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Mineral Well Bonds

Mineral Well Bonds

Mineral Wells Forms Page 

Financial assurance requirements under Part 625, Mineral Wells, of the Natural Resources and Environmental Protection Act, 1994 PA 45,1 as amended (NREPA); MCL 324.62501 to 324.61518 may be satisfied through any of the following instruments:

  1. Cash Bond - made payable to "State of Michigan ". This must be a certified check or money order for the appropriate amount*. If for a single well, write the name and number of the well on the check or money order.
  2. Certificate of Deposit (CD) - made out in the sole name of "State of Michigan ", Supervisor of Mineral Wells, Department of Environmental Quality". A Certificate of Deposit shall have a maturity of not less than 1 year, must be non-negotiable and pay interest on maturity only (i.e. no more than one interest check per year). The Certificate of Deposit must be automatically renewable. The State's Federal ID Number (38-6000134) should be used on all certificates. If for a single well, put the name and number of the well on the CD. In order to comply with the USA Patriot Act, authorized delegates of the Supervisor of Wells can sign and return signature cards if delivered to them. However, Department employees cannot furnish their Social Security number.

    The Permittee retains the right to all interest accruing to the CD. In order to receive interest payments, the permittee must complete and return an IRS W-9 form to: Department of Management and Budget, Office of Financial Management, P.O. Box 30026, Lansing, MI 48909. Fax number: (517) 373-6458.

    Also required with a CD bond is a signed "Acceptance of Certificate of Deposit as Conformance Bond". There is an Acceptance form for a single well CD, EQP 7200-15MW, and one for blanket coverage EQP 7200-16MW. Please include the permittee's Federal ID Number and the mailing address of the issuing bank on the Acceptance form.
  3. Letter of Credit - Use the examples of a Letter of Credit for a single well EQP_7598-LC or a Letter of Credit for blanket coverage of wells EQP_7599-LC. Please do not alter the form of these letters in any way.
  4. Surety Bond - The bond form, EQP 7200-3MW for your surety is linked. The agent's power of attorney must also be attached. Only original surety bonds are acceptable.
  5. Statement of Financial Responsibility - This method of financial assurance requires the listing and certification of certain financial records of a company. Details of the necessary documents can be found in Rule 299.2330. The Statement of Financial Responsibility form, EQP 7200-17MW is linked.

Please submit well bonds to:

Michigan Department of Environment, Great Lakes, and Energy
Geologic Resources Management Division
Permits and Bonding Unit
PO Box 30256
Lansing, MI 48909-7756

Amounts of Mineral Well bonds are as follows:

Blanket permit for test wells

  • $05,500.00 for 1 to 24 wells
  • $11,000.00 for 25 to 49 wells
  • $16,500.00 for 50 to 75 wells
  • $22,000.00 for 76 to 200 wells

Individual test well permit

  • $05,500.00 for a depth of 0 to 1000'
  • $11,000.00 for a depth greater than 1000' to 2000'
  • $22,000.00 for a depth greater than 2000' to 4000'
  • $33,000.00 for a depth greater than 4000'

Individual Disposal, storage, or brine well

  • $33,000.00

Blanket coverage for Disposal, storage, brine, and individual test wells

  • $440,000.00

Excerpts of the bonding rules are below. For further information regarding types of bonding, or levels of bonding, or questions relating to the release of a bond, contact Permits and Bonding Unit Secretary 989-284-6826.

Excerpts from Part 625, Mineral Well, of the Natural Resources and Environmental Protection Act (NREPA), 1994 PA 451, as amended

R 299.2302 Definitions; A to F.

  1. "Conformance bond" means a surety bond that has been executed by a surety company authorized to do business in this state, cash, certificates of deposit, letters of credit, or other securities that are filed by a person and accepted by the supervisor of mineral wells to ensure compliance with the act, these rules, permit conditions, instructions, orders of the supervisor of mineral wells, or an order of the department.
  1. "Final completion" means either of the following:
    1. The time when locating, drilling, deepening, converting, operating, producing, reworking, plugging, and proper site restoration have been performed on a well in a manner approved by the supervisor of mineral wells, including the filing of the mandatory records.
    2. The time when a permit has been issued to convert an existing well subject to this part to a purpose allowed under another act or another part of the act.

R 299.2330 Conformance bond or statement of financial responsibility requirements. 
Rule 2330.

  1. A person who files an application for a permit to drill and operate a well under R 299.2311, or who acquires a well under R 299.2325(3), shall file a conformance bond with the supervisor of mineral wells on a form prescribed by the supervisor of mineral wells or shall submit a statement of financial responsibility as required in subrule of this rule.
  2. A statement of financial responsibility shall consist of the following:
    1. A written statement which is signed by the person, which lists data that show that the person meets the criteria specified in subrule of this rule, and which states that the data are derived from an independently audited year-end financial statement.
    2. A copy of an independent certified public accountant's report on examination of the person's financial statements for the latest completed fiscal year.
    3. A special report from the person's independent certified public accountant stating that the accountant has compared the data listed in the statement provided under subdivision of this subrule with the amounts in the corresponding year-end financial statement and that nothing came to the attention of the accountant which caused the accountant to believe that the financial records should be adjusted.
  3. If a person submits a statement of financial responsibility instead of a conformance bond, then the person shall meet the criteria of either subdivision or of this subrule, as follows:
    1. A person required to file the statement of financial responsibility shall have all of the following:
      1. Two of the following 3 ratios:
        1. A ratio of total liabilities to net worth of less than 2.0.
        2. A ratio of the sum of net income plus depreciation, depletion, and amortization to total liabilities of more than 0.1.
        3. A ratio of current assets to current liabilities of more than 1.5. Proved mineral reserves may be used in determining current assets only to the extent that the value of the reserves exceeds the projected costs of development and production.
      2. Net working capital and tangible net worth each of which is not less than 3 times the amount of the conformance bond provided in R 299.2332, if the person had elected to file a conformance bond.
      3. Total assets in this state that are not less than 3 times the amount of the conformance bond provided in R 299.2332, if the person elected to file a conformance bond. Projected mineral reserves may be used in determining current assets only to the extent that the value of the reserves exceeds the projected costs of development and production.
      4. A written statement from a certified public accountant which states that no matter came to the attention of the accountant which caused him or her to believe that the financial records should be adjusted.
    2. A person required to file a statement of financial responsibility shall have all of the following:
      1. A current rating for his or her most recent bond issuance of AAA, AA, A, or BBB as issued by Standard and Poor's or AAA, AA, A, or BAA as issued by Moody's.
      2. A tangible net worth of not less than $2,000,000.00.
      3. Total assets in this state that are not less than 3 times the amount of the conformance bond provided in R 299.2332, if the person had elected to file a conformance bond. Projected mineral reserves may be used in determining current assets only to the extent that the value of the reserves exceeds the projected costs of development and production.
  4. A person shall submit a statement of financial responsibility to the supervisor of mineral wells not less than 60 days before the date the financial assurance is scheduled to take effect.
  5. After the initial submission of a statement of financial responsibility, the person shall send an updated statement of financial responsibility to the supervisor of mineral wells within 90 days after the close of each succeeding fiscal year.
  6. If a person no longer meets the requirements of subrule of this rule, he or she shall send notice to the supervisor of mineral wells of the intent to establish alternate financial assurance by filing a conformance bond as specified in subrule of this rule. The notice shall be sent, by certified mail, within 90 days after the end of the fiscal year for which the year-end review of the financial records shows that the person no longer meets the requirements. The person shall provide the alternate financial assurance within 120 days after the end of the fiscal year.
  7. The supervisor of mineral wells may, based on a reasonable belief that the person no longer meets the requirements of subrule of this rule, require a report at any time from the person in addition to the information required by subrule of this rule. If the supervisor of mineral wells finds, on the basis of a review of the report or other information, that the person no longer meets the requirements of subrule of this rule, then the supervisor of mineral wells or authorized representative of the supervisor of mineral wells shall notify and inform the person. Within 30 days of the notification, the person shall provide alternate financial assurance by filing a conformance bond as specified in subrule of this rule or shall bring the well to final completion. Failure to comply with this subrule shall be cause for immediate suspension of any or all components of the operations on the well.
  8. The supervisor of mineral wells may require additional conformance bonds to ensure compliance with orders of the supervisor of mineral wells. The conformance bond shall be in addition to the conformance bonds filed under R 299.2332(a), (b), or and shall be required only if the supervisor of mineral wells determines that the existing conformance bond is not adequate to cover the estimated cost of plugging the well and conducting site restoration or other obligations of the permittee under the order. A person is not required to file additional conformance bonds under this subrule if the person has filed a blanket conformance bond or bonds in an aggregate amount of $400,000.00 or more, under R 299.2332(d). Subject to the provisions of R 299.2333, the additional conformance bond shall be released when the permittee has complied with all provisions of orders of the supervisor of mineral wells.
  9. Conformance bonds that were in effect before the effective date of these rules shall remain in effect under the conditions upon which they were filed and accepted by the supervisor of mineral wells.

R 299.2331 Liability on conformance bond. 
Rule 2331.

  1. The liability on the conformance bond is conditioned upon compliance with the act, these rules, permit conditions, instructions, or orders of the supervisor of mineral wells. Subject to the provisions of R 299.2333, liability shall cover all operations of the permittee as follows:
    1. Until transfer of the permit for the subject well under R 299.2325(4).
    2. Until final completion approved by the supervisor of mineral wells of the subject well..
    3. Until such time as another bond is in place.
  2. The supervisor of mineral wells shall look to the conformance bond for immediate compliance with, and fulfillment of, the full conditions of the act, these rules, permit conditions, instructions, or orders of the supervisor of mineral wells. All expenses incurred by the supervisor of mineral wells in achievement of compliance with, and fulfillment of, all conditions of the act, these rules, permit conditions, instructions, or orders of the supervisor of mineral wells shall be paid by the permittee or the surety or from cash or securities on deposit. The claim shall be paid within 30 days of notification to the permittee or surety that expenses have been incurred by the supervisor of mineral wells. If the claim is not paid within 30 days, then the supervisor of mineral wells, acting for and on behalf of the state, may bring suit for the payment of the claim.

R 299.2332 Conformance bond amounts. 
Rule 2332. A person who drills or operates a well shall file a conformance bond with the supervisor of mineral wells for the following amounts, as applicable:

  1. Single well conformance bonds shall be filed in the following amounts, as applicable:
    1. $33,000.00 for a disposal, storage, or brine well.
    2. For an individual test well:
      1. $5,500.00 for a depth of 0 to 1,000 feet.
      2. $11,000.00 for a depth greater than 1,000 feet to 2,000 feet.
      3. $22,000.00 for a depth greater than 2,000 feet to 4,000 feet.
      4. $33,000.00 for a depth greater than 4,000 feet.
    3. For a blanket test well permit, the following:
      1. $5,500.00 for 1 to 24 wells.
      2. $11,000.00 for 25 to 49 wells.
      3. $16,500.00 for 50 to 75 wells.
      4. $22,000.00 for 76 to 200 wells.
  2. Blanket conformance bonds may be filed as an alternative to single well conformance bonds. If a blanket conformance bond is used, then the permittee shall provide the supervisor of mineral wells with a list of wells covered by the blanket conformance bond. A maximum of 50 brine, storage, disposal, or individual test wells or any combination of these may be covered by a blanket conformance bond. If the permittee has more than 50 wells in a category, then the additional wells may be covered by single well conformance bonds or additional blanket conformance bonds. Blanket conformance bonds shall be filed in the amount of $440,000.00.
  3. Blanket test well permits shall not be eligible for blanket conformance bonds.
  4. The permittee is not required to file a blanket conformance bond or bonds in an aggregate amount of more than $440,000.00. If the aggregate amount of the conformance bonds is $440,000.00, then the permittee may file 1 blanket conformance bond of $440,000.00 to cover all of his or her wells.

R 299.2333 Liability under conformance bonds issued by a surety. 
Rule 2333. A surety company shall retain liability for all violations of the act, these rules, permit conditions, and instructions, or orders of the supervisor of mineral wells that occurred at the well during the time the conformance bond was in effect until the violations have been corrected and the corrections are accepted by the supervisor of mineral wells.

R 299.2334 Limitation of additional liability of blanket conformance bonds. 
Rule 2334. A surety company may refuse to accept liability for additional wells under a blanket conformance bond by giving 10 days notice by certified mail to the supervisor of mineral wells. The blanket conformance bond shall continue in full force and effect as to all other wells covered by the blanket conformance bond for which permits were granted or transferred to the permittee before the effective date of the notice.

R 299.2335 Release of conformance bonds; release of well from blanket conformance bond. 
Rule 2335.

  1. A conformance bond shall be released or a well shall be released from a blanket conformance bond by the supervisor of mineral wells or authorized representative of the supervisor of mineral wells if the permit for the well has been transferred to a new person as provided by R 299.2325(4) or if the well has been brought to final completion.
  2. The release of the conformance bond or the release of a well from a blanket conformance bond does not release a permittee from liability for any violations of the act, these rules, permit conditions, instructions, or orders of the supervisor of mineral wells which occurred during the time the conformance bond was in effect and which have not been corrected and accepted by the supervisor of mineral wells.
  3. A conformance bond filed to comply with a permit that has become terminated shall be released if there is final completion.

R 299.2336 Notice of release of conformance bond or release of well from blanket conformance bond. 
Rule 2336.

  1. The supervisor of mineral wells or authorized representative of the supervisor of mineral wells shall advise the surety company and the permittee when the conformance bond has been released or a well has been released from a blanket conformance bond.
  2. The supervisor of mineral wells or authorized representative of the supervisor of mineral wells shall return cash to the permittee or securities to the institution that provided the bonding instrument when the conformance bond has been released.