2023 Pennsylvania Consolidated & Unconsolidated Statutes › Title 58 - OIL AND GAS › Chapter 32 - Development › Section 3225 - Bonding

§ 3225. Bonding.
(a) General rule.--
The following shall apply:
(1) Except as provided in subsection (d), upon filing an application for a well permit and before continuing to operate an oil or gas well, the owner or operator of the well shall file with the department a bond covering the well and well site on a form to be prescribed and furnished by the department. A bond filed with an application for a well permit shall be payable to the Commonwealth and conditioned upon the operator's faithful performance of all drilling, water supply replacement, restoration and plugging requirements of this chapter. A bond for a well in existence on April 18, 1985, shall be payable to the Commonwealth and conditioned upon the operator's faithful performance of all water supply replacement, restoration and plugging requirements of this chapter. The amount of the bond required shall be in the following amounts and amounts under subparagraphs (i) and (ii) may be adjusted by the Environmental Quality Board every two years to reflect the projected costs to the Commonwealth of plugging the well:
(i) For unconventional wells with a total well bore length less than 6,000 feet:
(A) For operating up to 50 wells, $4,000 per well, but no bond may be required under this clause in excess of $35,000.
(B) For operating 51 to 150 wells, $35,000 plus $4,000 per well for each well in excess of 50 wells, but no bond may be required under this clause in excess of $60,000.
(C) For operating 151 to 250 wells, $60,000 plus $4,000 per well for each well in excess of 150 wells, but no bond may be required under this clause in excess of $100,000.
(D) For operating more than 250 wells, $100,000 plus $4,000 per well for each well in excess of 250 wells, but no bond may be required under this clause in excess of $250,000.
(ii) For unconventional wells with a total well bore length of at least 6,000 feet:
(A) For operating up to 25 wells, $10,000 per well, but no bond may be required under this clause in excess of $140,000.
(B) For operating 26 to 50 wells, $140,000 plus $10,000 per well for each well in excess of 25 wells, but no bond may be required under this clause in excess of $290,000.
(C) For operating 51 to 150 wells, $290,000 plus $10,000 per well for each well in excess of 50 wells, but no bond may be required under this clause in excess of $430,000.
(D) For operating more than 150 wells, $430,000 plus $10,000 per well for each well in excess of 150 wells, but no bond may be required under this clause in excess of $600,000.
(iii) For a well other than an unconventional well, $2,500 per well. For 10 years following the effective date of this subparagraph, the Environmental Quality Board and the department shall have no authority to adjust the amount under this subparagraph.
(2) The following apply:
(i) Except as provided under subparagraph (ii), in lieu of individual bonds for each well, an owner or operator may file a blanket bond for the applicable amount under paragraph (1)(i) or (ii), on a form prepared by the department, covering all of its wells in this Commonwealth, as enumerated on the bond form.
(ii) As follows:
(A) An operator may file a blanket bond of $25,000 for all of the operator's wells in this Commonwealth that are not unconventional wells.
(B) For every new well that is not an unconventional well drilled after six months after the effective date of this subsection, the bond amount for that operator shall increase by $1,000.
(C) The total blanket bond for an operator's wells that are not unconventional wells shall not exceed $100,000.
(D) The blanket bond increase of $1,000 shall be waived by the department for a new well drilled under this subsection if the operator provides evidence to the department that the operator has plugged an orphan well at the operator's own expense for which the operator was not the responsible party within the previous 365 days that the operator has not yet received credit for under this subsection by the department.
(E) For 10 years following the effective date of this clause, the bond amounts for wells that are not unconventional wells may only be revised by the General Assembly. The Environmental Quality Board and the department shall have no authority to adjust bond amounts related to wells that are not unconventional wells during that time period.
(2.1) Notwithstanding any other provision of this section, section 1934-A of the act of April 9, 1929 (P.L.177, No.175), known as The Administrative Code of 1929, shall continue to apply to a well drilled prior to April 18, 1985.
(3) Liability under the bond shall continue until the well has been properly plugged in accordance with this chapter and for a period of one year after filing of the certificate of plugging with the department. Each bond shall be executed by the operator and a corporate surety licensed to do business in this Commonwealth and approved by the secretary. In lieu of a corporate surety, the operator may deposit with the department:
(i) cash;
(ii) certificates of deposit or automatically renewable irrevocable letters of credit, from financial institutions chartered or authorized to do business in this Commonwealth and regulated and examined by the Commonwealth or a Federal agency, which may be terminated at the end of a term only upon 90 days' prior written notice by the financial institution to the permittee and the department;
(iii) negotiable bonds of the United States Government or the Commonwealth, the Pennsylvania Turnpike Commission, the General State Authority, the State Public School Building Authority or any municipality within the Commonwealth; or
(iv) United States Treasury Bonds issued at a discount without a regular schedule of interest payments to maturity, otherwise known as Zero Coupon Bonds, having a maturity date of not more than ten years after the date of purchase and at the maturity date having a value of not less than the applicable amount under paragraph (1). The cash deposit, certificate of deposit, amount of the irrevocable letter of credit or market value of the securities shall be equal at least to the sum of the bond.
(4) The secretary shall, upon receipt of a deposit of cash, letters of credit or negotiable bonds, immediately place the same with the State Treasurer, whose duty it shall be to receive and hold the same in the name of the Commonwealth, in trust, for the purpose for which the deposit is made.
(5) The State Treasurer shall at all times be responsible for custody and safekeeping of deposits. The operator making the deposit shall be entitled from time to time to demand and receive from the State Treasurer, on the written order of the secretary, the whole or any portion of collateral deposited, upon depositing with the State Treasurer, in lieu of that collateral, other collateral of classes specified in this section having a market value at least equal to the sum of the bond, and also to demand, receive and recover the interest and income from the negotiable bonds as they become due and payable.
(6) If negotiable bonds on deposit under this subsection mature or are called, the State Treasurer, at the request of the owner of the bonds, shall convert them into other negotiable bonds, of classes specified in this section, designated by the owner.
(7) If notice of intent to terminate a letter of credit is given, the department shall give the operator 30 days' written notice to replace the letter of credit with other acceptable bond guarantees as provided in this section. If the owner or operator fails to timely replace the letter of credit, the department shall draw upon and convert the letter of credit into cash and hold it as a collateral bond guarantee.
(b) Release.--
No bond shall be fully released until the requirements of subsection (a) and section 3223 (relating to notification and effect of well transfer) have been fully met. Upon release of bonds and collateral under this section, the State Treasurer shall immediately return to the owner the specified amount of cash or securities.
(c) Noncompliance.--
If a well owner or operator fails or refuses to comply with subsection (a), regulations promulgated under this chapter or conditions of a permit relating to this chapter, the department may declare the bond forfeited and shall certify the same to the Attorney General, who shall proceed to enforce and collect the full amount of the bond and, if the well owner or operator has deposited cash or securities as collateral in lieu of a corporate surety, the department shall declare the collateral forfeited and direct the State Treasurer to pay the full amount of the funds into the Well Plugging Restricted Revenue Account or to sell the security to the extent forfeited and pay the proceeds into the Well Plugging Restricted Revenue Account. If a corporate surety or financial institution fails to pay a forfeited bond promptly and in full, the corporate surety or financial institution shall be disqualified from writing further bonds under this chapter or any other environmental law administered by the department. A person aggrieved by reason of forfeiting the bond or converting collateral, as provided in this section, shall have a right to appeal to the Environmental Hearing Board in the manner provided by law. Upon forfeiture of a blanket bond for a violation occurring at one or more well sites, the person whose bond is forfeited shall, within ten days of the forfeiture, submit a replacement bond to cover all other wells of which the person is an owner or operator. Failure to submit the replacement bond constitutes a violation of this section as to each of the wells owned or operated by the person.
(d) Alternatives to certain bonds.--
The following shall apply:
(1) An operator of not more than 200 wells who cannot obtain a bond for a well drilled prior to April 18, 1985, as required under subsection (a), due to inability to demonstrate sufficient financial resources may, in lieu of the bond:
(i) Submit to the department a fee in the amount of $50 per well, a blanket fee of $500 for ten to 20 wells or a blanket fee of $1,000 for more than 20 wells, which shall be a nonrefundable fee paid each year that the operator has not filed a bond with the department. All fees collected in lieu of a bond under this subsection shall be used for the purposes authorized by this chapter. The Environmental Quality Board shall have the power, by regulation, to increase the amount of the fees established under this subsection.
(ii) Make phased deposits of collateral to fully collateralize the bond, subject to the following:
(A) Payment shall be based on the number of wells owned or operated. The operator shall make an initial deposit and make annual deposits in accordance with the schedule in clause (B). Interest accumulated by the collateral shall become a part of the bond until the collateral plus accumulated interest equals the amount of the required bond. The collateral shall be deposited, in trust, with the State Treasurer as provided in this subsection or with a bank selected by the department which shall act as trustee for the benefit of the Commonwealth to guarantee the operator's compliance with the drilling, water supply replacement, restoration and plugging requirements of this chapter. The operator shall be required to pay all costs of the trust.
(B) An operator of up to ten existing wells who does not intend to operate additional wells shall deposit $250 per well and shall, thereafter, annually deposit $50 per well until the obligations of this section are fully met. An operator of 11 to 25 wells or an operator of up to ten wells who applies for one or more permits for additional wells shall deposit $2,000 and shall, thereafter, annually deposit $1,150 plus $150 for each additional well to be permitted that year until the obligations of this section are fully met. An operator of 26 to 50 wells shall deposit $3,000 and shall, thereafter, annually deposit $1,300 plus $400 for each additional well to be permitted that year until the obligations of this section are fully met. An operator of 51 to 100 wells shall deposit $4,000 and shall, thereafter, annually deposit $1,500 plus $400 for each additional well to be permitted that year until the obligations of this section are fully met. Operators of 101 to 200 wells shall deposit $8,000 and shall, thereafter, annually deposit $1,600 plus $1,000 for each additional well to be permitted that year until the obligations of this section are fully met. Operators of more than 200 wells shall fully bond their wells immediately.
(C) The department shall reduce the amount of phased collateral payments or the period of time over which phased collateral payments shall be made on behalf of owners or operators who, prior to August 1, 1992, have paid a fee in lieu of bond under subparagraph (i), and who, by August 1, 1993, choose to enter the phased collateral program under this subparagraph rather than continue to make payments in lieu of bond. Payments made prior to August 1, 1992, in lieu of bond shall not be credited in any other manner, and the department shall not be required to refund the fees. The Environmental Quality Board, by regulation, may change the annual deposits established under clause (B) if necessary to accommodate a change in the amount of the bond required under this section.
(2) An operator may continue to pay a fee in lieu of bond or make phased deposits of collateral to fully collateralize the bond so long as the operator does not miss a payment under this subsection and remains in compliance with this chapter. If an operator misses a payment under this subsection, the operator shall:
(i) immediately submit the appropriate bond amount in full; or
(ii) cease all operations and plug all wells.
(d.1) Individuals.--
The following shall apply:
(1) An individual who is unable to obtain a bond to drill new wells due to inability to demonstrate financial resources may meet the collateral bond requirements of subsection (a) by making phased deposits of collateral to fully collateralize the bond. The individual shall be limited to drilling ten new wells per calendar year and, for each well to be drilled, deposit $500 and make an annual deposit of 10% of the remaining bond amount for a period of ten years. Interest accumulated shall become a part of the bond until the collateral plus accumulated interest equals the amount of the required bond. The collateral shall be deposited in trust with the State Treasurer under subsection (a) or with a bank selected by the department which shall act as trustee for the benefit of the Commonwealth to guarantee the individual's compliance with the drilling, water supply replacement, restoration and plugging requirements of this chapter. The individual shall pay all costs of the trust.
(2) Individuals may continue to use phased collateral to obtain permits if they have not missed a payment for a well drilled under this provision and remain in compliance with this chapter. If an individual misses a payment, the individual shall:
(i) immediately submit the appropriate bond amount in full; or
(ii) cease all operations and plug all wells.
(3) For purposes of this subsection, an "individual" means a natural person doing business under his own name.
(e) Reservation of remedies.--
All remedies for violations of this chapter, regulations adopted under this chapter and conditions of permits are expressly preserved. Nothing in this section shall be construed as an exclusive penalty or remedy for violations of law. No action taken under this section shall waive or impair any other remedy or penalty provided in law.
(f) Change of law.--
Owners or operators who have failed to meet the requirements of this section prior to August 1, 1992, shall not be required to make payments under this section on a retroactive basis as a condition of obtaining a permit under this chapter, nor shall the failure be deemed a violation of this chapter.
(g) Definition.--
As used in this section, the term "well site" means areas occupied by all equipment or facilities necessary for or incidental to drilling, production or plugging a well.
(July 19, 2022, P.L.1622, No.96, eff. imd.)
2022 Amendment.
Act 96 amended subsec. (a)(1) and (2) and added subsec. (a)(2.1).
Special Provisions in Appendix.
See section 4(3)(xv) of Act 13 of 2012 in the appendix to this title for special provisions relating to continuation of prior law.
Cross References.
Section 3225 is referred to in sections 3211, 3213, 3214, 3223, 3273.1 of this title.