Michigan Oil and Gas Well Conformance Surety Bonds

The Michigan Department of Environmental Quality, Oil, Gas and Minerals Division (the Division) is responsible for the issuing of permits and operator compliance of state laws and regulations for oil and gas well operations, plugging, deepening, converting and drilling. The Division conducts permitting, plugging and restoration of well sites; reviews reports and forms; compiles and tracks well data, production of wells and well location mapping; investigates and inspects wells; ensures well operations meet the states regulatory standards; and provides a process in the event an operator fails to perform the duties to meet the conformance bond requirement.

Obligee and Bond Conditions

The obligee is the entity that requires the bond or other form of financial assurance. The Michigan Department of Environmental Quality, Oil, Gas and Minerals Division requires a conformance bond prior to the drilling of any new wells, deepening of wells, and the plugging of wells. The bond ensures compliance of regulations and state laws. Failure to comply or perform the regulations and state laws may result in a claim filed against the financial assurance by the Division. In the instance of a surety bond, if the Division files a claim against the surety bond, the owner and/or operator (named as the principal on the bond form) will be responsible for repayment of the claimed amount if the claim is paid out by the surety.

The conformance bond is a form of financial assurance to meet the permit requirement. There are several options for the conformance bond: cash or a securities deposit, or letter of credit made to the state, a statement of financial responsibility or a surety bond (Form EQP 7200-3).

A conformance bond must be in place from the time of the initial permit up to completion of the well, and does not have the option to be canceled. Final completion is defined as “the time when locating, drilling, deepening, converting, operating, producing, reworking, plugging and proper site restoration have been performed … and the conformance bond released.” The premium will renew on the bond on an annual basis for the life of the well. If the well transfers to new ownership, a new bond is required to fulfill the permit conditions. Failure to maintain a bond will result in a claim by the Division.

The conformance bond also ensures the plugging and surface restoration of the well. The well must pass through an inspection process for proper plugging and the surface restored to meet state standards. Upon the release, the premium for the bond is no longer required.

Surety Bond Requirements:

A conformance surety bond is required based on the number and depth of wells. The single well conformance bond covers individual wells. A blanket conformance bond covers multiple wells.

Single Well Conformance Bonds:

• $10,000 for wells up to 2,000 feet in true vertical depth


• $20,000 for wells 2,000 to 4,000 feet in true vertical depth


• $25,000 for wells 4,000 to 7,500 feet in true vertical depth


• $30,000 for wells more than 7,500 feet in true vertical depth

Blanket Conformance Bond:

• $100,000 for wells up to 2,000 feet in true vertical depth


• $200,000 for wells 2,000 to 4,000 feet in true vertical depth


• $250,000 for wells more than 4,000 feet in true vertical depth

A maximum of 100 wells may be under a blanket conformance bond. Any additional wells require a single well conformance bond or another blanket conformance bond.

The maximum bond amount required for the total number of wells will not exceed a $250,000 conformance bond.

The conformance bond will need to be submitted to:
Michigan Department of Environmental Quality
Oil, Gas and Minerals Division
Permits and Bonding Unit
P.O. Box 30256
Lansing, Michigan 48909-7756

Permit Requirements

1. Complete the permit application and pay the application fee. The check for the application fee will need to be made out to the State of Michigan.
2. Complete the Well Permittee Organizational Report unless one is already on file.
3. The following documents are required when submitting the application:
   
Cover Letter noting any exceptions or special circumstances
Application for Permit to Drill and Operate a Well
Survey Record of Well Location
Supplemental Plat
Directional drilling plans (if well is directionally drilled)
Environmental Impact Assessment and Antrim Project
High Volume Hydraulic Fracturing Operations Environmental Impact Assessment and High Volume Hydraulic Fracturing Operations Chemical Additives Pre-Disclosure Form (if applicable)
Soil Erosion and Sediment Control Plan
Wellhead Blowout Control Systems
H2S Contingency Plan (for wells with hydrogen sulfide)
Injection Well Data (for injection wells)
Intermediate Casing Exception (if applicable)
Letter of Notification (for surface owner, county clerk and local emergency preparedness coordinator)
Application for Voluntarily Pooled Spacing Unit (if exception is applicable)
Voluntarily Pooled Spacing Unit

How Much Will This Bond Cost?

The premium that you pay for a Michigan Oil and Gas Well Conformance Surety Bond is dependent on credit and the number of and depth of wells. Our rates start at $100 for bond amounts $10,000 and under with good credit. Bond amounts over $10,000 start at 1% of the bond amount with good credit. Bond amounts over $50,000 may require personal and business financial statements. Contact our Surety Bond Specialists for a free quote.

Did You Know?

Michigan utilizes an online reporting and application system called EForms. This system makes for timelier processing of permit applications, tracking of applications, data accuracy, and allows applicants to edit, change and resubmit applications.