a statewide bond of at least $500,000 covers all of them. For one or two leases, individual lease bonds at $150,000 each usually cost less.

Can BLM ask for more than $150,000?

Yes. The authorized officer can raise the amount based on violation history, unpaid royalties or plugging and reclamation estimates that exceed the bond.

How is the premium set?

The surety prices the bond after reviewing credit, financial statements, the number and condition of wells, and plugging exposure. You pay that annual premium rather than the full $150,000.