An oil and gas bond is an agreement between three entities: the principal (the business buying the bond), the obligee (the federal or state entity overseeing licensure), and the surety company that issues and backs the bond. In this case, the principal is any business that is involved in the process of extracting oil and gas, and the obligee is usually either the Department of Interior’s Bureau of Land Management (BLM), the Bureau of Ocean Energy Management, or another state entity in charge of regulating well activity. Unlike insurance, this bond protects the state and the public, rather than the principal, against unethical or illegal practices. For this reason, an oil and gas bond is federally required before being able to obtain a permit to operate. The total required bond amount starts at $10,000, and our starting bond premium is 1% of the total amount, so $100 for a $10,000 bond. However, the bond type and total amount vary depending on several factors.

Example Oil and Gas Bond
Example Oil and Gas Bond

How Much Does an Oil and Gas Bond Cost?

The cost, or premium, is only a percentage of the total bond amount, and oil and gas bond premiums are typically between 1%-5% of the total bond amount. Surety agencies also base the price on the buyer’s credit score and history, business and personal finances, and professional experience within the industry. Because of the nature of the gas and oil industry, these bonds are considered high risk, so an excellent credit score and a few years of experience in the industry are extremely suggested before applying. Those with higher credit scores can expect to see rates between 1.5%-3% and buyers with notably low credit scores can still get bonded, but should expect premium rates closer to 10%-15%. Our premiums start at 1% of the total amount of the bond, as low as $100 for a $10,000 total, for example. In addition, these bonds remain in effect until the project ends, but buyers will have to pay the premium annually until that point.

We’re committed to offering our customers the best rates available on the market for their bonds.  To do this, we have partnered with over 10 insurance partners, allowing us to find the best price available for each customer.  Each surety company will rate each business differently, so even if a business has been declined or quoted a high premium, we can find a great, affordable quote from one of our 10 partners.  

Who Needs an Oil and Gas Bond?

All businesses involved in drilling, redrilling, deepening, operation, maintenance, or repairing wells trying to obtain a license or permit are federally required to post an oil and gas bond. Additionally, contractors involved in the drilling, well plugging, maintenance, cleanup process and those leasing federal, state, or tribal land may also be required to post an oil and gas bond.

What Factors Affect the Required Type and Total Bond Amount?

The bond type that may be required and the total of the bond that must be posted is determined by the obligee, and depends on many factors, including but not limited to:

  • The amount of wells
  • Depth of wells
  • Location of wells such as: Geographic land make-up and the area of jurisdiction in which governing entities oversee well activity
  • Whether project is on-shore or off-shore

What Does an Oil and Gas Bond Do, and How Does it Work?

Unlike typical insurance, an oil and gas bond protects the public and the government that the business deals with, not the principal itself. An oil and bond is a legal agreement between the government, business, and surety company. The bond guarantees that the business will abide by the law, follow industry standards, and maintain environmental safety precautions, and is primarily used to cover the financial or environmental damages involved in the cleanup process. If the business makes a mistake or is involved in unethical or illegal activity, a claim can be filed against the business to be compensated for the harm caused by the error. The bond then takes care of the financial burden for the business. It covers the immediate monetary repercussions (an amount not greater than the total of the bond) on its behalf. Then, the business will be required to back the surety company the debt that is owed. Additionally, because the cleanup process must take into account the safety of the public and the health of the environment, the closure of these bonds usually need to be signed off on by the obligee in order to ensure that the project has been completed without any short-term or long-term harm. This means that claims may be filed for a longer period of time, even after the official project itself has been completed.

What Kind of Bonds May be Required?

It is important to note that various types of bonds may be required depending on the project's size, nature, and location. First, you will need to determine the type of basic bond you need that is federally required of all oil and gas companies. There are three general options to choose from, including:

An Individual Bond

  • Provides coverage for one lease
  • The total bond amount required is usually around $10,000

A State, Nationwide, or National Petroleum Reserve in Alaska Oil and Gas Bond

  • These can be posted instead of an individual bond. 
  • A statewide bond is usually around $25,000 covers all permits and projects in one state, and must be filed through the Bureau of Land Management office overseeing the project locations. 
  • A nationwide bond is usually around $150,000 covers all permits and projects across the country, and may be filed in any BLM office in the nation.

A Bond of Oil and Gas Unit Operator

  • These may be filed in place of individual bonds as well. The total bond amount is set by the officer approving Unit plans of development and/or oversees Unit Operations, which is usually around the same amount of a statewide bond. These must be filed through the BLM office that oversees the project's location.

Next, additional oil and gas bonds may be required depending on the state and activities of the business. These additional bonds and their purposes are shown below:

Type of Bond Purpose of Bond
Plugging and Abandonment Bonds  - Are used to protect the public
- Ensures that wells are properly plugged and sealed at the end of the project
- Provide a safety net for the cost of cleaning up old wells if not properly plugged and sealed at the end of the project
Right of Way Bonds - Are sometimes required in order to obtain a permit to work on a public “Right of Way”
Additional Lease Bonds - The onshore land leased for oil and gas projects requires a surety bond for leasing land with the purpose of extracting oil and drilling wells
- These are general bonds serve to protect the government and public against any financial or environmental harm caused by the project
Performance Bond - Ensures the contractors complete the project under certain requirements that are explicitly set forth
- These can apply to both drilling contracts and service contracts


Finally, assess whether your business may need additional types of bonds that may be required to operate and obtain licensure in certain states, such as:

What States Require Additional Oil and Gas Bonds?

The federal government has laws regulating the general oil and gas bonds, but the following states have additional required bonds that must be posted before obtaining a permit:

  • California
  • Colorado
  • Georgia 
  • Idaho
  • Illinois
  • Kentucky
  • Lousiana
  • Maryland
  • North Carolina
  • New Mexico
  • South Carolina
  • Texas
  • Utah 
  • West Virginia