Bonds for permits to drill oil and gas wells

Financial assurance requirements under Part 615, Supervisor of Wells, of the Natural Resources and Environmental Protection Act, 1994 PA 45,1 as amended (NREPA); MCL 324.61501 to 324.61527 may be satisfied through any of the following instruments.

Oil and Gas Forms

1. Cash Bond - Cash submitted as a well bond must be a certified check or money order in the appropriate amount (see Highlights) made payable to "State of Michigan".  A personal or company check is not acceptable.  The check should be accompanied by a letter stating its purpose (on behalf of what company and for what well or wells).  If the cash bond is for a single well, write the name and number of the well on the check or money order. 

2. Certificate of Deposit (CD) - A CD may be obtained through a local bank and submitted as a bond.  The CD shall be made out in the sole name of "State of Michigan , Supervisor of Wells, Department of Environment, Great Lakes, and Energy" in the appropriate amount.  A Certificate of Deposit must have a maturity of not less than 1 year and 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) shall be used on all certificates.  The company name must not appear 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.  The interest is paid to the State of Michigan  and reissued to the permittee by State warrant.  In order to receive interest payments and to facilitate release of the CD, the permittee must complete and return an IRS W-9 fill-in form to: Department of Management and Budget, Office of Financial Management, P.O. Box 30026, Lansing, Michigan 48909.  Fax number:  (517) 373-6458.   

Also required with a CD bond is a signed "Acceptance of Certificate of Deposit as Conformance Bond".  The form contains additional instructions to the bank and requires certification by both the issuing bank and the well permittee.  There is an Acceptance form for a single well CD, EQP 7200-15 and an Acceptance form for blanket coverage EQP 7200-16. Please include the permittee's Federal ID Number and the mailing address of the issuing bank on the Acceptance form.  

3. Letter of Credit - A letter of credit can be obtained from a local bank.  Released letters of credit are returned to the issuing bank.  The required language of a single well letter of credit and a blanket coverage letter of credit may be viewed by opening the hyperlink.  Forms EQP 7298 single well or EQP 7299 blanket coverage. Please do not alter the language of these letters in any way.  

4. Surety Bond - The bond form EQP 7200-3 for your surety to use.  The form should be printed with a front side (Bond for Conformance) and a back side (Excerpts from General Rules governing oil and gas operations effective 9/20/96).  Both the front and back of the form are necessary components of the bond.  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 324.210.   The Statement of Financial Responsibility form, EQP 7200-17. 

Please submit well bonds to: 

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

Highlights of the rules are outlined below.    For further information regarding types of bonding, levels of bonding, or questions relating to the release of a bond, contact Permits and Bonding Unit Secretary 517-284-6826.

Highlights of the requirements for oil and gas well bonds

i.e. for wells permitted under Part 615, Supervisor of Wells, of the Natural Resources and Environmental Protection Act, 1994 PA 451, as amended.  The full text of the rules covering oil and gas well bonds (Sections R324.210 - R324.216) may be viewed in the Part 615 Administrative Rules. 

Both single well and blanket bonds are available. Depth of well determines amount (use True Vertical Depth). Initial amount from permit to drill 
Well rework or well deepening may increase or decrease amount 

Amount of Bond

The amount of a bond varies depending on the depth of the well(s) to be covered.   

Bond Discounts - Rule 212(b)

• A maximum of 5 wells may be issued drilling permits with the bonds equal to 1/2 of the full amount 
• Full bond required upon start of well completion operations (perforate casing or acidize in open hole) 

Blanket Bond - Rules 212, 214

• Maximum of 100 wells 
• Surety can limit the number of wells to less than 100 by written notice 
• Surety limit is by date following notice, not by a given number of wells 

Maximum Blanket Bond - Rule 212(d)

• One $250,000 bond may cover all wells 
• No 100 well limit 
• Unless the surety limits (Rule 214) 
• And then limit is by date, not by number of wells 

Compliance agreements may require additional bonds

• NOT required if you have a $250,000 bond 
• Only imposed if general operations bond is not adequate to cover plugging and restorations costs of the well plus other obligations of the permittee under the compliance agreement 

Bond Cancellation - Rule 213

• Surety may cancel a bond with 90 days written notice 
• 40 Days prior to cancellation date, bond must be replaced   OR...OPERATIONS MAY BE SUSPENDED 
• Surety retains liability for violations occurring during the effective term of the bond 

Bond Release - Rule 215

• Liability continues until corrections accepted 

Statement of Financial Responsibility - Rule 210

• Requires the listing and certification of certain financial records of a company 
• Renewed annually