§ 32-85. Bond or irrevocable letter of credit.

Prior to the issuance of a gas well permit, the operator shall provide the city administrator with a security instrument in the form of a surety bond or an irrevocable letter of credit as follows:

(1)

Bond. A bond shall be executed by a reliable bonding or insurance institution authorized to do business in the state and acceptable to the city. The bond shall become effective on or before the date the gas well permit is issued and shall remain in force and effect for at least a period of six months after the expiration of the gas well permit term or until the well is plugged and abandoned and the site is restored, whichever occurs first. The operator shall be listed as principal and the instrument shall run to the city, as obligee, and shall be conditioned that the operator will comply and perform in accordance with the terms and regulations of this article, other applicable city ordinances and the road repair contract. The original bond shall be submitted to the city administrator with a copy of the same provided to the city secretary and the city administrator.

(2)

Letter of credit. A letter of credit shall be issued by a reliable bank authorized to do business in the state, acceptable to the city in its sole discretion, and shall become effective on or before the date the gas well permit is issued. The letter of credit shall remain in force and effect for at least a period of six months after the expiration of the gas well permit term or until the well is plugged and abandoned and the site is restored, whichever occurs first. If the letter of credit is for a time period less than the life of the well as required by this article, the operator must either renew the letter of credit or replace the letter of credit with a bond in the amount required by this article, on or before 45 days prior to the expiration date of the letter of credit. If the operator fails to deliver to the city either the renewal letter of credit or replacement bond in the appropriate amount on or before 45 days prior to the expiration date of the letter of credit, the city may draw the entire face amount of the attached letter of credit to be held by the city as security for operator's performance of its obligations under this article. In any event, the city may draw upon the letter of credit upon a signed statement by its city administrator that the terms of this article have not been complied with, in any respect. The city shall be authorized to draw upon such letter of credit to recover any fines, penalties, defaults or violations assessed under this article or the road repair contract. Evidence of the execution of a letter of credit shall be submitted to the city administrator by submitting an original signed letter of credit from the banking institution, with a copy of the same provided to the city secretary and the city administrator.

(3)

The principal amount of any security instrument shall be $50,000.00 for any single well. If, after completion of a well, the applicant/operator, who initially posted a $50,000.00 bond, has complied with all of the provisions of this article and whose well is in the producing state and all drilling operations have ceased, may submit a request to the inspector to reduce the existing bond to $10,000.00 for the remainder of the time the well produces without reworking. During reworking operations, the amount of the bond or letter of credit shall be maintained at $50,000.00. An operator drilling or reworking between one and five wells at any given time, may elect to provide a blanket bond or letter of credit, in the principal minimum amount of $150,000.00. If the operator drills or reworks more than five wells at a time, the blanket bond or letter of credit shall be increased in increments of $50,000.00 per each additional well. Once the wells are in the producing stage and all drilling operations have ceased, the operator may elect to provide a blanket bond or letter of credit for the remainder of the time the well produces, without reworking, as follows:

Number of Producing Wells

Blanket Bond/Letter of Credit	Amount Required
Up to 75 wells	$100,000.00
75 to 150 wells	$150,000.00
More than 150 wells	$200,000.00

 

If at any time after no less than a 15-day written notice to the operator and a public hearing, the city council shall deem any operator's bond or letter of credit to be insufficient, it may require the operator to increase the amount of the bond or letter of credit up to a maximum of $250,000.00 per well.

(4)

Whenever the city administrator or inspection services provider finds that a default has occurred in the performance of any requirement or condition imposed by this article, a written notice shall be given to the operator. Such notice shall specify the work to be done, the estimated cost and the period of time deemed by the city administrator or inspection services provider to be reasonably necessary for the completion of such work. After receipt of such notice, the operator shall, within the time therein specified, either cause or require the work to be performed, or failing to do so, shall pay over to the city 125 percent of the estimated cost of doing the work as set forth in the notice. In no event, however, shall the cure period be less than 30 days unless the failure presents a risk of imminent destruction of property or injury to persons or unless the failure involves the operator's failure to provide periodic reports as required by this article. The city shall be authorized to draw against any irrevocable letter of credit or bond to recover such amount due from the operator. Upon receipt of such monies, the city shall proceed by such mode as deemed convenient to cause the required work to be performed and completed, but no liability shall be incurred other than for the expenditure of the sum in hand. In the event that the well has not been properly abandoned under the regulations of the railroad commission, such additional money may be demanded from the operator as is necessary to properly plug and abandon the well and restore the drill site in conformity with the regulations of this article.

(5)

In the event the operator does not cause the work to be performed and fails or refuses to pay over to the city the estimated cost of the work to be done as set forth in the notice, or the issuer of the security instrument refuses to honor any draft by the city against the applicable irrevocable letter of credit or bond the city may proceed to obtain compliance and abate the default by way of civil action against the operator, or by criminal action against the operator, or by both such methods. In addition, the city may summarily suspend or revoke the gas well permit and require that all operations on the well site immediately cease.

(6)

When the well or wells covered by the irrevocable letters of credit or bond have been properly abandoned in conformity with all regulations of this article, and in conformity with all regulations of the railroad commission and notice to that effect has been received by the city, or upon receipt of a satisfactory substitute, the irrevocable letter of credit or bond issued in compliance with these regulations shall be terminated and cancelled.

(Code 1994, § 4.714; Ord. No. 496, § 1, 8-18-2010)