Well drilling bonds are legally binding agreements between three parties: well contractors (oil, gas, and water well drillers, well inspectors, and pump installers), the government agency responsible for regulating local natural resources, and a surety company.
The government agency is the Obligee and establishes the obligations that the well contractor (the Principal) must follow. The surety (also called bonding company) issues the bond guaranteeing the performance of the well contractor.
Well drilling bonds are required in some states before being eligible to obtain a license to perform well drilling, well repair, well inspecting, pump installation, or water system contracting. Some states where you need a surety bond include California, Idaho, Oregon, and North Dakota, among others. Most states handle well drilling licensing directly while some allow local municipalities to handle licensing and regulations.
When the surety company issues the bond, they provide the government agency a guarantee that the customers of a licensed well contractor will receive payment for financial losses resulting from a violation of the statutes and regulations set forth by the government agency.
If the well contractor fails to meet the obligations set out by the government agency, the surety will pay out any damages up to the bond amount. The well contractor is ultimately liable for the losses and is legally required to reimburse the surety company for any damages paid under the bond.
Well drilling surety bond costs vary depending on the total bond amount and the premium rate. The government agency sets the required bond amount and the surety company determines your premium rate, which is the percentage of the total bond amount you pay as the premium.
Premium rates for well drilling bonds typically cost between 2% and 8% of the total bond amount. Most well driller bonds mandated by the state require credit checks. Bonds required by local municipalities with a bond amount under $25,000 do not normally require credit checks.
During the application process, the surety company may also evaluate your financial strength and industry experience. For bonds requiring credit checks, applicants with good credit generally receive the lowest rates, however, bad credit will not prevent you from securing a well drilling bond. EZ Surety still offers competitive rates to individuals with low credit scores or other financial issues.
Below are the lowest premiums EZ Surety has issued for well drilling surety bonds in popular states.