Mich. Admin. Code R. 324.210

Current through Vol. 24-23, January 1, 2025

Section R. 324.210 - Conformance bond or statement of financial responsibility requirements

Rule 210.

(1) A person who files an application for a permit to drill and operate a well under R 324.201, or who acquires a well under R 324.206(6), shall file a conformance bond with the supervisor on a form prescribed by the supervisor or shall submit a statement of financial responsibility under subrule (2) of this rule.

(2) A statement of financial responsibility shall consist of all of the following:

(a) A written statement which is signed by the person, which lists data that show that the person meets the criteria specified in subrule (3) of this rule, and which states that the data are derived from an independently audited year-end financial statement.

(b) A copy of an independent certified public accountants report on examination of the persons financial statements for the latest completed fiscal year.

(c) A special report from the persons independent certified public accountant stating that the accountant has compared the data listed in the statement provided under subdivision (a) of this subrule with the amounts in the corresponding year-end financial statement and that nothing came to the attention of the accountant which caused the accountant to believe that the financial records should be adjusted.

(3) When a person submits a statement of financial responsibility instead of a conformance bond, a person shall meet the criteria of either subdivision (a) or (b) of this subrule, as follows:

(a) A person required to file the statement of financial responsibility shall have all of the following:

(i) Two of the following 3 ratios:

(A) A ratio of total liabilities to net worth of less than 2.0.

(B) A ratio of the sum of net income plus depreciation, depletion, and amortization to total liabilities of more than 0.1.

(C) A ratio of current assets to current liabilities of more than 1.5. Projected oil and gas reserves may be utilized in determining current assets only to the extent that the value of the reserves exceeds the projected costs of development and production.

(ii) Net working capital and tangible net worth each of which is not less than 3 times the amount of the conformance bond provided in R 324.212, if the person had elected to file a conformance bond.

(iii) Total assets in this state that are not less than 3 times the amount of the conformance bond provided in R 324.212, if the person had elected to file a conformance bond. Projected oil and gas reserves may be utilized in determining current assets only to the extent that the value of the reserves exceeds the projected costs of development and production.

(iv) A written statement from a certified public accountant which states that no matter came to the attention of the accountant which caused him or her to believe that the financial records should be adjusted.

(b) A person required to file a statement of financial responsibility shall have all of the following:

(i) A current rating for his or her most recent bond issuance of AAA, AA, A, or BBB as issued by Standard and Poors or Aaa, Aa, A, or Baa as issued by Moodys.

(ii) A tangible net worth of not less than $2,000,000.00.

(4) A person shall submit a statement of financial responsibility to the supervisor not less than 60 days before the date the financial assurance is scheduled to take effect.

(5) After the initial submission of a statement of financial responsibility, the person shall send an updated statement of financial responsibility to the supervisor within 90 days after the close of each succeeding fiscal year.

(6) If a person no longer meets the requirements of subrule (3) of this rule, he or she shall send notice to the supervisor of the intent to establish alternate financial assurance by filing a conformance bond as specified in subrule (1) of this rule. The notice shall be sent, by certified mail, within 90 days after the end of the fiscal year for which the year-end review of the financial records shows that the person no longer meets the requirements. The person shall provide the alternate financial assurance within 120 days after the end of the fiscal year.

(7) The supervisor may, based on a reasonable belief that the person no longer meets the requirements of subrule (3) of this rule, require a report at any time from the person in addition to the information required by subrule (3) of this rule. If the supervisor finds, on the basis of a review of the report or other information, that the person no longer meets the requirements of subrule (3) of this rule, then the supervisor or authorized representative of the supervisor shall notify and inform the person. Within 30 days of the notification, the person shall provide alternate financial assurance by filing a conformance bond as specified in subrule (1) of this rule or shall bring the well to final completion. Failure to comply with this subrule shall be cause for immediate suspension of any or all components of the oil and gas operations on the well.

(8) The supervisor may require additional conformance bonds to ensure compliance with orders of the supervisor, excluding proration, statutory pooling, or spacing orders. The conformance bond shall be in addition to the conformance bonds filed under R 324.212(a), (b), or (c) and shall be required only if the supervisor determines that the existing conformance bond is not adequate to cover the estimated cost of plugging the well and conducting site restoration or other obligations of the permittee under the order. A person is not required to file additional conformance bonds under this subrule if the person has filed a blanket conformance bond or bonds in an aggregate amount of $250,000.00 or more, under R 324.212(d). Subject to the provisions of R 324.213, the additional conformance bond shall be released when the permittee has complied with all provisions of the orders of the supervisor.

(9) Conformance bonds that were in effect before the effective date of these rules shall remain in effect under the conditions upon which they were filed and accepted by the supervisor. However, in place of conformance bonds that were in effect before the effective date of these rules, a permittee may file conformance bonds or submit a statement of financial responsibility under these rules for wells permitted under the act before the effective date of these rules.

Mich. Admin. Code R. 324.210

1996 AACS; 2002 AACS; 2015 MR 5, Eff. March 11, 2015