H. B. 4627
(By Delegate Michael)
[Introduced February 27, 1998; referred to the
Committee on the Judiciary then Finance.]
A BILL to amend and reenact section twenty-six, article six,
chapter twenty-two of the code of West Virginia, one
thousand nine hundred thirty-one, as amended; and to amend
and reenact section five, article ten of said chapter, all
relating to the amount of bonds required by operators of oil
and gas wells.
Be it enacted by the Legislature of West Virginia:
That section twenty-six, article six, chapter twenty-two of
the code of West Virginia, one thousand nine hundred thirty-one,
as amended, be amended and reenacted; and that section five,
article ten of said chapter be amended and reenacted, all to read
as follows:
ARTICLE 6. OFFICE OF OIL AND GAS; OIL AND GAS WELLS;
ADMINISTRATION; ENFORCEMENT.
§22-6-26. Performance bonds; corporate surety or other security.
(a) No permit shall be issued pursuant to this article
unless a bond as described in subsection (d) of this section
which is required for a particular activity by this article is or
has been furnished as provided in this section.
(b) A separate bond as described in subsection (d) of this
section may be furnished for a particular oil or gas well, or for
a particular well for the introduction of liquids for the
purposes provided in section twenty-five of this article. A
separate bond as described in subsection (d) of this section
shall be furnished for each well drilled or converted for the
introduction of liquids for the disposal of pollutants or the
effluent therefrom. Every such bond shall be in the sum of ten
fifteen thousand dollars, payable to the state of West Virginia,
conditioned on full compliance with all laws, rules relating to
the drilling, redrilling, deepening, casing and stimulating of
oil and gas wells (or, if applicable, with all laws, rules
relating to drilling or converting wells for the introduction of
liquids for the purposes provided for in section twenty-five of
this article or for the introduction of liquids for the disposal
of pollutants or the effluent therefrom) and to the plugging,
abandonment and reclamation of wells and for furnishing such
reports and information as may be required by the director.
(c) When an operator makes or has made application for
permits to drill or stimulate a number of oil and gas wells or to drill or convert a number of wells for the introduction of
liquids for the purposes provided in section twenty-five of this
article, the operator may in lieu of furnishing a separate bond
furnish a blanket bond, in the sum of fifty thousand dollars
payable to the state of West Virginia, and conditioned as
aforesaid in subsection (b) of this section. The blanket bond
shall be in an amount equal to no less than the number of wells
for which the blanket bond is furnished, multiplied by fifteen
thousand dollars.
(d) The form of the bond required by this article shall be
approved by the director and may include, at the option of the
operator, surety bonding, collateral bonding (including cash and
securities) letters of credit, establishment of an escrow
account, self-bonding or a combination of these methods. If
collateral bonding is used, the operator may elect to deposit
cash, or collateral securities or certificates as follows: Bonds
of the United States or its possessions, of the federal land
bank, or the homeowners' loan corporation; full faith and credit
general obligation bonds of the state of West Virginia, or other
states, and of any county, district or municipality of the state
of West Virginia or other states; or certificates of deposit in
a bank in this state, which certificates shall be in favor of the
division. The cash deposit or market value of such securities or
certificates shall be equal to or greater than the amount of the bond. The director shall, upon receipt of any such deposit of
cash, securities or certificates, promptly place the same with
the treasurer of the state of West Virginia whose duty it shall
be to receive and hold the same in the name of the state in trust
for the purpose of which the deposit is made when the permit is
issued. The operator shall be entitled to all interest and
income earned on the collateral securities filed by such
operator. The operator making the deposit shall be entitled from
time to time to receive from the state treasurer, upon the
written approval of the director, the whole or any portion of any
cash, securities or certificates so deposited, upon depositing
with the treasurer in lieu thereof, cash or other securities or
certificates of the classes herein specified having value equal
to or greater than the amount of the bond.
(e) When an operator has furnished a separate bond from a
corporate bonding or surety company to drill, fracture or
stimulate an oil or gas well and the well produces oil or gas or
both, its operator may deposit with the director cash from the
sale of the oil or gas or both until the total deposited is ten
fifteen thousand dollars. When the sum of the cash deposited is
ten fifteen thousand dollars, the separate bond for the well
shall be released by the director. Upon receipt of such cash,
the director shall immediately deliver the same to the treasurer
of the state of West Virginia. The treasurer shall hold such cash in the name of the state in trust for the purpose for which
the bond was furnished and the deposit was made. The operator
shall be entitled to all interest and income which may be earned
on the cash deposited so long as the operator is in full
compliance with all laws, rules relating to the drilling,
redrilling, deepening, casing, plugging, abandonment and
reclamation of the well for which the cash was deposited and so
long as the operator has furnished all reports and information as
may be required by the director. If the cash realized from the
sale of oil or gas or both from the well is not sufficient for
the operator to deposit with the director the sum of ten fifteen
thousand dollars within one year of the day the well started
producing, the corporate or surety company which issued the bond
on the well may notify the operator and the director of its
intent to terminate its liability under its bond. The operator
then shall have thirty days to furnish a new bond from a
corporate bonding or surety company or collateral securities or
other forms of security, as provided in the next preceding
paragraph of this section with the director. If a new bond or
collateral securities or other forms of security are furnished by
the operator, the liability of the corporate bonding or surety
company under the original bond shall terminate as to any acts
and operations of the operator occurring after the effective date
of the new bond or the date the collateral securities or other forms of security are accepted by the treasurer of the state of
West Virginia. If the operator does not furnish a new bond or
collateral securities or other forms of security, as provided in
the next preceding paragraph of this section, with the director,
the operator shall immediately plug, fill and reclaim the well in
accordance with all of the provisions of law and rules applicable
thereto. In such case, the corporate or surety company which
issued the original bond shall be liable for any plugging,
filling or reclamation not performed in accordance with such laws
and rules.
(f) Any separate bond furnished for a particular well prior
to the effective date of this chapter shall continue to be valid
for all work on the well permitting prior to the eleventh day of
July, one thousand nine hundred eighty-five; but no permit shall
hereafter be issued on such a particular well without a bond
complying with the provisions of this section. Any separate
single well bond or blanket bond furnished prior to the eleventh
day of July, one thousand nine hundred eighty-five effective date
of this section shall be replaced with a new blanket bond
conforming to the requirements of this section, at which time the
prior bond shall be discharged by operation of law; and if the
director determines that any operator has not furnished a new
blanket bond, the director shall notify the operator by certified
mail, return receipt requested, of the requirement for a new blanket bond; and failure to submit a new blanket bond within
sixty days after receipt of the notice from the director shall
work a forfeiture under subsection (i) of this section of the
blanket bond furnished prior to the eleventh day of July, one
thousand nine hundred eighty-five effective date of this section.
(g) Any such bond shall remain in force until released by
the director and the director shall release the same upon
satisfaction that the conditions thereof have been fully
performed. Upon the release of any such bond, any cash or
collateral securities deposited shall be returned by the director
to the operator who deposited same.
(h) Whenever the right to operate a well is assigned or
otherwise transferred, the assignor or transferor shall notify
the department of the name and address of the assignee or
transferee by certified mail, return receipt requested, not later
than five days after the date of the assignment or transfer. No
assignment or transfer by the owner shall relieve the assignor
or transferor of the obligations and liabilities unless and until
the assignee or transferee files with the department the well
name and the permit number of the subject well, the county and
district in which the subject well is located, the names and
addresses of the assignor or transferor, and assignee or
transferee, a copy of the instrument of assignment or transfer
accompanied by the applicable bond, cash, collateral security or other forms of security, described in section twelve, fourteen,
twenty-three or twenty-six of this article, and the name and
address of the assignee's or transferee's designated agent if
assignee or transferee would be required to designate such an
agent under section six of this article, if assignee or
transferee were an applicant for a permit under said section six.
Every well operator required to designate an agent under this
section shall within five days after the termination of such
designation notify the department of such termination and
designate a new agent.
Upon compliance with the requirements of this section by
assignor or transferor and assignee or transferee, the director
shall release assignor or transferor from all duties and
requirements of this article, and the deputy director shall give
written notice of release unto assignor or transferor of any bond
and return unto assignor or transferor any cash or collateral
securities deposited pursuant to section twelve, fourteen,
twenty-three or twenty-six of this article.
(i) If any of the requirements of this article or rules
promulgated pursuant thereto or the orders of the director have
not been complied with within the time limit set by the violation
notice as defined in sections three, four and five of this
article, the performance bond shall then be forfeited.
(j) When any bond is forfeited pursuant to the provisions of this article or rules promulgated pursuant thereto, the director
shall give notice to the attorney general who shall collect the
forfeiture without delay.
(k) All forfeitures shall be deposited in the treasury of
the state of West Virginia in the special reclamation fund as
defined in section twenty-nine of this article.
ARTICLE 10. ABANDONED WELL ACT.
§22-10-5. Financial responsibility -- Amount.
The financial responsibility requirements applicable to all
wells shall be as set forth in section twenty-six, article six of
this chapter. except that the amount of financial responsibility
through bonding or otherwise, as provided for in said section,
for an individual well shall be in the amount of five thousand
dollars. In lieu of separate, single well bonds, an operator may
either furnish a blanket bond in the sum of fifty thousand
dollars in accordance with the provisions of subsection (c) of
section twenty-six, article six of this chapter, or if the
operator has previously provided a blanket bond in the sum of
fifty thousand dollars which remains in effect, the operator may
cover wells subject to this article by such existing blanket bond
NOTE: The purpose of this bill is to raise the bond
requirement for oil and gas wells to an amount approximating the
cost to plug the well at the end of it's useful life.
Strike-throughs indicate language that would be stricken
from the present law, and underscoring indicates new language
that would be added.