# Presentation: 860108

## Bonds

## Onshore Order 1

- A Complete Form 3160-3
-  Well Plat
-  Drilling Plan
-  Surface Use Plan of Operations
-  **Bonding**
-  Operator Certification
-  Onsite Inspection

**Notes:**
Now as part of our discussion of the components of a complete APD we’ll discuss bonds. You’ll need a lease bond for a complete APD.

## Bonds

- Goals:
- We’ll go over the types of bonds and how they are used
- We’ll discuss the difference between bonds
- We’ll discuss reducing, increasing, and releasing bonds

**Notes:**
Onshore Order 1 discusses 2 types of bonds, we’ll discuss them, the differences, and the reasons for them including changes in bond coverage.

## Bonds

- Plan of Attack:
- The following slides compare bond types, who they benefit, changes in bonds.
- First we’ll look at the authorities that require bonds.

**Notes:**
I’ll show some slides that explain the different types of bonds that BLM requires, the purpose of the bonds, who they benefit, and when they can be adjusted to meet changing needs. You should remember that we, BLM and the FS, may not be the only agencies that require bonds from you. I’ll only discuss the bonds required for approving an APD. First I’ll show you the authorities under which we require bonds.

## ONSHORE ORDER NO. 1Sec. VI Bond Requirements

**Authorities:**
**Mineral Leasing Acts (eg., ****MLA of 1920)**
**Patent Acts (eg., Stock-raising Homestead Act of 1916)**
**43 CFR ****§3164.1 Appendix (Onshore Order No 1 Surface Owner Protection Bonds)**

**Notes:**
We require bonds under the following authorities:
	* Mineral leasing Acts, particularly the Act of 1920 for Public Domain.  Oil and gas lease bond requirements are detailed in Title 43 Code of Federal Regulations subpart 3104. This bond is often called the 3104, reclamation or lease bond.
	* Patent Acts, like the Stock-raising Homestead Act of 1916, which provide for compensation to a private surface owner for loss or damage when you operate on split estate.  These bonds are discussed in Onshore Order No 1. They are referred to as the Surface Owner Protection Bond and are required only if you are unable to reach an agreement with the surface owner.
	*  Onshore Order No. 1 makes clear that  bonds under leasing Acts are different from those for split-estate.  Split-estate is where the surface is owned by a private person or an entity other than the owner of the Federal or Indian oil and gas.

## How are Bonds used?Forms?

**Bonds required by BLM: **
**Lease bond: guarantee performance Protect public interest **
**Surface Owner Protection bond: Compensate private surface owners **
**Forms Central (**_[www.blm.gov](http://www.blm.gov/)__): acceptance necessary_

**Notes:**
The lease bond is not insurance, it is a guarantee of performance, of adherence to lease terms and conditions and to orders of the authorized officer.  The regulations I referred to before require that the operator be bonded prior to any surface disturbing activities.  This bonding requirement may be met by the operator, the record title owner (lessee) or by the operating rights holder.  This bond is required as part of a complete APD.

The Surface Owner Protection bond is more like insurance as it covers compensation and the amount should be close to projected loss or damage or a minimum of $1000.  While you must make a good faith effort to secure access to the leasehold over privately owned surface or enter into an agreement with the surface owner for compensation, a bond may be used when you cannot reach an agreement with the surface owner.  The surface owner is invited to agree with the bond amount proposed by the operator.  But it’s the authorized field officer who makes the final decision on bond amount.  If the surface owner doesn’t agree with the bond amount that we set, he or she may either request a state director’s review (SDR) or file an appeal with the Department of Interior’s Interior Board of Land Appeals (IBLA).  The IBLA decision is final for the Department.

The Surface Owner Protection Bond Form (Form 3160-19) may be found on BLM’s Forms Central website (www.blm.gov click on Resources, then on forms and follow the directions from there).  These bonds, just like the lease bonds, generally are filed in Bureau state offices and adjudicated by a bond coordinator in Fluids.  

Until a required bond is accepted by BLM, operations requiring bond coverage cannot be authorized.

## Some differences between lease & split-estate bonds

**Lease bonds**
**Term & conditions of lease**
**Period of liability**
**Continuing obligation of record title owner/operating rights holder (FOGRSFA)**
**Surface Owner Protection bonds**
**Surface owner compensation**
**Defined in Act that patented land**
**Bond release ends bond coverage**

**Notes:**
As you probably gathered in the previous slide: lease bonds are written for the benefit of the United States; Surface Owner Protection bonds for the surface owner.  

Lease bonds cover all the terms & conditions, special stipulations, regulations, orders of the authorized officer; including the requirements to pay all monies due under the lease or agreement, such as royalty payments, and to properly plug and abandon wells and reclaim the surface.  

Surface Owner Protection bonds assure payment to the surface owner for loss or damage.  Compensation may be limited by the act under which the land was patented. For instance, Surface Owner Protection bonds for Stock-raising Homestead Act patents are limited to compensation for loss or damage to crops or tangible, permanent improvements.  Based on the Stock-raising Homestead Act, crops are those used to raise stock.  Improvements must be both tangible, for the purpose of stock raising, and permanent, like cattle guards or fencing.

Previously, Onshore Order No 1 extended this limitation on compensation to all split estate.  The revised Order now specifies that it’s the act under which the surface was patented that may limit compensation.  The limits we just discussed for Stock-raising Homestead Act patents remain the same for Stock-raising Homestead Act lands, the new Onshore Order 1 does not have the authority to change this limitation. However, other acts may not have had this limitation and so the limits on compensation from the Stock-raising Homestead Act don’t necessarily apply to lands patented under other Acts. If you plan to operate on split estate that is not a Stock-raising Homestead Act patent you should ask us about any limitations on surface owner compensation if you cannot reach an access agreement with the surface owner. You should note that the majority of spit estate resulted from the Stock-raising Homestead Act.

When we terminate or end the period of liability for lease bonds, either in whole or in part, new operations or defaults arising after the termination are not covered by a bond.  Also, even if the bond is supplied by you, the operator, the record title owner (lessee) and operating rights holder remain liable for a default, subject to the limitations of the Federal Oil and Gas Royalty Simplification & Fairness Act, as amended (1996).

When we release, that is, cancel, a Surface Owner Protection Bond, coverage ends regardless of when the liability arose.  You, the operator, is usually the one who requests the Surface Owner Protection bond be cancelled or released.  We determine if any liability remains before doing so.

## Bond Increases and Decreases

**Exposure & risk**
**How to comply**
**Not below minimum amounts – except...**
**Phased release-individual lease bond only**

**Notes:**
Both lease and surface owner protection bonds may be increased or decreased due to one or more legally justifiable reasons.

The lease bond can be increased due to one or more of the following:
	* the amount of exposure  under the bond; 
	* risk associated with either the operator or the conduct of operations
	* previous bond  draw-down; 
	* plugging and/or surface rehabilitation issues. 

The Surface Owner Protection bond can be increased whenever the amount we determine necessary for compensation becomes more than the face amount of the bond.

Both types of bonds may be decreased – but not below the minimum bond amount required by regulation; Except that individual lease bonds may be reduced in a phased release. That is, when operations are at the final phase.  For example, we are waiting to see if required reseeding has taken hold satisfactorily.  During the final phase, the lease bond may be reduced to the amount needed for additional seeding.

Bond increase or decrease can done with a rider to the existing bond.  If the principal or obligor chooses, a new bond in the required amount may be filed with a rider that assumes all liability from the old bond, which is then released when we accept the new bond and rider.

## Contacts

**Mary Nagel: ****Mary_Nagel@blm.gov**
**Lease bond content**
**Karen Wrenn:**
**	****Karen_Wrenn@blm.gov**
**access and computer problems**
**Jim Perry: ****jim_perry@blm.gov**** **
**Surface Owner Protection bond**

**Notes:**
Note: There is an underscore between the first and last name for each of these contacts.

Please contact Mary Nagel for both bonds and e-form questions.  However, she will only address content issues.  If you have computer problems including access to the web site, please contact Karen Wrenn, BLM’s Forms Manager.  

Jim Perry is the proper Washington Office lead Surface Owner Protection bonds.

## Bonds - Summary

**Notes:**
I’ve talked about the types of bonds that we require for a complete APD. Other agencies my have other bond requirements. I discussed how the bonds are used, who they benefit, and why the bond amounts may be adjusted. And I’ve provided contacts in BLM who can help you with any questions that you have.