GAO 

United States Government Accountability Office

Report to Congressional Requesters

OIL AND GAS BONDS

Bonding Requirements 

and BLM 

Expenditures to 

Reclaim Orphaned 

Wells 

January 2010 

GAO-10-245 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

January 2010

OIL AND GAS BONDS

Bonding Requirements and BLM Expenditures to 

Reclaim Orphaned Wells

Highlights of GAO-10-245, a report to 

congressional requesters 

The Federal Land Policy and 

Management Act of 1976 directs 

the Department of the Interior 

(Interior) to manage lands for 

multiple uses while also taking any 

action to prevent “unnecessary or 

undue degradation” of the land. To 

do this, Interior’s Bureau of Land 

Management (BLM), among other 

things, requires oil and gas 

operators to reclaim the land they 

disturb and post a bond to help 

ensure they do so. Despite these 

requirements, not all operators 

perform reclamation. If the bond is 

not sufficient to cover well 

plugging and surface reclamation 

and there are no responsible or 

liable parties, the well is 

considered “orphaned,” and BLM 

uses federal dollars to fund 

reclamation. The 12 western states 

where most oil and gas production 

occurs and other Interior agencies 

also require bonds to ensure 

reclamation. 

GAO was asked to (1) determine 

the number, value, and coverage of 

bonds held by BLM for oil and gas 

operations; (2) determine the 

amount that BLM has paid to 

reclaim orphaned wells over the 

past 20 years and the number of 

orphaned wells BLM has identified 

but has not yet reclaimed; and (3) 

compare BLM’s bonding 

requirements for oil and gas 

operations with those the 12 

western states use for oil and gas 

operations on state and private 

lands and other Interior agencies’ 

bonding requirements for other 

resources. Among other things, 

GAO analyzed BLM data on wells 

and BLM-held bonds, and 

interviewed BLM officials. 

According to GAO’s analysis of BLM data, as of December 2008, oil and gas 

operators had provided 3,879 bonds, valued at $162 million, to ensure 

compliance with lease terms and conditions for 88,357 wells. BLM regulations 

establish minimum bond amounts: $10,000 for an individual lease, $25,000 to 

cover all leases of a single operator in a state, and $150,000 to cover all leases of 

a single operator nationwide. The bond amount for individual leases was set in 

1960, while the statewide and nationwide bond amounts were set in 1951. 

For fiscal years 1988 through 2009, BLM spent about $3.8 million to reclaim 

295 orphaned wells in 10 states and has identified an additional 144 orphaned 

wells in 7 states that need to be reclaimed, according to BLM. The amount 

spent per reclamation project varied greatly, from a high of $582,829 for a 

single well in Wyoming in fiscal year 2008 to a low of $300 for 3 wells in 

Wyoming in fiscal year 1994. BLM reclamation cost estimates were not 

available for all of the wells it has yet to reclaim, but BLM field office officials 

have completed reclamation cost estimates of approximately $1.7 million for 

102 of the 144 orphaned wells. 

The 12 western states (Alaska, Arizona, California, Colorado, Idaho, Montana, 

Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming) and other 

Interior agencies and offices have bonding approaches that differ from BLM’s 

oil and gas bonding requirements. The states generally require higher bond 

amounts than the minimum amounts established by BLM regulations for 

individual and statewide oil and gas leases. Regulations governing the 

extraction or use of other federally owned resources generally require bond 

amounts based on the cost of reclamation or use minimum amounts that were 

established more recently than the bond amounts for oil and gas. 

GAO provided a draft of this report to the Department of Interior for review 

and comment. The Department provided technical comments, which were 

incorporated as appropriate. 

Oil Wells on BLM Land Southwest of Ely, Nevada 

Source: Bureau of Land Management.

View GAO-10-245 or key components.

For more information, contact Anu K. Mittal, 

(202) 512-3841 or mittala@gao.gov. 
Page i GAO-10-245 

Contents 

Letter 1

Background 4 

BLM Holds Nearly 4,000 Bonds, Valued at $162 Million, but 

Amounts Are Based on Regulatory Minimums and Not on Full 

Reclamation Costs 10 

BLM Spent Nearly $4 Million to Reclaim 295 Orphaned Wells since 

Fiscal Year 1988 and Has Identified Another 144 Orphaned Wells 

to Be Reclaimed 16 

BLM Oil and Gas Bonding Requirements Differ from States’ 

Requirements and from Federal Bonding Requirements for 

Other Resources 20 

Agency Comments and Our Evaluation 27 

Appendix I Objectives, Scope, and Methodology 29 

Appendix II Information on BLM Held Oil and Gas Bonds 34 

Appendix III Information on the Requirements the 12 Western 

States Use for Oil and Gas Bonds 37 

Appendix IV Bonding Requirements for the Extraction of 

Federally Owned Resources, by Agency and Resource 46 

Appendix V GAO Contact and Staff Acknowledgments 52 

Tables 

Table 1: Number of Wells and Leases, by BLM State Office, as of 

December 1, 2008 11 

Table 2: Number of Wells, BLM Expenditures to Reclaim Orphaned 

Wells, and States Where Reclamation Occurred, Fiscal 

Years 1988–2009 17 

Table 3: Number of Wells and BLM Expenditures to Reclaim 

Orphaned Wells, by State, Fiscal Years 1988–2009 18 

Oil and Gas Bonds 
Table 4: Number of Orphaned Wells, Wells with a Reclamation Cost 

Estimate, and Estimated Reclamation Costs, by State 19 

Table 5: Number of Orphaned Wells, Number of Wells with a 

Reclamation Cost Estimate, the Estimated Reclamation 

Costs, and States where the Wells Are Located, by Surface 

Management Agency 19 

Table 6: The 12 Western States’ Bonding Requirements 22 

Table 7: Summary of Bonding Requirements for the Extraction of 

Federally Owned Resources, by Agency 25 

Table 8: Number, Total Value, and Average Value of BLM Held 

Bonds, by BLM State Office 34 

Table 9: Number of Surety and Personal Bonds, by BLM State 

Office 34 

Table 10: Value of Surety and Personal Bonds Administered by 

BLM State Offices, by State 35 

Table 11: Number of Statewide, Nationwide, Individual, and Other 

Bonds Administered by BLM State Offices, by State 35 

Table 12: Value of Statewide, Nationwide, Individual, and Other 

Bonds Administered by BLM State Offices, by State 36 

Figures 

Figure 1: Boundaries of the 12 BLM State Offices 5 

Figure 2: Number of Wells and Value of Bonds, September 1988 to 

September 2008 12 

Figure 3: Individual, Statewide, and Nationwide Current Bond 

Minimums and Adjusted to 2009 Dollars 14 

Figure 4: Total Value of All Bond Categories, and Percentage of 

Total Bond Value, as of December 1, 2008 14 

Page ii GAO-10-245 Oil and Gas Bonds
Abbreviations 

AFMSS Automated Fluid Minerals Support System 

BLM Bureau of Land Management 

FLPMA Federal Land Policy and Management Act of 1976 

Interior Department of the Interior 

MMS Mineral Management Service 

NPR-A National Petroleum Reserve, Alaska 

OSM Office of Surface Mining Reclamation and Enforcement 

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Page iii GAO-10-245 Oil and Gas Bonds
Page 1 GAO-10-245 

 

United States Government Accountability Office

Washington, DC 20548 

 

January 27, 2010 

Congressional Requesters 

The Federal Land Policy and Management Act of 1976 (FLPMA), as 

amended, directs the Secretary of the Interior to manage federal lands for 

multiple uses, including recreation and mineral extraction, while also 

taking any action required to prevent the “unnecessary or undue 

degradation” of public land, including federal land that has been leased for 

oil and gas operations. Over the past decade, the total number of new 

wells drilled more than doubled, which has raised concerns about the 

impact of these operations on federal land. Operators are required to 

reclaim the leased land in the interest of conservation of surface 

resources.1

 Reclamation is intended to return land disturbed by oil and gas 

operations to as close to its original condition as is reasonably practical, 

including reshaping and revegetating, removing structures, and plugging 

wells. 

The Department of the Interior’s (Interior) Bureau of Land Management 

(BLM) is responsible for implementing FLPMA on BLM land. To carry out 

this responsibility, BLM, among other things, requires oil and gas 

operators to provide a bond to the agency before beginning certain drilling 

operations under an oil and gas lease.2

 These bonds are intended to ensure 

that operators perform the required reclamation, as well as the lease’s 

other terms and conditions, such as the payment of federal royalties. 

These bonds may be surety bonds, a third-party guarantee that an operator 

purchases from a private insurance company; or personal bonds 

accompanied by a financial instrument, such as a cashier’s check or 

negotiable Treasury security. Having operators post bonds to help ensure 

reclamation after mineral production has ceased is a common practice. 

The 12 western states where most oil and gas production occurs also 

require bonds for oil and gas wells on their lands.3

 In addition, BLM and 

1

For the purposes of this report, the term operator refers to lessees, owners of operating 

rights, and operators of an oil or gas operation, unless indicated otherwise. 

2

BLM is responsible for managing 261 million acres of surface federal lands, as well as 

approximately 700 million acres of subsurface lands. Approximately 58 million acres of 

these federal subsurface lands are located beneath privately owned lands—a situation 

commonly known as a split estate. 

3

The 12 western states include Alaska, Arizona, California, Colorado, Idaho, Montana, 

Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming. 

Oil and Gas Bonds 
 

other Interior agencies require bonds for the extraction of other resources, 

such as gold and coal, which are located on federal land or owned by the 

federal government. 

Although all operators are required to complete reclamation, they do not 

always do so. In these circumstances, BLM may use the bond to help 

defray some of the cost of completing reclamation. If the bond is not 

sufficient to cover well plugging and surface reclamation and there are no 

responsible or liable parties, the well is considered “orphaned.” In these 

cases, BLM uses appropriated funds to complete the reclamation. 

In this context, you asked us to study a range of issues concerning BLM’s 

bonding requirements and efforts to ensure that operators reclaim their oil 

and gas operations. This report provides the results of the first phase of 

our work.4

 For this phase, we (1) determined the number, value, and 

coverage of bonds held by BLM for oil and gas operations;5

 (2) determined 

the amount that BLM has paid to reclaim orphaned wells over the past 20 

years and the number of orphaned wells BLM has identified but has not 

yet reclaimed; and (3) compared BLM’s bonding requirements for oil and 

gas operations with the bonding requirements the 12 western states use 

for oil and gas operations on state and private lands and other Interior 

agencies’ bonding requirements for other resources. 

To address these objectives, we reviewed federal regulations and BLM 

guidance on bonding for oil and gas leases. We discussed this guidance 

and a broad range of issues related to how BLM oversees bonding for oil 

and gas leases with bonding officials at BLM state offices and field offices 

in Colorado and Wyoming, which have a large number of oil and gas wells 

and administer bonds that account for a significant amount of the value of 

BLM-held bonds. To determine the number of bonds, their value, and 

coverage as of December 2008, we analyzed data from BLM’s Bonding and 

Surety System—an electronic system containing bond information for oil 

and gas operations, as well as for other BLM resource extraction 

programs. We also analyzed data from BLM’s Automated Fluid Minerals 

Support System (AFMSS)—a database that BLM uses to track oil and gas 

 

4

During the next phase of our work, we will address the remaining aspects of your request, 

which primarily concern whether BLM is adequately managing the potential estimated 

liability for reclaiming nonproducing wells. 

5

For the purposes of this report, coverage refers to the total number of wells covered by 

bonds held by BLM. 

Page 2 GAO-10-245 Oil and Gas Bonds
 

information on public and Indian land. It contains data on, among other 

things, lease ownership, and well identification, location, and production. 

To assess the reliability of the data we used from these systems, among 

other things, we electronically tested all fields related to our analysis and 

met with agency officials who administer the systems. We found that these 

data were sufficiently reliable for the purpose of this report. For orphaned 

wells, we obtained information from BLM for fiscal years 1998 through 

2009 on the federal dollars paid to reclaim orphaned wells, and the number 

of orphaned wells and estimated reclamation costs by state. We also 

analyzed state oil and gas bonding regulations, as well as federal bonding 

regulations for the extraction of other resources, such as gold and coal, to 

compare these bonding regulations with BLM’s bonding regulations for 

onshore oil and gas operations. Appendix I describes our scope and 

methodology in more detail. 

We performed our work from January 2009 to January 2010 in accordance 

with all sections of GAO’s Quality Assurance Framework that are relevant 

to our objectives. The framework requires that we plan and perform the 

engagement to obtain sufficient and appropriate evidence to meet our 

stated objectives and to discuss any limitations in our work. We believe 

that the information and data obtained, and the analysis conducted, 

provide a reasonable basis for our findings. 

Page 3 GAO-10-245 Oil and Gas Bonds
 

BLM is responsible for managing, as of July 2008, approximately 700 

million acres of subsurface mineral resources: 655.5 million of these acres 

are not affected by oil and gas production and 44.5 million acres are leased 

for oil and gas operations. Of these 44.5 million acres, 11.7 million acres 

are in oil and gas producing status and 472,000 acres have surface 

disturbance related to oil and gas production. To manage BLM programs 

and land, the agency maintains a network of state offices, which generally 

conforms to the boundary of one or more states. The state offices are 

Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, New 

Mexico, Oregon, Utah, Wyoming, and Eastern States. BLM has little land in 

the eastern half of the United States, consequently, the Eastern States 

state office, in Springfield, Virginia, is responsible for managing land in 31 

states. Figure 1 shows the boundaries of the 12 BLM state offices. 

Background 

Page 4 GAO-10-245 Oil and Gas Bonds
 

Figure 1: Boundaries of the 12 BLM State Offices 

National headquarters

State offices

Administrative boundaries

Sources: GAO analysis of BLM data; Map Resources (map).

Eastern

States

Portland

Reno

Phoenix

Santa Fe

Denver

Salt Lake

City

Boise

Billings

Anchorage

Cheyenne

Springfield,

VA

Washington, 

D.C.

OR

CA

NV

AZ

NM

UT

CO

WY

ID

MT

AK

Sacramento

Page 5 GAO-10-245 Oil and Gas Bonds
 

When operators drill oil and gas wells, they typically remove topsoil from 

the well site and lay a well pad, where the drilling rig is located. Other 

equipment on site can include generators and fuel tanks. In addition, 

reserve pits are often constructed to store or dispose of water, mud, and 

other materials that are generated during drilling operations, and roads 

and access ways are often built to move equipment to and from the wells. 

Generally, these activities can degrade the environment in three ways: 

• Air quality. Newly graded roads can produce dust, impairing air quality 

and visibility in the immediate area and downwind. Nitrogen oxides from 

diesel engines and compressors used at drilling sites can also degrade air 

quality. 

• Water quality. Water draining off newly graded surfaces and roads or oil 

or water accidentally discharged during oil and gas production can 

increase the amount of sediment, salt, and pollutants discharged into 

rivers and streams, thereby degrading them. In addition, shallow aquifers 

can be polluted if required protective measures are not in place, and the 

production of methane gas from coal beds can deplete shallow aquifers 

that serve as domestic water sources.6

• Habitat. A high density of drilling and production equipment can, in 

extreme situations, change the appearance of the landscape from a natural 

setting to an industrial zone. In addition, the noises, smells, and lights from 

trucks, drilling and construction equipment, and production facilities can 

disturb wildlife and people living nearby. 

Under FLPMA, BLM must manage federal lands for multiple uses, 

including recreation and mineral extraction, as well as for sustained yield. 

To that end, FLPMA requires BLM to develop resource management plans, 

known as land use plans. In developing its land use plans, BLM 

determines, among other things, which parcels of land will be available for 

oil and gas development. According to BLM officials, parties interested in 

leasing federal minerals submit an Expression of Interest or pre-sale offer 

on those lands they are interested in leasing. These are then reviewed and 

if the lands are eligible to be leased, are placed up for competitive oil and 

gas lease sale. Leases can vary in size reaching 2,560 acres for lands in the 

lower 48 states and 5,760 acres for lands in Alaska. 

 

6

To produce methane gas from a coal bed, operators have to pump water from 

underground deposits in order to release the methane gas contained in the subsurface coal. 

Page 6 GAO-10-245 Oil and Gas Bonds
 

Operators that have obtained a lease must submit an application for a 

permit to drill to BLM before beginning to prepare land or drilling any new 

oil or gas wells. The complete permit application package is a lengthy and 

detailed set of forms and documents, which, among other things, must 

include proof of bond coverage and a surface use plan of operations; this 

surface use plan must include a reclamation plan that details the steps 

operators propose to take to reclaim the site. However, operators 

generally do not have to submit cost estimates for completing the 

reclamation. 

The Mineral Leasing Act of 1920, as amended, requires that federal 

regulations ensure that an adequate bond or surety is established before 

operators begin to prepare land for drilling. The bond is intended to ensure 

complete and timely reclamation. Accordingly, federal regulations require 

the operator to submit a surety or personal bond to BLM, which is 

intended to ensure compliance with all of the lease’s terms and conditions, 

including reclamation requirements. Surety bonds are a third-party 

guarantee that an operator purchases from a private insurance company 

approved by the Department of the Treasury, and personal bonds must be 

accompanied by one of the following five financial instruments: 

• certificates of deposit issued by a financial institution whose deposits are 

federally insured; 

• cashier’s checks; 

• certified checks; 

• negotiable Treasury securities, including U.S. Treasury notes or bonds, 

with conveyance to the Secretary of the Interior to sell the security in case 

of default in the performance of the lease’s terms and conditions; and 

• irrevocable letters of credit that are issued for a specific term by a 

financial institution whose deposits are federally insured, and meet certain 

conditions. 

In reviewing the application for a permit to drill, BLM (1) evaluates the 

operator’s proposal to ensure that the proposed drilling plan conforms to 

the land use plan and applicable laws and regulations and (2) inspects the 

proposed drilling site to determine if additional site-specific conditions 

must be addressed before the operator can begin drilling. After BLM 

Page 7 GAO-10-245 Oil and Gas Bonds
 

approves a drilling permit, the operator can drill the well and commence 

production.7

After drilling the well, the operator may perform interim reclamation—the 

practice of reclaiming surfaces that were disturbed to prepare a well for 

drilling but that are no longer needed. For example, operators may need a 

10-acre drill pad to safely drill a series of wells. However, once the wells 

are drilled, operators may only need 4 acres to safely service the wells 

over their lifetime. In this case, the operator could reseed and regrade the 

6 acres of the initial pad that are no longer needed. While BLM does not 

generally require interim reclamation in all permits it issues, it may decide 

to add interim reclamation as a requirement in drilling permits for specific 

oil and gas developments. 

Final reclamation occurs when an operator determines, and BLM agrees, 

that a well has no economic value. The terms of final reclamation are 

included in the lease and the drilling permit.8

 The operator must follow the 

agreed-upon final reclamation plan, including plugging the wells, removing 

all visual evidence of the well and drill pad, recontouring the affected land, 

and revegetating the site with native plant species. In general, the goal is to 

reclaim the well site so that it matches the surrounding natural 

environment to the extent possible. BLM then inspects the site to monitor 

the success of the reclamation, a process that typically takes several years. 

Once BLM determines that reclamation efforts have been successful, it 

approves a Final Abandonment Notice.9

However, in some circumstances, the operator may delay performing 

reclamation and instead allow the well to remain idle for various reasons. 

For example, expected higher oil and gas prices may once again make the 

well economically viable to operate, or the operator may decide to use the 

well for enhanced recovery operations, for example using the well to 

 

7

In some circumstances, approval from state officials may also be required before 

operators can commence drilling and production. 

8

For the purposes of this report, use of the term reclamation refers to the final reclamation 

process. 

9

In circumstances where the surface land is managed by another surface management 

agency, that agency inspects the site to monitor reclamation. In addition, prior to approving 

the Final Abandonment Notice, BLM gets the approval of the surface management agency 

or in cases involving split estates, the private surface owner. 

Page 8 GAO-10-245 Oil and Gas Bonds
 

inject water into the oil reservoir and push any remaining oil to operating 

wells. 

Under BLM policy, the agency must periodically review the status of these 

idle wells to ensure that the operator has legitimate reasons for allowing 

the wells to remain idle. According to BLM officials, the primary purpose 

of idle-well reviews is to ensure that these wells do not become 

orphaned—that is, they lack a bond sufficient to cover reclamation costs 

and there are no responsible or liable parties to perform reclamation. 

States have adopted laws and regulations governing oil and gas 

development on state and private lands, including bond and reclamation 

requirements. In addition, other Interior programs and offices that are 

responsible for managing the extraction of other federally owned 

resources have bond and reclamation requirements. Specifically, those 

programs and offices are: 

• BLM Geothermal Resource Leasing. BLM issues leases for the 

development of geothermal resources on federal lands; these resources 

are used to develop electricity by capturing the geothermal heat generated 

in the earth’s core. 

• BLM Hardrock Minerals Claims. BLM oversees the process for staking 

claims and extracting hardrock minerals on the lands it manages. These 

minerals are also referred to as locatable minerals and include gold, silver, 

and copper, among others. 

• BLM Mineral Materials Sales. BLM oversees the sale of these minerals, 

such as sand and gravel, from federal lands. These minerals are also 

sometimes referred to as salable minerals. 

• BLM Solid Minerals Leasing. BLM issues leases for the extraction of 

these minerals on federal lands; solid minerals are minerals other than 

coal and oil shale, and include silicates, potash, and phosphate. Solid 

minerals are also sometimes referred to as leasable minerals. 

• Minerals Management Service (MMS) Offshore Oil and Gas Leasing. 

MMS issues leases to develop offshore oil and gas resources in the Gulf of 

Mexico, off the Atlantic coast, and off the Pacific coast states of California, 

Oregon, Washington, and Hawaii. 

• Office of Surface Mining Reclamation and Enforcement (OSM) Coal 

Leasing. OSM regulates the surface mining of coal. States can choose to 

Page 9 GAO-10-245 Oil and Gas Bonds
 

develop their own programs to regulate surface mining if that program is 

in accordance with federal law and approved by OSM. OSM is charged 

with enforcing states’ adherence to their approved programs or 

implementing a federal program if the state fails to submit, implement, or 

enforce its program.10

As of December 2008, oil and gas operators had provided 3,879 surety and 

personal bonds, valued at approximately $162 million, to ensure 

compliance with all lease terms and conditions for 88,357 wells, according 

to our analysis of BLM data. BLM officials told us that the bond amounts 

are generally not based on the full reclamation costs for a site that would 

be incurred by the government if an operator were to fail to complete the 

required reclamation. Rather, the bond amounts are based on regulatory 

minimums intended to ensure that the operator complies with all the 

terms of the lease, including paying royalties and conducting reclamation. 

BLM Holds Nearly 

4,000 Bonds, Valued at 

$162 Million, but 

Amounts Are Based 

on Regulatory 

Minimums and Not on 

Full Reclamation 

Costs 

BLM Holds $162 Million in 

Surety and Personal Bonds 

for 88,357 Wells 

As of December 1, 2008, the 88,357 oil and gas wells were covered by 

16,809 leases,11 with 70 percent of all wells located in New Mexico and 

Wyoming. Cumulatively, Wyoming and New Mexico have more than four 

times as many wells as the total number of wells in Utah and California, 

which are the states with the third and fourth most wells at 7,388 and 

7,215, respectively. Table 1 shows the number of oil and gas wells and 

leases located in the nine BLM state offices. 

 

10States with an approved state program that meet other qualifications can enter into a 

cooperative agreement with the Secretary of the Interior to enforce the state’s program on 

federal lands within the state. In these cooperative agreements, OSM delegates 

responsibility for the establishment and release of bonds required for surface coal mining 

and reclamation operations on federal lands to the state regulatory authority, although 

OSM must concur in the release. In addition to this bond required by OSM or the approved 

state regulatory authority, BLM will not issue a coal lease until the prospective lessee has 

posted a bond. However, these lease bonds do not cover reclamation unless the state in 

which the mining will occur does not have a cooperative agreement with the Secretary. 

11For the purposes of this report, unless stated otherwise, leases refer to producing 

leases—leases that have a well. We are not including leases that do not have a well in our 

total. 

Page 10 GAO-10-245 Oil and Gas Bonds
 

Table 1: Number of Wells and Leases, by BLM State Office, as of December 1, 2008 

BLM State Office Number of wells Number of leases

New Mexico 31,184 5,664

Wyoming 30,451 6,005

Utah 7,388 1,274

California 7,215 308

Colorado 5,809 1,382

Montana 3,875 1,363

Eastern states 2,122 728

Alaska 176 33

Nevada 137 52

Total 88,357 16,809

Source: GAO analysis of BLM data. 

According to our analysis of BLM’s data, as of December 1, 2008, oil and 

gas operators had 3,879 bonds valued at approximately $162 million to 

ensure compliance with lease terms and conditions for 88,357 wells on 

federal land. Fifty-two percent of these bonds—2,086—were surety bonds 

valued at approximately $84 million, and 48 percent—1,793—were 

personal bonds valued at almost $78 million. 

The number of wells and the value of bonds held by BLM have increased 

over the past 20 years. The value of bonds increased from approximately 

$69 million as of September 30, 1988, to approximately $164 million as of 

September 30, 2008, as the number of wells increased from almost 50,000 

to more than 85,000.12 As figure 2 shows, this increase in the number of 

wells occurred primarily in the last decade. 

 

12We calculated BLM bond values by fiscal year to correspond to the available BLM data on 

the total number of wells, which is only available by fiscal year. 

Page 11 GAO-10-245 Oil and Gas Bonds
 

Figure 2: Number of Wells and Value of Bonds, September 1988 to September 2008 

0

10

20

30

40

50

60

70

80

90

9/30/1988 9/30/1993 9/30/1998 9/30/2003 9/30/2008

0

60

120

180

Number of wells (in thousands) Value of bonds (dollars in millions)

Source: GAO analysis of BLM data.

Date

Number of wells

Value of bonds

Notes: 

Total bond values and the number of wells are provided as of the end of the fiscal year. 

Value of bonds are presented in current year dollars. 

Minimum Bond Amounts 

Were Last Set in the 1950s 

and 1960s to Ensure 

Operators Meet Legal 

Requirements, including 

Reclamation 

The Mineral Leasing Act of 1920, as amended, requires that federal 

regulations ensure that an adequate bond or surety is established that 

ensures complete and timely reclamation. Under BLM regulations, bonds 

are conditioned upon compliance with all of the terms and conditions of 

the lease, including but not limited to, paying royalties, plugging wells, 

reclaiming disturbed land, and cleaning up abandoned operations. To 

ensure operators meet legal requirements, including reclamation, BLM 

regulations require them to have one of the following types of coverage: 

Page 12 GAO-10-245 Oil and Gas Bonds
 

• individual lease bonds, which are to cover all wells an operator drills 

under one lease;13

• statewide bonds, which are to cover all of an operator’s leases in one 

state;14

• nationwide bonds, which are to cover all of an operator’s leases in the 

United States;15 and 

• other bonds, which include both unit operator bonds that cover all 

operations conducted on leases within a specific unit agreement,16 and 

bonds for leases in the National Petroleum Reserve in Alaska (NPR-A).17

BLM regulations establish a minimum bond amount in order to ensure 

compliance with all legal requirements and also authorize or require BLM 

to increase the bond amount in certain circumstances. These minimum 

bond amounts were set in the 1950s and 1960s and have not been updated. 

Specifically, the bond minimum of $10,000 for individual bonds was last 

set in 1960, and the bond minimums for statewide bonds—$25,000—and 

for nationwide bonds—$150,000—were last set in 1951. If adjusted to 2009 

dollars, these amounts would be $59,360 for an individual bond, $176,727 

for a statewide bond, and $1,060,364 for a nationwide bond. Figure 3 

shows the current amounts set in 1951 and 1960 and what these amounts 

would be if adjusted to 2009 dollars. 

 

13With the consent of the surety provider, an individual lease bond posted by a lessee may 

cover all operators on a lease. Otherwise, each operator on a lease must provide a separate 

bond covering just the wells they operate. According to BLM officials, most leases have 

only one operator. 

14A statewide bond posted by a lessee can cover all well operators with the consent of the 

surety provider. 

15A nationwide bond posted by a lessee can cover all well operators with the consent of the 

surety provider. 

16Unit agreements refer to multiple lessees who unite to adopt and operate under a unit 

plan for the development of any oil or gas pool, field, or like area. 

17The amount of a unit operator bond is determined on a case-by-case basis by BLM 

officials, and the minimum amount of a NPR-A bond is set in regulation—not less than 

$100,000 for a single lease or not less than $300,000 for a reservewide bond (submitted 

separately or as a rider to an already existing nationwide bond). 

Page 13 GAO-10-245 Oil and Gas Bonds
 

Figure 3: Individual, Statewide, and Nationwide Current Bond Minimums and 

Adjusted to 2009 Dollars 

Of the three primary bond categories—individual, statewide, and 

nationwide—statewide bonds accounted for most of the bonds covering 

oil and gas wells. Figure 4 shows the value and percentage distribution of 

the bonds by type. 

Dollars

Bond

Source: GAO analysis of BLM data.

Bond minimum

Bond minimum in 2009 dollars

0

300,000

600,000

900,000

1,200,000

Individual bond Statewide bond Nationwide bond

59,360

10,000

176,727 150,000

25,000

1,060,364

Page 14 GAO-10-245 Oil and Gas Bonds
 

Figure 4: Total Value of All Bond Categories, and Percentage of Total Bond Value, 

as of December 1, 2008 

a

Includes unit and NPR-A bonds. 

Appendix II provides more detailed information on the number and value 

of BLM-held bonds by state. 

While BLM regulations set minimum amounts for bonds, they also require 

bonds in an increased amount in certain circumstances and authorize BLM 

to require an increased bond amount when the operator poses a risk due 

to certain factors. First, when an operator who has failed to plug a well or 

reclaim lands in a timely manner that resulted in BLM making a demand 

on a bond in the prior 5 years applies for a new permit to drill, BLM must 

require a bond in an amount equal to the BLM cost estimate for plugging 

the well and reclaiming the disturbed area if the cost estimate is higher 

than the regulatory minimum.18 Second, BLM officials may require an 

increase in the amount of any bond when the operator poses a risk due to 

factors that include, but are not limited to, a history of previous violations, 

a notice from MMS that there are uncollected royalties due, or the fact that 

6%

6%

8%

80%

Source: GAO analysis of BLM data.

Othera

9,406,169

Nationwide

10,231,650

Dollars

Individual

12,457,838

Statewide

130,219,752

•

•

•

•

 

18This requirement applies only to operators, and not lessees or owners of operating rights. 

Page 15 GAO-10-245 Oil and Gas Bonds
 

the total cost of plugging existing wells and reclaiming lands exceeds the 

present bond amount based on BLM estimates.19

According to BLM data, the agency spent about $3.8 million to reclaim 295 

orphaned wells in 10 states from fiscal years 1988 through 2009. The 10 

states where orphaned wells were reclaimed include California, Colorado, 

Montana, New Mexico, North Dakota, Oklahoma, Ohio, Utah, West 

Virginia, and Wyoming. Some of these states, such as Ohio and West 

Virginia, do not currently produce high volumes of oil and gas compared 

with other states in the West, although they did in the late 1800s and early 

1900s. Although reclamation costs averaged $12,788 per well, the amount 

spent to reclaim wells varied by reclamation project, state, and fiscal year. 

For example: 

• Cost per project. The amount spent per reclamation project varied from a 

high of $582,829 for a single well in Wyoming in fiscal year 2008, to a low 

of $300 for three wells in Wyoming in fiscal year 1994. These variations are 

due to differences in the amount of surface and subsurface disturbance 

and the amount of effort required to reclaim these wells. 

BLM Spent Nearly $4 

Million to Reclaim 295 

Orphaned Wells since 

Fiscal Year 1988 and 

Has Identified 

Another 144 

Orphaned Wells to Be 

Reclaimed 

• Number of wells and spending by state. The number of wells reclaimed 

and the amount spent in each state also varied considerably. California 

had the most orphaned wells reclaimed—140 of the 295 wells reclaimed, 

or about 47 percent—while Colorado and West Virginia had the fewest, 

each with 1 reclaimed well. However, over one-third of the amount spent 

to reclaim orphaned wells—about $1.3 million—went toward reclaiming 

44 wells in Wyoming. 

• Amount spent per year. In the fiscal years that BLM spent funds to 

reclaim orphaned wells, the amount spent in each fiscal year varied from a 

high of $632,829 to reclaim two wells in 2008, to a low of $24,962 to 

reclaim a single well in Ohio in fiscal year 2001. BLM had no expenditures 

to reclaim orphaned wells in fiscal years 1989 through 1991, 1996 through 

1998, or in 2005. BLM officials explained that orphaned wells were not 

reclaimed in those years because the decision to do so is left to the 

discretion of BLM state office officials. Further, there is no dedicated 

budget line item to fund orphaned well reclamation; instead, it is 

dependent on whatever funds are available from BLM state offices and the 

BLM Washington office. 

 

19This requirement applies only to operators, and not lessees or owners of operating rights. 

Page 16 GAO-10-245 Oil and Gas Bonds
 

Table 2 provides a summary of the number of wells reclaimed, the 

expenditures per year, and the states where reclamation occurred by year; 

table 3 shows the number of wells reclaimed and expenditures by state. 

Table 2: Number of Wells, BLM Expenditures to Reclaim Orphaned Wells, and States Where Reclamation Occurred, Fiscal 

Years 1988–2009 

Fiscal year Wells BLM expenditures State where reclamation occurred 

1988 1 $475,279 North Dakota 

1989 0 0 

1990 0 0 

1991 0 0 

1992 23 565,807 California, Montana, New Mexico, Utah, Wyoming 

1993 26 445,253 California, Colorado, Montana, North Dakota, Oklahoma, Wyoming 

1994 74 233,223 California, New Mexico, Utah, Wyoming 

1995 22 386,033 California, Montana, Ohio 

1996 0 0 

1997 0 0 

1998 0 0 

1999 15 110,516 Ohio, Wyoming 

2000 1 80,987 Utah 

2001 1 24,962 Ohio 

2002 16 106,758 California 

2003 104 250,080 California, Ohio 

2004 3 48,000 Ohio, Utah 

2005 0 0 

2006 2 259,378 Ohio, West Virginia 

2007 2 27,000 Wyoming 

2008 2 632,829 Utah, Wyoming 

2009 3 126,583 Wyoming 

Total 295 $3,772,688 

Source: GAO analysis of BLM data. 

Page 17 GAO-10-245 Oil and Gas Bonds
 

Table 3: Number of Wells and BLM Expenditures to Reclaim Orphaned Wells, by 

State, Fiscal Years 1988–2009 

State Wells BLM expenditures

California 140 $624,813

Colorado 1 8,746

Montana 15 451,994

New Mexico 14 93,230

North Dakota 2 497,852

Ohio 19 225,168

Oklahoma 3 18,660

Utah 56 351,987

West Virginia 1 211,218

Wyoming 44 1,289,020

Total 295 $3,772,688

Source: GAO analysis of BLM data. 

BLM has identified an additional 144 orphaned wells on BLM and other 

federal land that need to be reclaimed in seven states. Although BLM 

reclamation estimates were not available for all of these wells, officials in 

BLM field offices have completed reclamation cost estimates for 102 of the 

144 wells, for a total estimated cost of $1,683,490. More than half of these 

wells for which BLM has estimated costs are in Oklahoma—the state with 

the highest concentration of orphaned wells. The estimated reclamation 

costs in each state differ substantially—from an average cost per well in 

Wyoming of $93,641 to a low of $9,100 in Arizona. These differences are 

due to such factors as well age, well depth, the amount of surface 

disturbance, and costs for materials and labor. Table 4 shows the 

orphaned wells and the estimated reclamation costs by state; table 5 

shows the wells by surface management agency. 

Page 18 GAO-10-245 Oil and Gas Bonds
 

Table 4: Number of Orphaned Wells, Wells with a Reclamation Cost Estimate, and 

Estimated Reclamation Costs, by State 

State Wells

Number of wells with 

a reclamation cost 

estimate 

Total estimated 

reclamation costs

Arizona 4 4 $36,400

California 25 23 380,000

New Mexico 34 8 127,900

Ohio 9 8 154,530

Oklahoma 54 54 516,455

Utah 13 0 Unknown

Wyoming 5 5 468,205

Total 144 102 $1,683,490

Source: GAO analysis of BLM data. 

Table 5: Number of Orphaned Wells, Number of Wells with a Reclamation Cost 

Estimate, the Estimated Reclamation Costs, and States where the Wells Are 

Located, by Surface Management Agency 

Surface 

management 

agency Wells

Number of 

wells with a 

reclamation 

cost estimate

Total estimated 

reclamation 

costs States 

BLMa134 93 $1,468,960 Arizona, 

California, New 

Mexico, 

Oklahoma, 

Utah, Wyoming 

National Park Service 7 7 $147,030 Ohio 

Forest Service 3 2 $67,500 California, Ohio 

Total 144 102 $1,683,490

Source: GAO analysis of BLM data. 

a

Includes split estate lands. 

In addition, BLM is responsible for reclaiming 67 wells in Alaska that are 

commonly referred to as legacy wells. Unlike orphaned wells, which were 

drilled by private-sector operators, legacy wells were drilled by the U.S. 

Navy and the U.S. Geological Survey from the early 1900s to 1981 on what 

was then the Naval Petroleum Reserve No. 4—a 23-million-acre roadless 

area 200 miles north of the Arctic Circle. The wells were drilled to evaluate 

the mineral potential of the area and to test arctic oil and gas exploration 

and engineering practices. In 1976, the reserve was renamed the National 

Page 19 GAO-10-245 Oil and Gas Bonds
 

Petroleum Reserve-Alaska (NPR-A) and its administration was transferred 

to BLM—including responsibility for reclaiming those wells drilled prior to 

the transfer. Because of the remote location and difficult weather conditions 

in the NPR-A, mobilizing equipment and personnel to perform reclamation 

can be unusually expensive. For example, BLM estimates that reclaiming 

one well—known as Drew Point #1—will cost $23.6 million, owing in part to 

the well’s close proximity—less than 500 feet—to the Arctic Ocean, which is 

eroding the shore nearby. Although estimates are not available for 

reclaiming all 67 of these legacy wells, BLM estimated in 2004 that 

reclaiming 37 high-priority legacy wells would exceed $40 million.20

Like BLM, states have bonding requirements for oil and gas operations.21

However, in most states, bond amounts reflect some of the well’s 

characteristics and are generally higher than BLM’s minimum amounts. 

The states with regulatory minimum bond amounts not based on well 

characteristics generally have minimum amounts higher than BLM’s 

minimum amounts. In addition, federal regulations for other resources 

generally require the bonds to reflect the cost of reclamation or have 

minimum bond amounts that have been more recently established. 

BLM Oil and Gas 

Bonding 

Requirements Differ 

from States’ 

Requirements and 

from Federal Bonding 

Requirements for 

Other Resources 

States Have Different 

Approaches for 

Determining Bonding 

Amounts and Generally 

Require Bond Amounts 

Equal to or Higher Than 

Those of BLM 

The 12 western states have bonding requirements for oil and gas 

operations that differ in their approach from BLM’s onshore oil and gas 

bonding requirements. The states use bonds that cover either all wells in 

the state (similar to BLM’s statewide bond but referred to as statewide 

blanket bonds), multiple wells in the states (referred to as blanket bonds), 

or an individual well. Regarding the amount of bond required, the 12 

western states generally either use a minimum bond amount established 

by regulation regardless of the well’s characteristics or determine bond 

amounts based either on the depth of the well(s) or on the total number of 

 

20Rob Brumbaugh and Stan Porhola, Alaska Legacy Wells Summary Report: National 

Petroleum Reserve-Alaska, BLM/AK/ST-05004+2360+941, Department of the Interior, 

Bureau of Land Management, Alaska State Office, November 2004. 

21In addition to a bond for well plugging, abandonment, and site reclamation, some states, 

like Colorado, require additional bonds to protect the surface land owner in certain split 

estate situations. 

Page 20 GAO-10-245 Oil and Gas Bonds
 

wells covered by the bond. The latter approach is often more complex 

than the regulatory minimum requirements and triggers increases in bond 

amounts when certain additional factors come into play. For example: 

• For individual wells, Wyoming determines bond amounts based on well 

depth. If the well is less than 2,000 feet deep, the state requires a bond of 

at least $10,000, and if the well is 2,000 feet or deeper, the state requires a 

bond of at least $20,000. For statewide bonds, the minimum bond amount 

is $75,000. However, Wyoming may require an additional bond, currently 

in the amount of $10 per foot of well depth, when a well is not producing, 

injecting, or disposing after an operator’s total footage of idle wells 

reaches a certain threshold.22 Finally, the amount of this additional bond 

will increase every 3 years in accordance with the percentage change in 

Wyoming consumer price index. 

• For statewide bonds, California uses an approach that considers the 

number of wells and imposes an additional requirement on operators with 

idle wells. If an operator has 50 or fewer wells, then the bond amount is 

set at $100,000; if an operator has more than 50 wells exclusive of properly 

abandoned wells, the bond amount is set at $250,000. In addition to these 

bond amounts, operators must either (1) pay an annual fee for each idle 

well, (2) establish an escrow account of $5,000 for each idle well, (3) 

provide a $5,000 bond per idle well, or (4) have filed a management and 

elimination plan for all long-term idle wells. In lieu of complying with this 

requirement for idle wells, operators can post a $1 million statewide bond. 

In contrast, BLM’s method for deciding when and how much to increase 

the minimum bond amount is not automatic, unless the operator has 

previously failed to plug a well or reclaim lands; rather, it is based on the 

judgment of field and state office officials. 

Table 6 shows the 12 western states’ bonding requirements. 

 

22In lieu of this additional bond, the Wyoming Oil and Gas Conservation Commission may 

accept a detailed plan of operation which includes a time schedule to permanently plug and 

abandon idle wells or otherwise remove the well from idle status. In addition, an operator 

can request a different bond amount based on an evaluation of the specific well conditions 

and circumstances. 

Page 21 GAO-10-245 Oil and Gas Bonds
 

Table 6: The 12 Western States’ Bonding Requirements 

Approaches for determining the bond amount 

State 

Minimum 

amount

Based on 

well depth 

Based on 

number of wells

Alaska 

Individual well bond •

a

Statewide bond •

Arizona 

Individual well bond • 

Blanket bond •

California 

Individual well bond • 

Statewide bond •

b

Colorado 

Individual well bond •

c

Statewide bond •

c

Idaho 

Individual well bond •

Statewide bond •

Montana 

Individual well bond •

c

Blanket bond •

d

Nevada 

Individual well bond •

Statewide bond •

New Mexico 

Individual well bond • 

Statewide bond •

e

Oregon 

Individual well bond • 

Blanket bond • 

Utah 

Individual well bond •

f

Statewide bond •

f

Washington 

Individual well bond •

Statewide bond •

Page 22 GAO-10-245 Oil and Gas Bonds
 

Approaches for determining the bond amount 

State 

Minimum 

amount

Based on 

well depth 

Based on 

number of wells

Wyoming 

Individual well bond • 

Statewide bond •

Total 

Individual well bond 4 8 0

Blanket or statewide bond 7 2 3

Source: GAO analysis of state laws and regulations. 

a

State regulators are authorized to allow bond coverage in a lesser amount for a specific well under 

certain circumstances. 

b

Bond amounts are based in part on the number of wells covered by the bond. 

c

State regulations establish bond amounts but authorize regulators to increase that amount under 

certain circumstances. 

d

State regulations set the bond amount at $50,000 but authorize an increase to $100,000 when the 

factual situation warrants it. In addition, the state Board of Oil and Gas Conservation can limit the 

number of wells covered by a blanket bond. 

e

Under state law, statewide bonds cannot exceed $50,000, which is the amount specified in the 

regulation. 

f

State regulations establish minimum bond amount based on well depth but authorize regulators to 

allow bond coverage in a lesser amount for a specific well under certain circumstances and greater 

amounts when the regulatory minimum amount will be insufficient to cover the costs of plugging the 

well and restoring the well site. 

The 12 western states generally require bond amounts that are at least 

equal to or higher than the minimum amount BLM requires for its 

individual lease and statewide bonds, or determine the bond amount based 

on well depth or number of wells covered by the bond. For example: 

• The 4 states that require minimum bond amounts for individual wells 

regardless of well depth—Alaska, Idaho, Nevada, and Washington—set 

minimum bond amounts at $100,000, $10,000, $10,000, and $50,000 per 

well, respectively. Because these bond amounts are required for each well, 

in most circumstances they are generally higher than BLM’s minimum 

amount of $10,000 for individual lease bonds since most BLM leases have 

more than one well. 

• The 7 states whose regulations establish a bond amount or minimum bond 

amount for statewide or blanket bonds regardless of a well’s 

characteristics—Alaska, Idaho, Montana, Nevada, New Mexico, 

Washington, and Wyoming—have amounts that range from a high of 

$250,000 in Washington to low of $25,000 in Idaho. 

Page 23 GAO-10-245 Oil and Gas Bonds
 

• All states except Alaska, Idaho, Nevada, and Washington determine the 

amount of individual well bonds based, at least in part, on well depth. 

Three of the 9 states whose regulations provide for statewide bonds—

California, Colorado, Utah—also determine the amount based on well 

depth or the number of wells covered by the bond.23 Because of the nature 

of these approaches, it is difficult to compare them with BLM’s bonding 

requirements to determine which would result in the higher bond amount. 

However, these approaches are generally more sophisticated than 

minimum requirements in that they associate the bond amount with the 

amount of drilling, which may reduce the potential liability to the states in 

cases where the operator fails to perform the necessary reclamation. 

See appendix III for detailed information on the bonding requirements in 

each of the 12 western states. 

Federal Regulations for 

Other Resources Generally 

Require Bond Amounts 

That Cover Reclamation 

Costs or the Minimum 

Bond Amounts Have Been 

More Recently Set 

Regulations governing the extraction of other resources owned by the 

federal government generally require (1) bond amounts that consider the 

cost of reclamation, which reduces the government’s potential liability for 

reclamation costs; or (2) use minimum amounts that were established 

more recently than the amounts for BLM oil and gas bonds. 

First, bonding requirements for the extraction of coal and hardrock 

minerals—such as gold, silver, and copper—require operators to post 

bonds that cover the full estimated cost of reclamation. These 

requirements reduce the potential reclamation liability to the federal 

government should the operations fail to perform the necessary 

reclamation. 

Second, for the remaining types of federally owned resources, minimum 

bond amounts are established by regulation. These regulations are similar to 

BLM’s regulations; however, these regulatory minimum amounts generally 

have all been established or updated since BLM established its current 

regulatory minimums for oil and gas leases in 1951 for statewide and 

nationwide bonds, and in 1960 for individual lease bonds. Table 7 provides a 

summary of the type and amount of bonds required for the extraction or use 

of federally owned resources. Additional detail on the structure, amount, 

and types of bonds permitted is contained in appendix IV. 

 

23Arizona, Montana, and Oregon do not have bonds that cover all of an operator’s wells 

within a state; rather they have blanket bonds that cover multiple wells. 

Page 24 GAO-10-245 Oil and Gas Bonds
 

Table 7: Summary of Bonding Requirements for the Extraction of Federally Owned Resources, by Agency 

Agency and program Type and amount 

BLM Geothermal Resource Leasing Minimum amounts established by regulation:a

Drilling Operations (established in 1973)

• Single lease: $10,000 

• Statewide: $50,000 

• Nationwide: $150,000 

Utilization Operations (such as electricity generation)

• Electrical Generation Facility: $100,000 (established in 1979) 

Direct Use Facility: BLM will specify amount 

BLM Hardrock Minerals (also known as 

locatable minerals—includes minerals such 

as gold, silver, and copper) 

Regulations promulgated in 2000 established that the bond amount will be based on the 

estimated costs as if BLM were to contract with a third party to reclaim the operations 

according to the reclamation plan. 

BLM Mineral Materials (also known as 

salable minerals—includes materials such 

as sand and gravel) 

Bond amount based on sales contract amount: 

• No bond is required if contract utilizes a community pit or common use area and 

party pays a reclamation fee. (Established in 1983) 

• For contracts of $2,000 or more, BLM will establish bond amount to ensure it is 

sufficient to meet the contract’s reclamation standards. However, the amount must 

be at least $500. (Established in 2001) 

• For contracts of less than $2,000, BLM may require a bond. If BLM requires a bond 

it cannot exceed an amount greater than 20 percent of the total contract value. 

(Established in 1983)b

BLM Solid Minerals (other than coal and oil 

shale, also known as leasable minerals—

includes minerals such as silicates, potash, 

and sulfur) 

Minimum amounts established by regulation: 

• Individual lease: $5,000 (established in 1949 for phosphate, in 1954 for potassium 

and sodium, 1956 for sulfur, and in 1984 for all other solid minerals other than coal 

and oil shale, such as vein type solid hydrocarbons) 

• Statewide (for a specific mineral): $25,000 (established in 1967 for most solid 

minerals other than coal and oil shale and extended to all solid minerals other than 

coal and oil shale in 1984) 

• Nationwide (for a specific mineral): $75,000 (established in 1984) 

MMS Offshore Oil and Gas Leasing Minimum amounts, determined by the stage of development/activity, established by 

regulation: 

General Lease Bond (established in 1969)c

• Individual lease: $50,000 

• Areawide:d $300,000 

Lease Exploration Bond (established in 1993)

• Individual lease: $200,000 

• Areawide:d $1 million 

Development and Production Activities Bond (established in 1993)

• Individual lease: $500,000 

• Areawide:d $3 million 

Page 25 GAO-10-245 Oil and Gas Bonds
 

Agency and program Type and amount 

OSM Coal Leasinge Bond amount based on, but not limited to, the estimated reclamation costs submitted by 

the operator or owner and reflects the probable difficulty of reclamation. The amount of 

the bond must be sufficient to assure the completion of the reclamation plan if the work 

has to be performed by the regulatory authority. The regulatory authority must adjust 

the bond amount from time to time as the area requiring bond coverage is increased or 

decreased or where the cost of future reclamation changes. 

OSM regulations were promulgated in 1983. 

Source: GAO analysis of federal regulations. 

a

BLM is authorized to increase the bond amount under certain circumstances, including when the 

amount will not cover the estimated reclamation cost. 

b

Prior to 1983, BLM regulations authorized a bond amount for contracts less than $2,000 but did not 

impose a maximum bond amount. 

c

A general lease bond does not have to be posted if a lease exploration or development and 

production activities bond is posted. The latter categories of bonds were established in 1993 because 

the level of the general lease bond coverage could no longer provide assurance of safety and 

effective protection to the environment. 

d

Areawide bonds cover an operator’s or owner’s leases in one of three areas: (1) the Gulf of Mexico 

and the area off the Atlantic coast; (2) the area offshore the Pacific Coast states of California, 

Oregon, Washington, and Hawaii; and (3) the area off the shore of Alaska. 

e

Under the Surface Mining Control and Reclamation Act of 1977, OSM regulates surface coal mining, 

however, the act also allows states to develop their own regulatory program if those programs are in 

accordance with the act’s requirements and approved by OSM. States with an approved state 

program and that meet other qualifications can enter into a cooperative agreement with the Secretary 

of the Interior to enforce the state’s program on federal lands within the state. In these cooperative 

agreements, OSM delegates responsibility for the establishment and release of bonds required for 

surface coal mining and reclamation operations on federal lands to the state regulatory authority, 

although OSM must concur in the release. In addition to this bond required by OSM or the approved 

state regulatory authority, BLM will not issue a coal lease until the prospective lessee has posted a 

bond. However, these lease bonds do not cover reclamation unless the state in which the mining will 

occur does not have a cooperative agreement with the Secretary. 

Page 26 GAO-10-245 Oil and Gas Bonds
 

GAO provided Interior with a draft of this report for its review and 

comment. Interior provided technical comments, which we incorporated 

as appropriate. 

Agency Comments 

and Our Evaluation 

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to interested congressional 

committees; the Secretary of the Interior; and the Director of the Bureau 

of Land Management. The report also is available at no charge on the GAO 

Web site at http://www.gao.gov. 

If you or your staffs have any questions about this report, please contact 

me at (202) 512-3841 or mittala@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

Anu K. Mittal 

listed in appendix V. 

Director, Natural Resources 

 and Environment 

Page 27 GAO-10-245 Oil and Gas Bonds
 

List of Requesters 

The Honorable Jeff Bingaman 

Chairman 

Committee on Energy and Natural Resources 

United States Senate 

The Honorable Nick Rahall 

Chairman 

Committee on Natural Resources 

House of Representatives 

The Honorable Jim Costa 

Chairman 

Subcommittee on Energy and Mineral Resources 

Committee on Natural Resources 

House of Representatives 

Page 28 GAO-10-245 Oil and Gas Bonds
Appendix I: Objectives, Scope, and 

Methodology 

Page 29 GAO-10-245 

Appendix I: Objectives, Scope, and 

Methodology 

This appendix details the methods we used to examine three aspects of 

the Department of the Interior’s (Interior) Bureau of Land Management 

(BLM) bonding requirements for BLM oil and gas leases and reclamation 

of oil and gas wells. Specifically, we were asked to (1) determine the types, 

value, and coverage of bonds held by BLM for oil and gas operations; (2) 

determine the amount that BLM has paid to reclaim orphaned wells over 

the past 20 years, and the number of orphaned wells BLM has identified 

but has not yet reclaimed; and (3) compare BLM’s bonding requirements 

for oil and gas operations with the bonding requirements the 12 western 

states use for oil and gas operations on state and private lands and other 

Interior agencies’ bonding requirements for other resources. 

Overall, we reviewed federal regulations and BLM guidance on bonding for 

oil and gas leases, and discussed this guidance and a broad range of issues 

related to how BLM oversees bonding for oil and gas leases during 

interviews with bonding officials at BLM state offices and field offices in 

Colorado and Wyoming—two states that have a large number of oil and 

gas wells and administer bonds that account for a significant amount of 

the value of BLM-held bonds. 

For objective one—to determine the number, value, and coverage of 

bonds, as of December 2008—we analyzed data from BLM’s bond and 

surety system, and Automated Fluid Minerals Support System (AFMSS), 

and met with agency officials who administer the systems. From the bond 

and surety system, we received 13 tables from BLM containing 747,926 

records on bonds from June 19, 1925, to December 17, 2008. We also 

received 9 tables containing 106,705 records on wells from January 7, 1930, 

to August 20, 2009 from BLM’s AFMSS. Because the bond and surety 

system contains records on bonds that have been terminated and do not 

have any well liability attached, we first determined which records 

contained active bonds. Because bond data were limited to records before 

December 17, 2008, we selected the first day of the final month for which 

we had data, December 1, 2008. We corroborated the number of active 

bonds using a range of different methodologies that uses other data in the 

bond and surety system and confirmed that the list of active bonds was 

sufficiently complete for the purposes of our analysis. 

To determine the number of bonds, we selected all active bonds as of 

December 1, 2008, in the bond and surety system and grouped them by 

bond type into surety or personal bonds. BLM’s data further identified 

personal bonds as letter of credit, time deposit, Treasury security, and 

guaranteed remittance. We analyzed 43 C.F.R. § 3104.1, which addresses 

Oil and Gas Bonds 
Appendix I: Objectives, Scope, and 

Methodology 

bond types, and spoke to BLM officials, before deciding to group the 

various types of personal bonds into a single personal bond category. 

To determine the value of bonds, we selected all active bonds as of 

December 1, 2008, in the bond and surety system and grouped them by 

unique bond file number. To calculate the total value of all active bonds, 

we summed the bond amount for all unique bonds. We also grouped bonds 

by bond type and bond coverage type to calculate the value for each 

group. Finally, we grouped all bonds by BLM state office using the 

administrative state field in the bond and surety system and summed the 

amount of all bonds for each BLM state office, as well as categorizing 

bonds by bond type and bond coverage type. 

For bond coverage, we selected active bonds as of December 1, 2008, from 

the bond and surety system and grouped them by the following categories: 

individual, statewide, nationwide, and other. The other category included 

collective (unit), blanket bonds, and bonds for the National Petroleum 

Reserve in Alaska. We analyzed 43 C.F.R. §§ 3104.2-3104.4 and spoke with 

BLM officials to determine the appropriate bond coverage type categories, 

creating the other category for the 6 percent of bonds not typically used 

for current wells. 

To determine the number of wells, we received and analyzed data BLM 

generated from the AFMSS database that included records current as of 

August 20, 2009. The set of data received from BLM excluded all wells that 

had been reclaimed prior to this date and whose bonds had been released, 

helping to ensure that our data only included wells that required a bond. 

To have the well data match the bonding data, we selected all well records 

in AFMSS that were drilled before December 1, 2008. We identified wells 

using the well’s unique American Petroleum Institute number, which is 

assigned when the well is drilled. In addition to information on producing 

wells, the data also included information on wells that were shut in (i.e., 

could return to production) and temporarily abandoned (i.e., could be 

used for a purpose other than producing oil or gas). We also grouped these 

wells by their BLM state office using a location field in AFMSS. To 

determine the number of leases, we grouped the number of wells listed 

before December 1, 2008, by unique lease number, and analyzed these 

leases by state using the location field of the lease within AFMSS. Because 

the AFMSS system can generate current data only, our analysis excludes 

those wells that were reclaimed between December 1, 2008, and August 

20, 2009. Although these wells were not included in our totals, we 

concluded the data were sufficiently reliable for the purpose of our 

analysis, as data published in BLM’s Public Land Statistics show that only 

Page 30 GAO-10-245 Oil and Gas Bonds
Appendix I: Objectives, Scope, and 

Methodology 

231 wells were plugged and abandoned in all of fiscal year 2008.24 We also 

compared our total number of wells with the total number of wells in the 

fiscal year 2008 BLM Public Land Statistics. We determined that the 

difference between our total for December 1, 2008, and BLM’s total for 

September 30, 2008—a difference of about 3 percent—did not significantly 

affect our analysis. 

For figure 2 in the report—the number of wells and value of bonds, from 

September 30, 1988, to September 30, 2008 (the most current date for 

which BLM data were available)—we selected five dates at 5-year intervals 

for the past 20 years, and calculated the total value of all bonds using data 

in the bond and surety system and the number of wells from BLM Public 

Land Statistics. We used the following dates to assess coverage: 

September 30, 2008; September 30, 2003; September 30, 1998; September 

30, 1993; and September 30, 1988. For each of these dates, we selected all 

active bonds, providing us with those bonds that were accepted, but not 

terminated, before each of the five dates. To calculate the total value of 

these bonds, we grouped unique bonds for each of the five dates, and 

summed the bond amount field in the bond and surety system. To 

calculate well totals, we were limited by the dynamic nature of AFMSS, 

which restricted us from calculating the number of active wells for 

specific dates in the past. Due to this limitation, we relied on BLM’s Public 

Land Statistics for the well totals for our specified dates. 

For figure 3 in the report—individual, statewide, and nationwide current 

bond minimums adjusted to 2009 dollars—we used the bond minimums 

established in 43 C.F.R. §§ 3104.2, 3104.3 and searched the Federal 

Register to determine the dates the bond minimums were established. We 

then calculated the amount of each bond minimum in 2009 dollars. 

We reviewed the reliability of the data we used from the bond and surety 

system and AFMSS and found these data sufficiently reliable for the 

purpose of our review, including: total number of bonds, total number of 

wells, number and value of bonds by bond type, number and value of 

bonds by coverage type, number of wells by state, number of leases by 

state, number and value of bonds by state, average value of bonds by state 

office, number and value of bond types by state office, and number and 

value of coverage types by state office. To test the sufficiency of the bond 

 

24Public Land Statistics 2008, Vol. 193, BLM/OC/ST-09/001-1165, Department of the 

Interior, Bureau of Land Management, May 2009. 

Page 31 GAO-10-245 Oil and Gas Bonds
Appendix I: Objectives, Scope, and 

Methodology 

and surety system and AFMSS data used to calculate the number, types, 

values, and coverage of bonds, we electronically tested the database and 

conducted interviews with BLM staff responsible for the integrity of the 

data. We also electronically tested all fields related to our analysis, 

including tests for null values, duplicate records, accurate relationships 

between code and text fields, and outliers. We also conducted 20 

interviews with BLM staff between December 12, 2008, and November 13, 

2009, on the following topics: data entry, use of data, completeness of 

data, accuracy of data, edit checks, supervisory oversight, internal 

reviews, different data fields, and data limitations. We determined that 

there were no significant issues with the bond and surety system and 

AFMSS data we used to calculate the number, types, value, and coverage 

of bonds. 

To address our second objective—determine how much BLM has paid to 

reclaim orphaned wells over the past 20 years, and how many wells BLM 

has yet to reclaim—we obtained data collected by BLM officials from BLM 

field and state offices. To determine the expenditures for reclaiming 

orphaned wells, we obtained data for fiscal years 1988 through November 

30, 1994, from a 1995 BLM report.25 We obtained data through fiscal year 

2009 from BLM officials. These data included federal dollars paid to 

reclaim orphaned wells, the number of wells reclaimed, and their location. 

To determine the number of orphaned wells yet to be reclaimed, we 

reviewed BLM’s Instructional Memorandum No. 2007-192, which directs 

BLM field office staff to report data on orphaned wells to BLM’s 

Washington Office. The Instructional Memorandum directs field office 

staff to complete an “Orphaned Well Scoring Checklist” for each orphaned 

well identified. This checklist asks for such information as the well’s 

location; well name; and other factors relating to reclamation, such as the 

well depth or estimated reclamation cost. We reviewed these checklists 

and analyzed all available estimated reclamation amounts. We then 

calculated and summarized estimated reclamation cost data by state and 

surface management agency. 

To address our third objective—compare BLM’s bonding methods with 

those used by the 12 western states and other Interior agencies—we 

analyzed state oil and gas bonding laws and regulations, as well as federal 

bonding regulations for the extraction or use of other federally owned 

 

25BLM Oil and Gas Program: Bonding/Unfunded Liability Review, Bureau of Land 

Management, Department of the Interior, March 1995. 

Page 32 GAO-10-245 Oil and Gas Bonds
Appendix I: Objectives, Scope, and 

Methodology 

resources. These federal agencies and resources included BLM 

Geothermal Energy, BLM Hardrock Minerals, BLM Mineral Materials, BLM 

Solid Minerals, Mineral Management Service Offshore Oil and Gas Leasing, 

and Office of Surface Mining Reclamation and Enforcement Coal Leasing. 

We summarized the bonding requirements, including scope, structure, 

amount, and method for determining bond amounts. 

We conducted our work from January 2009 to January 2010 in accordance 

with all sections of GAO’s Quality Assurance Framework that are relevant 

to our objectives. The framework requires that we plan and perform the 

engagement to obtain sufficient and appropriate evidence to meet our 

stated objectives and to discuss any limitations in our work. We believe 

that the information and data obtained, and the analysis conducted, 

provide a reasonable basis for any findings and conclusions. 

Page 33 GAO-10-245 Oil and Gas Bonds
Appendix II: Information on BLM Held Oil Appendix II: Information on BLM Held Oil and Gas Bonds 

and Gas Bonds 

This appendix provides information on BLM held oil and gas bonds from 

BLM’s AFMSS and bond and surety systems, including the number, value, 

and average value of all BLM held bonds (table 8); the number and value of 

surety and personal bonds (tables 9 and 10); and the number and value of 

individual, statewide, nationwide, and other bonds (tables 11 and 12). 

Table 8: Number, Total Value, and Average Value of BLM Held Bonds, by BLM State 

Office 

BLM state office Number of bonds Total value Average value

Alaska 17 $2,625,000 $154,412

Arizona 8 576,000 72,000

California 158 7,773,000 49,196

Colorado 312 12,633,419 40,492

Eastern states 413 16,759,630 40,580

Montana 277 12,592,605 45,461

Nevada 55 1,365,000 24,818

New Mexico 1,297 40,145,825 30,953

Oregon 4 350,000 87,500

Utah 253 9,011,653 35,619

Wyoming 1,085 58,483,277 53,902

Total 3,879 $162,315,409 $41,845

Source: GAO analysis of BLM data. 

Table 9: Number of Surety and Personal Bonds, by BLM State Office 

BLM state office Surety bonds Personal bonds

Alaska 6 11

Arizona 1 7

California 63 95

Colorado 170 142

Eastern states 164 249

Montana 162 115

Nevada 35 20

New Mexico 700 597

Oregon 2 2

Utah 171 82

Wyoming 612 473

Total 2,086 1,793

Source: GAO analysis of BLM data. 

Page 34 GAO-10-245 Oil and Gas Bonds 
Appendix II: Information on BLM Held Oil 

and Gas Bonds 

Table 10: Value of Surety and Personal Bonds Administered by BLM State Offices, 

by State 

BLM state office Surety bonds Personal bonds

Alaska $425,000 $2,200,000

Arizona 25,000 551,000

California 4,150,000 3,623,000

Colorado 4,379,000 8,254,419

Eastern states 6,586,000 10,173,630

Montana 4,679,000 7,913,605

Nevada 1,030,000 335,000

New Mexico 19,598,205 20,547,620

Oregon 50,000 300,000

Utah 4,364,968 4,646,685

Wyoming 39,049,056 19,434,221

Total $84,336,229 $77,979,180

Source: GAO Analysis of BLM data. 

Table 11: Number of Statewide, Nationwide, Individual, and Other Bonds 

Administered by BLM State Offices, by State 

BLM state office Statewide Nationwide Individual Othera

Alaska 13 1 3

Arizona 7 1

California 89 8 10 51

Colorado 230 26 13 43

Eastern states 215 57 119 22

Montana 189 23 16 49

Nevada 26 7 3 19

New Mexico 911 210 96 80

Oregon 4 0

Utah 150 30 10 63

Wyoming 718 31 260 76

Total 2,552 393 527 407

Source: GAO Analysis of BLM data. 

a

Other includes the following bond coverage types: blanket bond, collective (Unit), and NPR-A 

(National Petroleum Reserve, Alaska). 

Page 35 GAO-10-245 Oil and Gas Bonds
Appendix II: Information on BLM Held Oil 

and Gas Bonds 

Table 12: Value of Statewide, Nationwide, Individual, and Other Bonds Administered 

by BLM State Offices, by State 

BLM state office Statewide Nationwide Individual Othera

Alaska $2,100,000 $300,000 $225,000

Arizona 575,000 1,000

California 5,725,000 395,000 283,000 1,370,000

Colorado 10,687,056 560,000 516,363 870,000

Eastern states 12,615,630 1,105,000 2,765,000 274,000

Montana 10,502,605 745,000 355,000 990,000

Nevada 720,000 220,000 100,000 325,000

New Mexico 31,060,354 5,374,300 2,124,171 1,587,000

Oregon 350,000

Utah 6,675,218 753,350 175,000 1,408,085

Wyoming 49,208,889 779,000 6,139,304 2,356,084

Total $130,219,752 $10,231,650 $12,457,838 $9,406,169

Source: GAO Analysis of BLM data. 

a

Other includes the following bond coverage types: blanket bond, collective (Unit), and NPR-A 

(National Petroleum Reserve, Alaska). 

Page 36 GAO-10-245 Oil and Gas Bonds
Appendix III: Information on the 

Requirements the 12 Western States Use for Appendix III: Information on the Oil and Gas Bonds 

Requirements the 12 Western States Use for 

Oil and Gas Bonds 

State Scope of bond Approach Amount Types permitted 

Alaska To ensure that each well is 

drilled, operated, 

maintained, repaired, and 

abandoned (plugged) and 

each location is cleared in 

accordance with state laws 

and regulations.1

• Single well bond. 

• Blanket bond covering 

all of the operator’s 

wells in the state. 

Single well bond 

• Not less than $100,000, 

unless the applicant 

demonstrates that the 

cost of well 

abandonment 

(plugging) and location 

clearance will be less 

than $100,000. 

Blanket bond 

• Not less than $200,000. 

• Surety bond by an 

authorized insurer who 

is in good standing. 

• Personal bond and 

security in the form of 

(1) a certificate of 

deposit, (2) irrevocable 

letter of credit, or (3) an 

otherwise adequate 

security. 

Arizona Conditioned on drilling, 

plugging dry or abandoned 

wells, repairing wells 

causing waste or pollution, 

maintaining and restoring 

well sites, and acting in 

accordance with the 

applicable laws and 

regulations. 

Although the state Oil and 

Gas Conservation 

Commission is authorized 

to issue a rule requiring an 

additional bond if the 

surface landowner is not in 

a contractual relationship 

with drilling permittee, no 

such rule has been issued. 

• Individual well bond. 

• Blanket bond to cover 

multiple wells. 

Individual well bond 

• $10,000 for wells 

10,000 feet or less 

deep. 

• $20,000 for wells 

deeper than 10,000 

feet. 

Blanket bond 

• $25,000 for 10 or fewer 

wells. 

• $50,000 for more than 

10 but fewer than 50 

wells. 

• $250,000 for 50 or 

more wells. 

• Surety bond by a 

corporate surety 

authorized to do 

business in Arizona. 

• Certified check. 

• Certificate of deposit 

from a bank whose 

deposits are federally 

insured. 

California Conditioned on compliance 

with all statutory 

requirements for drilling, 

redrilling, deepening, or 

permanently altering the 

casing of the well.2

• Individual indemnity 

bond. 

• Blanket indemnity bond 

covering all wells in the 

state. 

• Idle well indemnity 

bond. 

Individual indemnity bond 

• $15,000 for wells less 

than 5,000 feet deep. 

• $20,000 for wells at least 

5,000 feet deep but less 

than 10,000 feet deep. 

• $30,000 for each well 

10,000 or more feet 

deep. 

• Indemnity bond. 

• Certificate of deposit 

that (1) does not 

exceed the federally 

insured amount, (2) is 

insured, and (3) is 

issued by a bank or 

savings association 

authorized to do 

business in California. 

 

1

The bond or bond and security remain in effect until the abandonment of all the wells 

covered by them and the Alaska Oil and Gas Conservation Commission approves final 

clearance of the locations. 

2

The bond should secure the state against all losses, charges, and expenses incurred by it to 

obtain such compliance. 

Page 37 GAO-10-245 Oil and Gas Bonds 
Appendix III: Information on the 

Requirements the 12 Western States Use for 

Oil and Gas Bonds 

State Scope of bond Approach Amount Types permitted 

Blanket indemnity bond 

• $250,000 plus the idle 

well bond. If a bond was 

provided prior to Jan. 1, 

1999, its amount must 

be increased by a 

minimum of $30,000 per 

year beginning on Jan. 

1, 2000, until the bond 

reaches $250,000. 

• $100,000 plus the idle 

well bond for operators 

having 50 or fewer wells, 

exclusive of properly 

abandoned wells. 

• $1 million dollars. 

Idle well indemnity bond 

• $5,000 per well, if the 

operator chooses to post 

a bond rather than pay 

an annual fee, open an 

escrow account, or have 

filed a management plan 

by July 1, 1999. 

• Savings accounts and 

evidence of the deposit in 

the account. The account 

cannot exceed the 

federally insured amount, 

must be federally insured 

and with a bank 

authorized to do 

business in California. 

• Investment certificates or 

share accounts issued by 

savings associations 

authorized to do 

business in California. 

The account’s balance 

cannot exceed the 

federally insured amount 

and must be insured. 

• Certificates for funds or 

share accounts issued 

by credit unions whose 

share deposits are 

guaranteed. The 

account’s balance 

cannot exceed the 

guaranteed amount. 

Colorado Every operator must provide 

assurance that it is financially 

capable of fulfilling applicable 

requirements (1) to protect the 

health, safety, and welfare of 

the general public in the 

conduct of the oil and gas 

operations; (2) to ensure 

proper reclamation of the land 

and soil affected by oil and 

gas operations and to ensure 

the protection of the topsoil of 

said land during such 

operations; and (3) associated 

with terminating operations 

and permanent closure. 

(1) Surface Owner 

Protection Financial 

Assurance: individual well 

or statewide blanket bond. 

To protect surface owners 

who are not parties to a 

lease or other agreement 

with the operator from 

unreasonable crop loss or 

land damage. 

(2) Soil Protection, Plugging, 

Abandonment and Site 

Reclamation Financial 

Assurance: individual or 

statewide blanket bond. 

The Oil and Gas 

Conservation Commission 

has the authority to increase 

any of these amounts for an 

operator under certain 

circumstances.3

(1) Surface Owner 

Protection 

Individual well 

• $2,000 per well for nonirrigated land. 

• $5,000 per well for 

irrigated land. 

• Demonstration that 

operator has sufficient 

net worth to guarantee 

performance, which the 

Commission must 

review annually. 

• Certificate of general 

liability insurance. 

• Bond or other surety 

instrument. 

• Letter of credit. 

• Certificate of deposit. 

• Other financial 

instrument. 

 

3

When the Oil and Gas Conservation Commission’s Director has reasonable cause to 

believe that the Commission may become burdened with the costs of fulfilling an 

operator’s statutory requirements because (1) the operator has demonstrated a pattern of 

noncompliance with oil and gas regulations in Colorado or other states; (2) special 

geologic, environmental, or operational circumstances exist which make the plugging and 

abandonment of particular wells more costly; or (3) other special and unique 

circumstances exist, he may petition the Commission for an increased financial assurance. 

Page 38 GAO-10-245 Oil and Gas Bonds
Appendix III: Information on the 

Requirements the 12 Western States Use for 

Oil and Gas Bonds 

State Scope of bond Approach Amount Types permitted 

Statewide 

• $25,000. 

(2) Soil Protection, 

Plugging, Abandonment 

and Site Reclamation4

Individual well bond 

• $10,000 per well for 

wells less than 3,000 

feet deep. 

• $20,000 per well for 

wells greater than or 

equal to 3,000 feet 

deep. 

Statewide bond 

• $60,000 for less than 

100 wells. 

• $100,000 for 100 or 

more wells. 

If the operator has excess 

inactive wells,5

 the financial 

assurance amount 

increases by 

• $10,000 for each 

excess inactive well 

less than 3,000 feet 

deep. 

• $20,000 for each 

excess inactive well 

greater than or equal to 

3,000 feet deep. 

The Commission can 

modify or waive this 

increase if the operator 

submits a plan for (1) 

returning the wells to 

production in a timely 

manner or (2) plugging and 

abandoning the wells on an 

acceptable schedule. 

Additional finance 

assurances required for off-

• Escrow account or 

sinking fund. 

• Lien or other security 

interest in real or 

personal property of 

the operator that is 

acceptable to the 

Commission and 

reviewed annually. 

 

4

All wells whose financial assurances were posted prior to April 1, 2009, must have had 

financial assurances that meet these requirements by July 1, 2009. 

5

An operator has excess inactive wells if its inactive well count exceeds the operator’s 

financial assurance amount divided by (1) $10,000 for inactive wells less than 3,000 feet 

deep or (2) $20,000 for inactive wells greater than or equal to 3,000 feet deep. 

Page 39 GAO-10-245 Oil and Gas Bonds
Appendix III: Information on the 

Requirements the 12 Western States Use for 

Oil and Gas Bonds 

State Scope of bond Approach Amount Types permitted 

site, centralized 

exploration and production 

waste management 

facility and seismic 

operations. 

Idaho Conditioned upon 

compliance with the legal 

and regulatory 

requirements for drilling, 

maintaining, operating, and 

plugging of each oil and gas 

well. 

• Individual well bond. 

• Statewide blanket 

bond. 

Individual bond of not less 

than $10,000 per well. 

Blanket bond of not less 

than $25,000 for all wells in 

the state. 

Separate bond 

requirements govern 

wells on state and school 

lands. 

• Surety bond by a 

corporate surety 

authorized to do 

business in Idaho. 

• Cash. 

Montana Conditioned on properly 

plugging each dry or 

abandoned well and 

restoring the surface of the 

location. 

• Single well bond. 

• Multiple well bond. 

Single well bond 

• $1,500 if the well’s 

depth is 2,000 feet or 

less. The Board of Oil 

and Gas Conservation 

can increase the bond 

requirement to $3,000 

under certain 

circumstances.6

• $5,000 if the well’s 

depth is greater than 

2,000 feet and less 

than 3,501 feet. The 

Board can increase this 

amount to $10,000 

under certain 

circumstances.7

• $10,000 where the 

well’s depth is 3,501 

feet or more. The 

Board can increase this 

amount to $20,000 

under certain 

circumstances.8

• Surety bond issued 

from a company 

licensed to do business 

in Montana. 

• Federally insured 

certificate of deposit 

held by a Montana 

bank. 

• Letter of credit issued 

by a Montana 

commercial bank 

whose deposits are 

FDIC insured. 

 

6

The bond amount can be increased when the Board finds that the factual situation warrants 

such an increase in order for the owner or operator to comply with the Board’s rules. 

7

The bond amount can be increased when the Board finds that the factual situation 

warrants such an increase in order for the owner or operator to comply with the Board’s 

rules 

8

The bond amount can be increased when the Board finds that the factual situation 

warrants such an increase in order for the owner or operator to comply with the Board’s 

rules 

Page 40 GAO-10-245 Oil and Gas Bonds
Appendix III: Information on the 

Requirements the 12 Western States Use for 

Oil and Gas Bonds 

State Scope of bond Approach Amount Types permitted 

Multiple well bonds 

• $50,000. The Board can 

increase this amount to 

$100,000 under certain 

circumstances and/or 

limit the number of 

multiple wells that can be 

covered by a multiple 

bond.9

 If existing wells 

are covered by a bond 

with an amount less than 

$25,000, the owner or 

operator must increase 

coverage to $25,000. 

Nevada Conditioned on (1) dry or 

abandoned well being 

plugged in accordance with 

state regulations and (2) 

operation and repair of well 

in a manner that does not 

cause waste. 

• Individual well bond. 

• Blanket statewide 

bond. 

Individual well bond of not 

less than $10,000. 

Blanket statewide bond of 

not less than $50,000. 

• Bond issued by a 

corporate surety 

authorized to do 

business in Nevada 

and approved by the 

state regulatory 

agency. 

• Cash deposit. 

• Savings certificate or 

time certificate of 

deposit issued by a 

bank or savings or loan 

association in 

Nevada. 

New Mexico Conditioned on the well 

being plugged and 

abandoned and the location 

restored and remediated in 

compliance with applicable 

rules. The financial 

assurance is not to secure 

payment for damages to 

livestock, range, crops or 

tangible improvements or 

any other purpose. 

• One-well financial 

assurance. 

• Blanket financial 

assurance for all wells 

statewide. 

One-well financial 

assurance10

• $5,000 plus $1 per foot 

of well depth in certain 

counties.11

• $10,000 plus $1 per 

foot of well depth in all 

other counties. 

Blanket financial 

assurance 

• $50,000. 

• Irrevocable letter of 

credit that meets 

certain conditions. 

• Cash deposited into a 

federally insured 

account in New 

Mexico. 

• Surety bond that meets 

certain conditions. 

• Insurance policy that 

meets certain 

requirements. 

 

9

The bond amount can be increased when the Board finds that the factual situation 

warrants such an increase in order for the owner or operator to comply with the Board’s 

rules. 

10The Oil Conservation Commission was required to establish this financial assurance in 

amounts determined sufficient to reasonably pay the cost of plugging the well, considering 

the depth of the well, among other things. 

11The counties are: Chaves, Eddy, Lea, McKinley, Rio Arriba, Roosevelt, Sandoval, and San 

Juan. 

Page 41 GAO-10-245 Oil and Gas Bonds
Appendix III: Information on the 

Requirements the 12 Western States Use for 

Oil and Gas Bonds 

State Scope of bond Approach Amount Types permitted 

Wells that have been in 

temporary abandonment for 

more than 2 years must be 

covered by a one-well 

financial assurance, unless 

the well is shut-in because 

of the lack of a pipeline 

connection. 

Oregon Bond will not be released 

unless well has been 

properly abandoned, 

including site reclamation. 

• Single well bond. 

• Blanket bond for multiwell operations. 

Single well bond 

• $10,000 for wells less 

than 2,000 feet deep. 

• $15,000 for wells 

between 2,000 and 

5,000 feet deep. 

• $25,000 for wells greater 

than 5,000 feet deep. 

Blanket bond 

• Amount equals the sum 

of individual bonds 

required for the wells, 

although some wells 

might be excluded from 

this calculation.12

• Minimum amount of 

$100,000. 

• Surety bond. 

• The Department of 

Geology and Mineral 

Industries has the 

discretion to accept an 

irrevocable letter of 

credit or other form of 

financial security. 

Utah Conditioned upon the 

operator plugging each dry 

or abandoned well, 

repairing each well causing 

waste or pollution, and 

maintaining and restoring 

the well site. 

• Individual well bond. 

• Statewide blanket 

bond. 

Individual well bond 

• At least $1,500 for a 

well less than 1,000 

feet deep. 

• At least $15,000 for a 

well more than 1,000 

feet deep but less than 

3,000 feet deep. 

• $30,000 for a well more 

than 3,000 feet deep 

but less than 10,000 

feet deep. 

• At least $60,000, for 

wells more than 10,000 

feet deep. 

• Surety bond with 

performance guarantee 

of a corporation that 

meets certain 

requirements. 

• Collateral bond 

supported by one or 

more of the following: 

(1) a cash account at a 

federally insured bank 

authorized to do 

business in Utah or 

with the Division that 

does not exceed the 

FDIC insurance limits; 

(2) negotiable bonds of 

the United States, a 

state, or municipality; 

 

12The following wells may be excluded from this computation: (1) wells that have a gross 

annual wellhead production during the past 12 months that is greater than the amount of 

the required individual well bond and (2) wells that have been used as disposal or service 

wells in the past 12 months. 

Page 42 GAO-10-245 Oil and Gas Bonds
Appendix III: Information on the 

Requirements the 12 Western States Use for 

Oil and Gas Bonds 

State Scope of bond Approach Amount Types permitted 

Blanket Bond 

• At least $15,000 for 

wells less than 1,000 

feet deep. 

• At least $120,000 for 

wells more than 1,000 

feet deep. 

If the Division determines 

that these amounts will be 

insufficient to cover the 

costs of well plugging and 

site restoration, a change in 

the form or amount of bond 

coverage may be required. 

The Board has the 

discretion to allow bond 

coverage in a lesser amount 

for a specific well. 

If the Division finds that a 

well is violating regulatory 

requirements for shut-in and 

temporarily abandoned 

wells, the required bond 

amount increases to the 

cost of actual plugging and 

site restoration costs. 

(3) negotiable 

certificates of deposit 

issued by a federally 

insured bank 

authorized to do 

business in Utah that 

do not exceed FDIC 

insurance limits; (4) 

irrevocable letter of 

credit that meets 

certain requirements. 

Since July 1, 2003, 

operators who want to 

establish a new blanket 

bond that consists 

either fully or partially 

of a collateral bond 

must be qualified by 

the Division first.13

• A combination of a 

surety and collateral 

bond. 

Washington Conditioned on plugging 

each dry or abandoned 

well, reclaiming and 

cleaning up the well drilling 

site, repairing wells that 

cause waste, and 

complying with all 

applicable laws, 

regulations, orders, and 

permit conditions, including 

regulations and guidelines 

for reclamation of land 

impacted by oil and gas 

drilling and production 

activities. 

• Individual well bond. 

• Statewide blanket 

bond. 

Individual well bond 

• Not less than $50,000 

for most wells. 

• $20,000 for wells less 

than 2,000 feet deep 

drilled solely to obtain 

subsurface geological 

data. 

Statewide blanket bond 

• Not less than $250,000. 

• Surety bond that meets 

certain requirements. 

• Cash deposit. 

• Savings account 

assigned to the state. 

• Certificate of deposit in 

a Washington bank and 

guarantee of payment 

of the principal in the 

event penalties are 

assessed for early 

redemption. 

• Letter of credit from 

bank acceptable to the 

State Oil and Gas 

Supervisor. 

 

13Qualification consists of the Division finding, as evidenced by audited financial 

statements for the previous 2 years and the most current quarterly financial report, that the 

operator’s ratio of (1) current assets to current liabilities is 1.20 or greater; and (2) total 

liabilities to stockholder’s equity is 2.50 or less. 

Page 43 GAO-10-245 Oil and Gas Bonds
Appendix III: Information on the 

Requirements the 12 Western States Use for 

Oil and Gas Bonds 

State Scope of bond Approach Amount Types permitted 

Wyoming Conditioned on (1) the well 

being operated and 

maintained so as not to 

cause waste or damage to 

the environment; 

(2) plugging each 

permanently abandoned 

well in accordance with 

regulations; (3) reclamation 

of area affected by the oil or 

gas operations; and (4) 

compliance with all 

applicable laws, 

regulations, and orders.14

• Individual well bond. 

• Statewide blanket 

bond. 

• Split estate bonds 

To secure payment of 

damages to the surface 

owner. Instead of posting a 

bond, the operator can 

execute an agreement with 

a surface owner (1) 

addressing compensation 

for damages to land and 

improvements; or (2) 

waiving the surface owner’s 

right to seek damages. 

The state Oil and Gas 

Conservation Commission 

can increase the amounts 

listed below after notice and 

a hearing if good cause can 

be shown. 

Individual well 

• Minimum amount of 

$10,000 for wells less 

than 2,000 feet deep. 

• Minimum amount of 

$20,000 for wells 2,000 

feet or more deep. 

Blanket bond 

• Minimum amount of 

$75,000.15

Idle well bond increase 

An increased bond level up 

to $10 per foot may be 

required for each idle well 

once the operator’s total 

footage of idle wells 

exceeds a certain 

threshold.16

The level of additional 

bonding will increase every 

3 years in accordance with 

the percentage change in 

the Wyoming consumer 

price index. 

The operator can request a 

different bonding level 

based on evaluation of 

specific well conditions and 

circumstances. 

In lieu of additional bonding, 

• Surety bond. 

• Cashier’s check and 

binding, first-priority 

pledge agreement. 

• Certificate of deposit 

for an initial term of not 

less than 1 year that 

renews automatically 

and a binding, firstpriority pledge 

agreement. 

• Letter of credit issued 

by an FDIC-insured 

bank with an initial 

expiration date of not 

less than 1 year from 

date of issuance and 

that is automatically 

renewed. 

 

14Site reclamation must be initiated within 1 year of permanent abandonment of the well or 

last use of a pit. Reclamation must be completed in accordance with the landowner’s 

reasonable requests and/or resemble the original vegetation and contour of adjoining lands. 

All disturbed state lands must be recontoured and reseeded in accordance with 

Commission regulations unless the Office of State Lands and Investments approves 

otherwise. 

15Operators with blanket bonds of $25,000 in place prior to July 1, 2000, do not need to 

increase their bond coverage or post additional coverage. 

16The total footage of idle wells threshold is 2,500 feet or 7,500 feet depending on the level 

of blanket bond in place. An idle well is one which is not producing, injecting, or disposing. 

Page 44 GAO-10-245 Oil and Gas Bonds
Appendix III: Information on the 

Requirements the 12 Western States Use for 

Oil and Gas Bonds 

State Scope of bond Approach Amount Types permitted 

the supervisor may accept a 

detailed plan of operation 

which includes a time 

schedule to permanently 

plug and abandon idle 

wells. 

Split estate bonds 

• Individual well bond of 

not less than $2,000 

per well on the land. 

• Blanket bond amount is 

determined by the oil 

and gas supervisor. 

The state’s oil and gas 

supervisor has discretion in 

establishing the amount of 

these bonds. 

Source: GAO analysis of state laws and regulations. 

Page 45 GAO-10-245 Oil and Gas Bonds
Appendix IV: Bonding Requirements for the 

Extraction of Federally Owned Resources, by 

Agency and Resource 

Agency and 

resource being 

extracted Scope of bond Approach Amount Types permitted 

Office of Surface 

Mining Reclamation 

and Enforcement 

(OSM) Coal 

Leasing 

Conditioned upon 

compliance with all 

applicable laws, 

regulations, the permit, 

and regulatory program, 

including the reclamation 

plan. 

• Performance bond 

for the entire permit 

area. 

• Cumulative bond 

schedule and the 

performance bond 

required for full 

reclamation of the 

initial area to be 

disturbed. 

• Incremental bond 

schedule and the 

performance bond 

required for the first 

increment in the 

schedule. 

• Alternative bonding 

system if it achieves 

certain objectives 

and purposes. 

• The amount of the bond 

required for each bonded 

area shall (1) be 

determined by the 

regulatory authority; (2) 

depend upon the 

requirements of the 

approval permit and 

reclamation plan; (3) reflect 

the probable difficulty of 

reclamation, given 

consideration to such 

factors as topography, 

geology, hydrology, and 

revegetation potential; and 

(4) be based on, but not 

limited to, the estimated 

cost submitted by the 

permit applicant. 

• The amount of the bond 

shall be sufficient to assure 

the completion of the 

reclamation plan if the work 

has to be performed by the 

regulatory authority in the 

event of forfeiture. 

• In no case shall the total 

bond initially posted for the 

entire area under one 

permit be less than 

$10,000. 

• The regulatory authority 

must adjust the bond 

amount from time to time 

as the area requiring bond 

coverage is increased or 

decreased or where the 

cost of future reclamation 

changes. 

• Surety bond that 

meets certain 

requirements. 

• Collateral bond 

(including cash; 

cash accounts that 

do not exceed FDIC 

insurable limits; 

certificates of 

deposit that do not 

exceed FDIC 

insurable limits and 

meet other 

requirements; a first 

mortgage, first deed 

of trust, or perfected 

first-lien security 

interest in real 

property; and 

irrevocable letters of 

credit that meet 

certain 

requirements). 

• Self-bond (indemnity 

agreement executed 

by the applicant or 

the applicant and a 

corporate guarantor 

that meets certain 

requirements). 

• A combination of 

any of these types. 

Appendix IV: Bonding Requirements for the 

Extraction of Federally Owned Resources, by 

Agency and Resource 

Page 46 GAO-10-245 Oil and Gas Bonds 
Appendix IV: Bonding Requirements for the 

Extraction of Federally Owned Resources, by 

Agency and Resource 

Agency and 

resource being 

extracted Scope of bond Approach Amount Types permitted 

Minerals 

Management 

Service (MMS) 

Offshore Oil and 

Gas Leasing 

To guarantee 

compliance with all terms 

and conditions of the 

lease, including structure 

removal and site 

clearance. 

• Lease specific 

bond. 

• Areawide bond.1

Amount of bond is determined 

by stage of 

development/activity. Posting a 

lease exploration bond exempts 

owner/operator from posting a 

general lease bond. Posting a 

development and activities 

bond exempts the 

owner/operator from posting a 

general lease bond and lease 

exploration bond. 

General lease bond 

• $50,000 lease specific 

bond. 

• $300,000 areawide bond. 

Lease exploration bond 

• $200,000 lease specific 

bond. 

• $1 million areawide bond. 

Development and production 

activities bond 

• $500,000 lease specific 

bond.2

• $3 million areawide bond. 

Additional security 

MMS can require an additional 

security if it determines that it is 

necessary to ensure 

compliance. Such a 

determination is based on an 

evaluation of the lessee’s ability 

to carry out present and future 

financial obligations.3

In lieu of an additional bond, 

MMS may authorize the lessee 

to establish a lease-specific 

abandonment account or thirdparty guarantee. 

• Surety bond issued 

by a surety company 

approved by the 

Department of the 

Treasury (Treasury).

• Treasury securities.4

• Alternative types of 

securities provided 

the MMS Regional 

Director determines 

that the alternative 

protects the interest 

of the United States 

to the same extent 

as the required 

bond.5

• A combination of 

these types. 

 

1

Areawide bonds cover all leases in one of three areas: (1) the Gulf of Mexico and the area 

off the Atlantic Coast; (2) the area offshore the Pacific Coast states of California, Oregon, 

Washington, and Hawaii; and (3) the area off the shore of Alaska. 

2

MMS may accept a bond in a lesser amount when the lessee can demonstrate that the 

wells and platforms can be abandoned and removed and the drilling and platform sites 

cleared of obstructions for less than the amount of the bond. 

Page 47 GAO-10-245 Oil and Gas Bonds
Appendix IV: Bonding Requirements for the 

Extraction of Federally Owned Resources, by 

Agency and Resource 

Agency and 

resource being 

extracted Scope of bond Approach Amount Types permitted 

BLM Onshore Oil 

and Gas 

To ensure compliance 

with the Mineral Leasing 

Act of 1920 as amended, 

including complete and 

timely plugging of the 

well(s), reclamation of 

the lease area(s), and 

the restoration of any 

lands or surface waters 

adversely affected by 

lease operations. 

• Individual lease 

bond. 

• Statewide bond. 

• Nationwide bond. 

• Individual lease: not less 

than $10,000 

• Statewide: not less than 

$25,000 

• Nationwide: not less than 

$150,000 

If an operator has forfeited a 

financial assurance in the previous 

5 years because of failure to plug 

a well or reclaim lands in a timely 

manner, BLM must require a bond 

in an amount equal to the 

estimated costs of plugging the 

well and reclaiming the disturbed 

area before approving an 

application for a permit to drill. 

BLM has the authority to require 

an increase in the bond amount 

whenever it determines that the 

operator poses a risk due to 

factors including, but not limited to, 

a history of previous violations, a 

notice from MMS that there are 

uncollected royalties due, or that 

total cost of plugging existing wells 

and reclaiming lands exceeds the 

present bond amount.6

• Surety bond issued 

by a qualified surety 

company approved 

by Treasury. 

• Personal bonds 

accompanied by (1) 

certificate of deposit 

issued by an 

institution whose 

deposits are 

federally insured; (2) 

cashier’s check; (3) 

certified check; (4) 

negotiable Treasury 

securities; or (5) 

irrevocable letter of 

credit that meets 

certain conditions. 

BLM National 

Petroleum Reserve, 

Alaska (NPR-A) 

To ensure compliance 

with the all the lease 

terms, including rentals 

and royalties, conditions, 

and stipulations. 

• Individual lease 

bond. 

• Reserve-wide bond.

• Individual lease: $100,000. 

• Reserve-wide $300,000 

(either as a rider to existing 

nationwide bond or a 

separate bond). 

• Surety bond issued 

by a qualified surety 

company approved 

by Treasury. 

• Personal bonds 

secured by (1) 

 

3

MMS will evaluate a lessee’s (1) financial capacity substantially in excess of existing and 

anticipated lease and other obligations; (2) projected financial strength significantly in 

excess of existing and future lease obligations; (3) business stability based on 5 years of 

continuous operation and production; (4) reliability in meeting obligations based on credit 

ratings or trade references; and (5) record of compliance with laws, regulations, and lease 

terms. 

4

If the market amount of the security falls below the level of bond coverage required, the 

lessee must pledge an additional security. 

5

If the market amount of the security falls below the level of bond coverage required, the 

lessee must pledge an additional security. 

6

The increased bond amount cannot exceed the total of the estimated costs of plugging and 

reclamation, the amount of uncollected royalties due to MMS, plus the amount of monies 

owed to the lessor due to previous violations remaining outstanding. 

Page 48 GAO-10-245 Oil and Gas Bonds
Appendix IV: Bonding Requirements for the 

Extraction of Federally Owned Resources, by 

Agency and Resource 

Agency and 

resource being 

extracted Scope of bond Approach Amount Types permitted 

certificate of deposit 

issued by an 

institution whose 

deposits are 

federally insured; (2) 

cashier’s check; (3) 

certified check; (4) 

negotiable Treasury 

securities; or (5) 

irrevocable letter of 

credit that meets 

certain conditions. 

BLM Geothermal 

Energy 

To cover (1) any 

activities related to 

exploration, drilling, 

utilization, or associated 

operations on a federal 

lease; (2) reclamation of 

the surface and other 

resources; (3) rental and 

royalty payments; (4) 

compliance with 

applicable laws, 

regulations, notices, 

orders, and lease terms. 

• Individual lease 

bond. 

• Statewide activity 

bond. 

• Nationwide activity 

bond. 

BLM has the authority to 

increase the following bond 

amounts when (1) the operator 

has a history of noncompliance; 

(2) BLM previously made a 

claim against a surety company 

because someone covered by 

the current bond failed to plug 

and abandon a well and reclaim 

the surface in a timely manner; 

(3) a person covered by the 

bond owes uncollected 

royalties; or (4) the bond 

amount will not cover the 

estimated reclamation cost. 

Drilling operations 

• Individual: $10,000. 

• Statewide: $50,000. 

• Nationwide: $150,000. 

Utilization operations 

• Electrical Generation 

Facility: at least $100,000. 

• Direct Use Facility: BLM 

will specify amount. 

• Corporate surety 

bond issued by a 

surety company 

approved by 

Treasury. 

• Personal bonds 

secured by (1) 

certificate of deposit 

issued by a federally 

insured financial 

institution authorized 

to do business in the 

United States; (2) 

cashier’s check; (3) 

certified check; (4) 

negotiable 

securities, such as 

Treasury notes; and 

(5) irrevocable letter 

of credit that meet 

certain conditions. 

BLM Solid Minerals 

(other than coal and 

oil shale, also 

known as leasable 

minerals) 

Released when (1) all 

royalties, rentals, penalties, 

and assessments are paid; 

(2) all permit or lease 

obligations are satisfied; 

(3) site reclaimed; and (4) 

effective measures are 

taken to ensure that the 

mineral prospecting or 

development activities will 

not adversely affect 

surface or subsurface 

resources. 

• Individual lease 

bond. 

• Statewide bond (to 

cover all leases of 

the same mineral). 

• Nationwide bond (to 

cover all leases of 

the same mineral). 

BLM determines bond amounts 

considering the cost of 

complying with all permit and 

lease terms, including royalty 

and reclamation requirements. 

• Individual lease: minimum 

$5,000 (minimum $1,000 

for prospecting permits). 

• Statewide: minimum 

$25,000. 

• Nationwide: minimum 

$75,000. 

• Surety bond issued 

by a qualified 

company approved 

by Treasury. 

• Personal bonds in 

the form of a (1) 

cashier’s check; (2) 

certified check; (3) 

or negotiable 

Treasury bond. 

Page 49 GAO-10-245 Oil and Gas Bonds
Appendix IV: Bonding Requirements for the 

Extraction of Federally Owned Resources, by 

Agency and Resource 

Agency and 

resource being 

extracted Scope of bond Approach Amount Types permitted 

BLM Mineral 

Materials (also 

known as salable 

minerals) 

To meet the reclamation 

standards specified in 

the mineral materials 

sales contract. 

• Performance bond 

for contract. 

• No performance 

bond required if 

sales contract from 

a community pit7

 or 

common use area 

and party pays a 

reclamation fee. 

Sales contract 

• For contracts of $2,000 or 

more, BLM will establish 

bond amount to ensure it is 

sufficient to meet the 

contract’s reclamation 

standards. However, the 

amount must be at least 

$500. 

• For contracts of less than 

$2,000, BLM may require a 

bond. If BLM requires a 

bond, it cannot exceed an 

amount greater than 20 

percent of the total contract 

amount. 

Community pit and common 

use area contracts 

• If party pays reclamation 

fee, no performance bond 

is required. 

• Corporate surety 

bond issued by a 

company approved 

by Treasury. 

• Certificate of deposit 

that is issued by an 

institution whose 

deposits are insured 

and does not exceed 

the maximum FDIC 

insurable amount. 

• Cash bond. 

• Irrevocable letter of 

credit from a bank or 

financial institution 

organized or 

authorized to do 

business in the 

United States. 

• Negotiable Treasury 

bond of the United 

States. 

BLM Hardrock 

Minerals (also 

known as locatable 

minerals) 

To cover the estimated 

cost, as if BLM were to 

contract with a third 

party, to reclaim the 

operations according to 

the reclamation plan, 

including construction 

and maintenance costs 

for any treatment 

facilities necessary to 

meet federal and state 

environmental 

standards. The financial 

guarantee must also 

cover any interim 

stabilization and 

• Individual financial 

guarantee covering 

a single notice or 

plan of operations.8

• Blanket financial 

guarantee covering 

a statewide or 

nationwide 

operations. 

• Amount is based on the 

estimated cost as if BLM 

were to contract with a third 

party to reclaim the 

operations according to the 

reclamation plan, including 

construction and 

maintenance costs for any 

treatment facilities 

necessary to meet federal 

and state environmental 

standards. 

• BLM may determine that a 

bond is not required where 

mining operations would 

cause nominal 

If accepted by the BLM 

state director: 

• Surety bonds that 

meet certain 

requirements. 

• Cash maintained in a 

federal depository 

account of the U.S. 

Treasury. 

• Irrevocable letters of 

credit from a 

financial institution 

organized or 

authorized to do 

business in the 

 

7

A community pit supplies mineral materials to small contractors and to the general public 

for private use. 

8

A notice of operations is required for exploration activities that disturb 5 acres or less. 

Although BLM must receive notice prior to any surface disturbance, BLM does not need to 

grant approval for notice-level operations. A plan of operations is required for any 

operation greater than casual use, except for notice-level operations, and operations 

causing surface disturbance greater than casual use in special status areas, such as 

designated wilderness areas and national monuments. 

Page 50 GAO-10-245 Oil and Gas Bonds
Appendix IV: Bonding Requirements for the 

Extraction of Federally Owned Resources, by 

Agency and Resource 

Agency and 

resource being 

extracted Scope of bond Approach Amount Types permitted 

infrastructure 

maintenance costs 

needed to maintain the 

area of operations in 

compliance with 

applicable environmental 

requirements while thirdparty contracts are 

developed and executed. 

environmental damage or 

the operator has an 

excellent past record for 

reclamation. 

• In addition to the financial 

guarantee, BLM may 

require the establishment 

of a trust fund or other 

funding mechanism to 

ensure the continuation of 

long-term treatment to 

achieve water quality 

standards and for other 

long-term, post-mining 

maintenance requirements. 

The funding must be 

adequate to provide for 

construction, long-term 

operation, maintenance, or 

replacement of any 

treatment facilities and 

infrastructure, for as long 

as the treatment and 

facilities are needed after 

mine closure. 

United States. 

• Certificates of 

deposit or savings 

accounts not in 

excess of the FDIC 

insurable amount. 

• Negotiable U.S. 

government, state, 

and municipal 

securities or bonds 

maintained in a 

Securities Investors 

Protection 

Corporation-insured 

trust account by a 

licensed securities 

brokerage firm. 

• Investment grade 

securities having a 

Standard and Poor’s 

rating of AAA or AA 

or an equivalent 

rating from a 

nationally 

recognized 

securities rating 

service that are 

maintained in a 

Securities Investors 

Protection 

Corporation-insured 

trust account by a 

licensed securities 

brokerage firm. 

• Certain forms of 

insurance that meet 

regulatory 

requirements. 

• Certain existing 

financial assurances 

under state law or 

regulation. 

• Trust funds or other 

funding 

mechanisms. 

Source: GAO analysis of federal regulations. 

Page 51 GAO-10-245 Oil and Gas Bonds
Appendix V: 

A

GAO Contact and Staff 

cknowledgments 

Page 52 GAO-10-245 

Appendix V: GAO Contact and Staff 

Acknowledgments 

Anu K. Mittal (202) 512-3841 or mittala@gao.gov

In addition to the contact named above, Andrea Wamstad Brown 

(Assistant Director), Jeffrey B. Barron, Casey L. Brown, Jerome Sandau, 

Jeanette Soares, Anne Stevens, Carol Herrnstadt Shulman, and Walter 

Vance made key contributions to this report. 

Oil and Gas Bonds 

GAO Contact 

Acknowledgments 

(361028) 
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