2016 Kentucky Revised Statutes
CHAPTER 353 - MINERAL CONSERVATION AND DEVELOPMENT
.590 Application for permit -- Fees-- Plat -- Plugging and restoration bonds -- Blanket bonds -- Corporate guarantee -- Use of forfeited funds -- Oil and gas well plugging fund -- Requirements for permitted stratigraphic test wells -- Wells not included in "water supply well."

Download as PDF 353.590 Application for permit -- Fees-- Plat -- Plugging and restoration bonds -Blanket bonds -- Corporate guarantee -- Use of forfeited funds -- Oil and gas well plugging fund -- Requirements for permitted stratigraphic test wells -Wells not included in "water supply well." (1) (2) (3) (4) Any person seeking a permit required by KRS 353.570 shall submit to the department a written application in a form prescribed by the department. Each application shall be accompanied by a specified fee as follows: (a) The fee shall be three hundred dollars ($300) for each well to be drilled, deepened, or reopened for any purpose relating to the production, repressuring, or storage of oil or gas, and for each water supply well, observation well, and geological or structure test hole. (b) If the department receives delegation of authority for administration of the underground injection control program under Section 1425 of the Safe Drinking Water Act (Pub. L. 93-523 as amended), the department may, by administrative regulation, establish a fee or schedule of fees in an amount not to exceed fifty dollars ($50) per well, in addition to the fees imposed by paragraph (a) of this subsection, upon each application to drill, deepen, or reopen a well for any purpose relating to the production, repressuring, or storage of oil or gas, and for each water supply well, observation well, and geological or structure test hole. The fees or schedule of fees to be established by administrative regulation shall not exceed an amount sufficient to recover the costs incurred by the department in administering the Underground Injection Control Program less any other state or federal funds which are made available for this purpose. (c) All money paid to the State Treasurer for fees required by paragraph (b) of this subsection shall be for the sole use of the department in the administration of the Underground Injection Control Program under Section 1425 of the Safe Drinking Water Act (Pub. L. 93-523 as amended). Applications for each deep well shall be assessed a fee according to the following schedules: (a) For a vertical deep well: 1. With a total vertical depth of seven thousand (7,000) feet or less, the fee shall be five hundred dollars ($500); and 2. With a total vertical depth greater than seven thousand (7,000) feet, the fee shall be six hundred dollars ($600); and (b) For a horizontal deep well: 1. With a total measured well depth of ten thousand (10,000) feet or less, the fee shall be five thousand dollars ($5,000); 2. With a total measured well depth greater than ten thousand (10,000) feet, the fee shall be six thousand dollars ($6,000); and 3. Five hundred dollars ($500) for each additional lateral. For a horizontal deep well, each additional deep horizontal well located on the same well pad shall be assessed the following fee: (a) Three thousand dollars ($3,000) for a total measured well depth up to ten thousand (10,000) feet; and (b) Four thousand dollars ($4,000) for a total measured well depth greater than ten thousand (10,000) feet. (5) All money paid to the State Treasurer for licenses and fees required by KRS 353.500 to 353.720 shall be for the sole use of the department and shall be in addition to any moneys appropriated by the General Assembly for the use of the department. (6) Each application shall be accompanied by a plat, which shows the location and elevation of each well, prepared according to the administrative regulations promulgated under KRS 353.500 to 353.720. The plat shall be certified as accurate and correct by a professional land surveyor licensed in accordance with the provisions of KRS Chapter 322. (7) When any person submits to the Department for Natural Resources an application for a permit to drill a well, or to reopen, deepen, or temporarily abandon any well which is not covered by surety bond, the department shall, except as provided in this section, require from the well operator the posting of a bond. Bonds for deep wells are posted for the purpose of ensuring well plugging and reclamation of disturbed areas. The bond for plugging shallow wells shall be posted in accordance with the following schedule: Well Depth ............................................................................................. Bond Amount 0 to 500 feet .....................................................................................................$500.00 501 feet to 1,000 feet ....................................................................................$1,000.00 1,001 feet to 1,500 feet .................................................................................$1,500.00 1,501 feet to 2,000 feet .................................................................................$2,000.00 2,001 feet to 2,500 feet .................................................................................$2,500.00 2,501 feet to 3,000 feet .................................................................................$3,000.00 3,001 feet to 3,500 feet .................................................................................$3,500.00 3,501 feet to 4,000 feet .................................................................................$4,000.00 4,001 feet to 4,500 feet .................................................................................$5,000.00 4,501 feet to 5,000 feet .................................................................................$6,000.00 5,001 feet to 5,500 feet .................................................................................$7,000.00 5,501 feet to 6,000 feet .................................................................................$8,000.00 (8) Plugging and reclamation bonds for vertical deep wells shall be twenty-five thousand dollars ($25,000). However, the commission may establish a higher bonding amount for vertical deep wells if the anticipated plugging and reclamation costs exceed the minimum bonding amounts established in this section. (9) The minimum amount of plugging and reclamation bond for a horizontal deep well shall be forty thousand dollars ($40,000). However, the commission may establish a bond amount greater than forty thousand dollars ($40,000) if the anticipated plugging and reclamation costs exceed the minimum bond. (10) (a) All bonds required to be posted under this section for plugging shallow wells shall: 1. 2. Be made in favor of the Department for Natural Resources; Be conditioned that the wells, upon abandonment, shall be plugged in accordance with the administrative regulations of the department and that all records required by the department be filed as specified; and 3. Remain in effect until the plugging of the well is approved by the department, or the bond is released by the department. (b) All bonds required to be posted under this section for plugging deep wells shall: 1. Be made in favor of the Department for Natural Resources; 2. Be conditioned that the wells, upon abandonment, shall be plugged and the disturbed area reclaimed in accordance with the statutes and the administrative regulations of the department and that all records required by the department be filed as specified; and 3. Remain in effect until the plugging of the well and the reclamation of the disturbed area is approved by the department or the bond is released by the department. (11) An operator may petition the department to amend the drilling depth and bond amount applicable to a particular well and shall not proceed to drill to a depth greater than that authorized by the department until the operator is so authorized, except pursuant to administrative regulations promulgated by the department. (12) (a) Any qualified shallow well operator, in lieu of the individual bond, may file with the department a blanket bond according to the following tiered structure: 1. One (1) to twenty-five (25) wells require a ten thousand dollar ($10,000) bond; 2. Twenty-six (26) to one hundred (100) wells require a twenty-five thousand dollar ($25,000) bond; 3. One hundred one (101) to five hundred (500) wells require a fifty thousand dollar ($50,000) bond; and 4. Five hundred one (501) or more wells require a one hundred thousand dollar ($100,000) bond. (b) Any nonqualified shallow well operator, in lieu of an individual bond, may file with the department a blanket bond according to the following tiered structure: 1. One (1) to one hundred (100) wells require a fifty thousand dollar ($50,000) bond; and 2. One hundred one (101) or more wells require a one hundred thousand dollar ($100,000) bond. (13) To qualify for a blanket bond for a shallow well under the tiered structure set forth in subsection (12)(a) of this section, an operator shall: (a) Have a blanket bond in place filed with the department prior to July 15, 2006, and have no outstanding, unabated violations of KRS Chapter 353 or (14) (15) (16) (17) regulations adopted pursuant thereto which have not been appealed; (b) Demonstrate for a period of thirty-six (36) months prior to the request for blanket bonding a record of compliance with the statutes and administrative regulations of the division; or (c) Provide proof of financial ability to plug and abandon wells covered by the blanket bond. In addition to the requirements set forth in subsection (15) of this section, proof of financial ability set forth in subsection (13)(c) of this section shall be established by an audited financial statement that satisfies at least two (2) of the following ratios: (a) A ratio of total liabilities to net worth less than two (2); or (b) A ratio of the sum of net income plus depreciation, depletion, and amortization to total liability greater than one-tenth (0.1); or (c) A ratio of current assets to current liabilities greater than one and five-tenths (1.5). If the operator is a corporate subsidiary, the operator further shall provide a corporate guarantee in which the guarantor shall be the parent corporation of the operator of the wells covered under the bond. The corporate guarantee shall provide: (a) That if the operator fails to perform with the proper plugging and abandonment of any well covered by the blanket bond, the guarantor shall do so or provide for alternate financial assurance; and (b) The corporate guarantee shall remain in force unless the guarantor sends notice of the cancellation by certified mail to the operator and to the department. Cancellation shall not occur, however, during the one hundred twenty (120) day period beginning on the first day that both the operator and the department have received notice of cancellation, as evidenced by the certified mail return receipts. An operator shall not be eligible for blanket bonding if the operator has: (a) More than ten (10) violations of KRS Chapter 353 or the regulations adopted pursuant thereto within the thirty-six (36) month period; (b) Any outstanding, unabated violations of KRS Chapter 353 or the regulations adopted pursuant thereto which have not been appealed; (c) A forfeiture of a bond, whether an individual bond or portion of a blanket bond, on any permit where the operator has not entered into an agreed order with the department for the plugging and proper abandonment of the well or wells on the forfeited permit or permits; or (d) A permit or permits, upon which a bond or portion of a bond has been forfeited and the proceeds from the forfeiture have been spent by the department to plug or reclaim the permitted well or wells, unless the operator has made restitution to the department for all costs associated with the forfeiture, plugging, and proper abandonment. Any deep well operator, in lieu of an individual bond, may file with the department (18) (19) (20) (21) (22) (23) (24) (25) a blanket bond according to the following: (a) One (1) to ten (10) vertical deep wells require a two hundred thousand dollar ($200,000) bond; and (b) One (1) to ten (10) horizontal deep wells require a three hundred twenty thousand dollar ($320,000) bond. A deposit in cash or a bank-issued irrevocable letter of credit may serve in lieu of either of the individual well or blanket bonds. Individuals acquiring a single well for domestic use may post a combination bond which shall consist of a cash bond in the amount of one thousand dollars ($1,000) plus a lien on the property to cover future plugging costs. Only one (1) combination bond may be posted by each individual. A certificate of deposit, the principal of which is pledged in lieu of a bond and whose interest is payable to the party making the pledge, may serve for an individual well bond. A certificate of deposit, the principal of which is pledged in lieu of a bond and whose interest is payable to the party making the pledge, may serve for a blanket bond, provided that the first five thousand dollars ($5,000) of the blanket bond is posted with the department in cash. The bond or bonds referred to in this section shall be executed by the well operator as principal and, if a surety bond, by a corporate surety authorized to do business in the Commonwealth. A deposit in cash shall serve in lieu of either of the above bonds; all cash bonds accepted by the department shall be deposited into an interest-bearing account, with the interest thereon payable to the special agency account known as the oil and gas well plugging fund, created in subsection (28) of this section, to be used in accordance with the purposes described therein. All cash bonds being held by the department on July 13, 1990, shall likewise be deposited in the interest-bearing account, with the proceeds to be used for the purposes established for the oil and gas well plugging fund. The bond amounts prescribed by subsection (7) of this section shall be applicable only to permits issued upon and after July 15, 2006. All bonds posted for permits issued prior to July 15, 2006, shall remain in full force and effect for the duration of the permits. The blanket bond amounts prescribed by subsection (12) of this section shall be effective upon and after July 15, 2006. Any operator having filed a blanket bond with the department prior to July 15, 2006, may at its discretion increase the level of the blanket bond incrementally by increasing the blanket bond by the amount of the individual bond prescribed by subsection (12) of this section on any wells drilled subsequent to July 15, 2006, until the blanket bond has reached the level prescribed by subsection (12) of this section. A successor to the well operator shall post bond, pay a twenty-five dollar ($25) fee per well to the department, and notify the department in writing in advance of commencing use or operation of a well or wells. The successor shall assume the obligations of this chapter as to a particular well or wells and relieve the original (26) (27) (28) (29) permittee of responsibility under this chapter with respect to the well or wells. It shall be the responsibility of the selling operator to require the successor operator to post bond before use or operation is commenced by the successor and relief of responsibility under this chapter is granted to the original permittee. If the requirements of this section with respect to proper plugging upon abandonment and submission of all required records on all well or wells have not been complied with within the time limits set by the department, by administrative regulation, or by this chapter, the department shall cause a notice of noncompliance to be served upon the operator by certified mail, addressed to the permanent address shown on the application for a permit. (a) The notice shall specify in what respects the operator has failed to comply with this chapter or the administrative regulations of the department. (b) If the operator has not reached an agreement with the department or has not complied with the requirements set forth by it within forty-five (45) days after mailing of the notice, the bond shall be forfeited to the department. A bond forfeited pursuant to the provisions of this chapter may be collected by an attorney for the department or by the Attorney General, after notice from the director of the Division of Oil and Gas. All sums received under this section or through the forfeiture of bonds shall be placed in the State Treasury and credited to a special agency account to be designated as the oil and gas well plugging fund, which shall be an interest-bearing account with the interest thereon payable to the fund. This fund shall be available to the department and shall be expended for the plugging of any abandoned wells coming within the authority of the department pursuant to this chapter. The plugging of any well pursuant to this subsection shall not be construed to relieve the operator or any other person from civil or criminal liability which would exist except for the plugging. Any unencumbered and any unexpended balance of this fund remaining at the end of any fiscal year shall not lapse but shall be carried forward for the purpose of the fund until expended or until appropriated by subsequent legislative action. (a) Any permitted stratigraphic test well: 1. Is subject to all requirements under this section and KRS 353.5901, 353.550, 353.610, and 353.660(1) and (4) as if the stratigraphic test well were defined as a "well" in KRS 353.510(14); and 2. Shall be plugged within one hundred eighty (180) days of completion of drilling the well. (b) A stratigraphic test well shall be permitted as an oil and gas production well prior to: 1. Producing oil or gas; or 2. Deviating from true vertical. (c) Any stratigraphic test well converted to an oil or gas production well under paragraph (b) of this subsection shall be subject to the requirements of KRS 353.660(1) to (3). (30) For the purpose of this chapter, "water supply well" shall not include: (a) Any well for a potable water supply for domestic use or for livestock; or (b) Any water well used primarily for cooling purposes in an industrial process. (31) Notwithstanding the provisions of KRS Chapter 353 or this section, no operator shall be eligible to receive additional permits if that operator or any entity in which it has an ownership interest has: (a) Any outstanding, unabated violations of KRS Chapter 353 or the regulations adopted pursuant thereto, which have not been appealed; (b) A forfeiture of a bond, whether an individual bond or portion of a blanket bond, on any permit where the operator has not entered into an agreed order with the department for the plugging and proper abandonment of the well or wells on the forfeited permit or permits; or (c) A permit or permits upon which a bond or portion of a bond has been forfeited, and the proceeds therefrom having been spent by the department to plug or reclaim the permitted well, or wells, unless the operator has made restitution to the department for all costs associated with the forfeiture, plugging, and proper abandonment. Effective: July 15, 2016 History: Amended 2016 Ky. Acts ch. 40, sec. 3, effective July 15, 2016. -- Amended 2015 Ky. Acts ch. 21, sec. 13, effective June 24, 2015. -- Amended 2010 Ky. Acts ch. 24, sec. 1907, effective July 15, 2010. -- Amended 2006 Ky. Acts ch. 160, sec. 2, effective July 12, 2006. -- Amended 2003 Ky. Acts ch. 150, sec. 11, effective June 24, 2003. -- Amended 2000 Ky. Acts ch. 139, sec. 3, effective July 14, 2000. -Amended 1998 Ky. Acts ch. 214, sec. 43, effective January 1, 1999. -- Amended 1994 Ky. Acts ch. 127, sec. 1, effective July 15, 1994. -- Amended 1990 Ky. Acts ch. 12, sec. 1, effective July 13, 1990. -- Amended 1982 Ky. Acts ch. 232, sec. 1, effective July 15, 1982. -- Amended 1966 Ky. Acts ch. 147, sec. 2. -- Created 1960 Ky. Acts ch. 103, sec. 11.