Texas Railroad Commission Bonds
Surety Bond Professionals is a family-owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all your Texas Railroad Commission bond needs.
What Are They?
The Texas Railroad Commission is responsible for regulating oil, gas, and mineral exploration. One of the ways they do this is by requiring companies involved in the extraction of natural resources to purchase surety bonds known as Texas Railroad Commission (TRC) P-5 performance bonds. They are also referred to as plug and abandonment surety bonds.
TRC bonds guarantee that companies involved in drilling and operating oil or natural gas wells do so in compliance with Texas law and applicable environmental regulations. This includes preventing the contamination of groundwater, plugging abandoned wells, and doing required environmental cleanup.
Requiring the purchase of a TRC bond provides financial protection for the TRC and a source of funds for remediating problems left unaddressed by the operator.
Who Needs Them?
Purchasing a P-5 bond is a prerequisite for obtaining a permit to operate in any oil or natural gas extraction capacity regulated by the TRC. The required bond amount depends on the number of wells operated within the state of Texas:
- 10 wells or fewer = $25,000
- 11 – 100 wells = $50,000
- More than 100 wells = $250,000
Speak with a Surety Bond Professionals agent today to discuss your bonding needs.
How Do They Work?
A Texas Railroad Commission surety bond agreement is a legally binding contract between three parties:
- The TRC is the “obligee” requiring the bond.
- The well operator is the “principal” required to purchase the bond.
- The bonding company underwriting and approving the bond is known as the “surety.”
If the principal fails to comply with applicable laws and regulations, the obligee can file a claim against the bond to recover the cost of plugging and closing the wells operated by the principal and remediating any environmental problems.
When underwriting a Texas Railroad Commission bond, the surety assesses the principal’s creditworthiness. If the bond application is approved, a credit line is established for the principal in the required bond amount. During a claim situation, if the surety is unable to negotiate an amicable settlement of a valid claim, the surety will go ahead and pay the claim on behalf of the principal, drawing against that credit line. This extension of credit creates a debt owed by the principal to the surety—a debt that the principal is legally obligated to repay, typically in scheduled installment payments over a certain period of time.
What Do They Cost?
The premium cost for a Texas Railroad Commission bond is a small percentage of the required bond amount. What that percentage, the premium rate, will be for a given principal depends largely on the principal’s personal credit score and financial strength. With good credit, the premium rate is typically in the range of 1% to 3%. But if the principal’s credit is poor, the premium rate may be higher.
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You can count on our surety bond professionals to get you the Texas Railroad Commission bond you need at a competitive rate.