Surety Bonds Going Green

The uses of a surety bond can be quite versatile. The general public usually associate surety bonds with the construction of buildings and various structures; but there are more purposes outside of construction jobs for surety bonds. The state of Texas actually did the opposite, utilizing surety bonds for deconstruction in favor of the environment.

In Texas, new environmentally friendly legislation has been passed regarding offshore oil rigs. The law is named AB 2503 and it authorizes the partial removal of offshore oil structures in the Gulf of Mexico. Since the BP oil spill last year, there are much stricter regulations being but in place for oil rigs. The bill requires operators of idled oil rigs to remove the rigs while providing financial assurance such as a surety bond. The surety bond guarantees that the operator will supply adequate funds for the removal of the rigs to the Ocean Protection Council, the Department of Fish and Game, the State Coastal Conservancy and the State Lands Commission; procedural steps include an environmental evaluation, a determination of the project’s net environmental benefit, establishing the project’s costs savings, preparation and application of a management plan and any other costs for satisfying the law’s requirements.

“After we saw events of the Macondo well begin to unfold, many of us began to realize we were going to live in a more regulated environment in the U.S. Gulf,” Superior Energy CEO David Dunlap told a Pritchard Capital conference last month.

Oil companies have commonly been unenthusiastic when it comes to plugging and removing of stagnant wells. Owners of oil rigs said the idle wells could potentially be used to assist other neighboring active wells. In the previous 5 years, about 100-150 platforms were deconstructed yearly in the U.S. Gulf, said James West at Barclays Capital; that number may double to around 200-350 platforms in 2011. As soon as the wells are taken apart, old platforms can offer useful artificial reefs which in turn would help preserve the marine ecosystem.

With the surety bond requirement in place, it will help guarantee the completion of the idle oil rigs removal. It is a safeguard in case the job does not get done. Instead of having a failed job, the surety company who is backing the bond will come in and finance the rest of the job; a claim will go out on the owner of the rig (principal) who would then have to reimburse the surety. The idle rigs pose a threat to all ocean life; even more so with an incomplete removal of a rig. The surety bond will help prevent a botched job from occurring.

This new legislation shows the array of uses for surety bonds. They can be used to aid many different types of companies and endeavors from opening up a car dealer ship to building a school. In this case, surety bonds come to the rescue for marine life and the environment as a whole.