When the Biden administration proposed raising federal oil and gas bonding requirements nearly twentyfold, many of Wyoming’s independent producers wondered how they would survive.
Wyoming’s answer is the nation's first state-backed oil and gas bonding pool, which has just launched.
Funded with $45 million in existing industry fees, the pool is designed to help operators meet federal and state bonding rules without tying up the capital they need to keep drilling.
State and industry leaders also see it as a way to “future-proof” Wyoming’s oil and gas sector against unpredictable swings in federal policy from less friendly administrations.
What Is Bonding
Bonding — the financial assurance required to ensure oil and gas wells are properly plugged and reclaimed — is a big challenge for Wyoming’s small, independent operators. It’s one of those behind-the-scenes costs that doesn’t usually make headlines but can be make or break for the independent oil and gas companies who, collectively, make up two-thirds of Wyoming’s oil production.
In June 2024, the Biden administration boosted bonding requirements from $25,000 to $500,000 — a 1,900% increase.
“The bonding requirements proposed by the Biden administration could have easily put many of (Wyoming’s) small operators out of business,” Wyoming Petroleum Association’s Ryan McConaughey told Cowboy State Daily. “The financial risks from the bonding would have been too high.”
The state-backed bonding pool will serve as an immediate lifeline for the state’s independent oil and gas producers, McConaughey said.
McConaughey told Cowboy State Daily he’s already received calls from other oil and gas producing states looking to copy it.
A Simple Idea
Federal regulators under Biden defended the hike as a long-overdue fiscal reform. Bureau of Land Management officials argued that the previous minimum bond rates hadn’t been adjusted since 1960, leaving a massive gap between the required insurance and the actual cost of plugging abandoned wells.
Without an update, federal officials then claimed, taxpayers would be left holding the bag for potentially billions in cleanup liabilities when operators walk away or go bankrupt.
Those arguments were echoed by a broader cross-section of environmental groups as well and remain a prominent undercurrent in anti-oil and gas circles.
Given that, Wyoming regulators realized they shouldn’t wait for administrations to change before acting. They pushed forward with their idea, even after the Trump administration rolled back Biden’s bonding rate hike.
The overall idea behind Wyoming’s bonding pool is relatively straightforward, McConaughey said.
“In 2023, the state Legislature authorized a state-backed bonding pool that uses industry-paid fees to back up the pool,” he said. “So, there’s $45 million in fees the oil and gas industry had paid to the Wyoming Oil and Gas Conservation Commission.”
The money will be used to reduce risks associated with bonding oil and gas wells, making it more affordable for Wyoming’s independent operators.
“It’s sort of like a life insurance policy for a lease on state or federal lands,” McConaughey said. “It’s open to any operators in Wyoming and will allow them to meet their bonding obligations with the state or with the BLM while still maintaining the capital to keep running their businesses.”
The Wyoming Oil and Gas Commission has just completed its rule-making process for the new program and has announced the selection of a Houston-based OneNexus to administer it.
Rollback Doesn’t Mean Industry ‘Safe’
The Trump administration did roll back Biden’s 1,900% increase as part of his campaign to achieve energy “dominance,” but the pool was still needed for two reasons.
First, these kinds of reclamation bonds were becoming difficult for the industry to obtain.
M&K Oil CEO Nathan McLeland told Cowboy State Daily last year that his company had tried several times to purchase surety bonds at the old, $25,000 rate, but were unable to find anyone willing to underwrite one at all.
Instead, they had to self-bond, posting the full $25,000 cash equivalent upfront. That’s a huge expense for a small production company to handle, never mind the Biden administration’s leap to $500,000.
The other reason the pool was needed, though, was to future-proof the industry against future administration changes.
“The industry is at the mercy of the winds of whoever is in the White House or in control of Congress at the time,” McConaughey said. “So as these political winds change, this program allows operators to weather the storms of these swings in administration.”
Future-Proofing To Continue
Future-proofing against swings in the political landscape has become a broader trend across the oil and gas industry, McConaughey added.
“Uncertainty is one of the biggest hindrances for the industry,” he said. “And so, anything we can do to make sure that our companies here in Wyoming have that certainty, so they’re able to produce and make good on their investments is all the better.”
It’s a trend that’s going to continue in the next legislative session.
“The minerals committee and other legislators have been looking at everything from transportation rules to things at the Department of Revenue and the Wyoming Oil and Gas Commission and DEQ, just to make sure we’re doing what we need to do to meet our regulatory requirements and obligations,” he said. “But also, to make sure that the industry is thriving for years to come. That’s going to be a big push going forward … especially in a time when we have an administration that’s favorable to the industry.
"We’re not on defense now, so what can we do to make sure that these things have a lasting impact for the industry.”
Renée Jean can be reached at renee@cowboystatedaily.com.
