A type of surety bond, oil and gas bonds are an agreement between a principal (oil and gas well operators), an obligee (the state), and a surety (the bonding company). These bonds are designed to ensure the completion of a project if the operator/contractor defaults. Oil and gas bonds are usually required before operators are allowed to drill in a specific area.
Companies known as surety companies provide these types of bonds and are responsible for finding other oil and gas operators to complete the project or to compensate the state in the case of insolvency.
In Texas, the Railroad Commission requires the following Blanket Performance Bonds of oil and gas operators:
- 10 or fewer wells = $25,000 surety bond
- More than 10 wells but fewer than 100 wells = $50,000 surety bond
- More than 100 wells = $250,000 surety bond