Tennessee Well Reclamation Bond

What is the Purpose of the Tennessee Well Reclamation Bond?

This Tennessee Well Reclamation Bond is a performance bond that ensures well operators will properly regrade and revegetate areas disturbed (excluding access roads to be used by the landowner for legitimate purposes) due to drilling, deepening, re-opening, or temporarily abandoning an oil and gas well. 

The Tennessee Well Reclamation Bond is required under Tennessee Regulation 0400-52-01.03.

Who Needs the Tennessee Well Reclamation Bond?

The short answer - applicants for a Tennessee Oil and Gas Well Permit. Specifically, all persons attempting to drill, deepen, re-open, temporarily abandon, or change ownership of an oil and gas well are required to purchase the Tennessee Well Reclamation Bond.

What do Surety Underwriters Need to Know?

Despite its relatively low limit, the Tennessee Well Reclamation Bond presents considerable risk to surety companies. Like other reclamation bonds, the Tennessee Well Reclamation Bond is categorized as “Needs Release”, meaning the obligee (the Tennessee Department of Environment and Conservation) must release the surety company from its liability under the bond. The bond must remain in effect until the Supervisor of the State Oil and Gas Board is satisfied that the well has been properly plugged, the surrounding area has been properly regrated and revegetated, and the new vegetation has survived two growing seasons. If the principal fails to meet these requirements, the surety company must either satisfy them or forfeit up to the full bond amount.

In addition to the reclamation bond, well operators are also required to purchase a plugging bond before receiving an Oil and Gas Well permit. If the same surety company issued both the plugging and reclamation bond, they can request to cancel the reclamation bond by submitting a written notice to the obligee. After receiving the notice, the principal will have 60 days to obtain a new bond or change operators. If the principal fails to do so or cannot be reached, any interested person can request a change in operators on the well. If no new reclamation bond is filed or no new operator is approved within 60 days, the obligee will revoke the original Oil and Gas Well Permit and require the principal to plug and restore the well and reclaim all affected access roads. If the principal fails to do so, the surety company must complete these tasks within 30 days. After the 30-day mark, the surety company has 21 days to either pay the reclamation costs up to the full bond amount or petition the State Oil and Gas Board for a hearing on whether or not they are liable for all plugging/reclamation costs.

Surety underwriters should examine the principal’s creditworthiness as well as their business and personal financial standing.

What Do Claims Handlers Need to Know?

Claims on the Tennessee Well Reclamation Bond result from the failure of the well operator to properly revegetate and regrade all areas (excluding access roads to be used by the landowner for legitimate purposes) disturbed as a result of operating an oil and gas well. 

Well operators will receive a notice of non-compliance if they fail to properly reclaim the well site(s) within the time frame set forth by the Tennessee Department of Environment and Conservation. A copy of this notice will be sent to the surety company, who can work on behalf of the operator to reclaim the well sites. If the well site is not reclaimed within 30 days of receipt of the notice of non-compliance, the surety company will forced to cover the reclamation costs up to the full bond amount. As mentioned above, surety companies that issued both the plugging and reclamation bond are able to request a hearing with the State Oil and Gas Board for a final determination on whether they are liable to cover the plugging and reclamation costs.

How Does The Tennessee Department of Environment and Conservation Set The Bond Amount?

The limit on the Tennessee Well Reclamation Bond is $1,500 per well site. This limit is codified in Tennessee Regulation 0400-52-01.03. However, the bond amount will be reduced to $1,000 (per well site) once all disturbed areas, excluding active work areas and access roads, have been successfully regrated and revegetated. 

Can the Tennessee Department of Environment and Conservation Waive the Well Reclamation Bond Requirement?

The Tennessee Well Reclamation Bond has not always been required. All Oil and Gas Well Permits numbered up to 8190 were issued before the bond requirement was enacted. As such, these permits are grandfathered in and the well operators do not need to purchase the reclamation bond. Additionally, domestic gas well operators are not required to purchase the reclamation bond. However, domestic gas well operators do need to purchase the required plugging bond.  

How Much Does The Tennessee Well Reclamation Bond Cost?

The Tennessee Well Reclamation Bond costs between 5% to 10% of the bond amount based on the qualifications of the applicant. Additionally, many surety companies will require up to full collateral before issuing this bond. 

How is the Tennessee Well Reclamation Bond Filed?

The Tennessee Well Reclamation Bond must be filled with the Tennessee Department of Environment and Conservation. An original bond with a raised seal must be signed by both the well operator (Principal) and a surety company representative (Surety) and mailed to the below address.

State of Tennessee
Department of Environment and Conservation
Division of Water and Pollution Control
State Oil and Gas Board
6th Floor, L&C Annex
401 Church Street
Nashville, Tennessee 37243

Can the Tennessee Well Reclamation Bond be Cancelled?

The Tennessee Well Reclamation Bond is categorized as “Needs Release,” and surety companies are only relieved of their liability once the Department of Environment and Conservation is satisfied that the reclamation has been completed and all new vegetation has survived through two growing seasons.

However, surety companies that issued both the reclamation and plugging bond can cancel the reclamation bond but will still be on the hook if the principal fails to either obtain new coverage, transfer well ownership, or reclaim the well site(s).

Does the Tennessee Well Reclamation Bond Renew?

The Tennessee Well Reclamation Bond does not expire until the well operator files all logs and plugging affidavits and the Department of Environment and Conservation is satisfied with the reclamation efforts. The bond is continuous until released. However, the bond principal still needs to pay all required renewal premiums to the surety company. 

Do Tennessee Well Operators Need Any Other Surety Bonds?

In addition to the reclamation bond, oil and gas well operators in Tennessee must purchase a plugging bond ensuring that all wells are plugged before being abandoned.