(a)
General requirements.
The operator shall be required to:
(1)
Comply with the terms and conditions of this article and the oil and gas well permit issued hereunder.
(2)
Indemnify and hold harmless the city, its officers, agents, and employees from and against any and all claims, losses, damages, causes of action, suits and liability of every kind, including all expenses of litigation, court costs, and attorney’s fees, for injury to or death of any person or for damage to any property arising out of or in connection with the work done by operator under an oil and gas well permit:
(3)
Promptly pay all fines, penalties and other assessments imposed due to breach of any terms of the oil and gas well permit.
(4)
Promptly restore to its former condition any public property damaged by the gas operation.
(b)
Bond.
(1)
Generally. Prior to the issuance of an oil and gas well permit, the operator shall provide the city with a security instrument in the form of a bond. The bond shall be executed through a company duly approved to transact that class of instrument in the state and acceptable to the city. The bond shall become effective on or before the date the oil and gas well permit is issued and shall remain in force and effect for at least a period of six (6) months after the expiration of the oil and gas well permit term or until the well is plugged and abandoned and the site is restored, whichever occurs first. The operator shall be listed as principal and the instrument shall run to the city, as obligee, and shall be conditioned that the operator will comply with the terms and regulations of this article and the master road damage remediation agreement between the operator and the city. The original bond shall be submitted to the city administrator.
(2)
Bond for single well.
The principal amount of any security instrument shall be two hundred thousand dollars ($200,000.00) for any single well. If, after completion of a well, the applicant/operator who initially posted a two hundred thousand dollar ($200,000.00) bond has complied with all of the provisions of this article, and whose well [is] in the producing stage and all drilling operations have ceased, may submit a request to the city for approval to reduce the existing bond to one hundred thousand dollars ($100,000.00) for the remainder of the time the well produces without reworking. During reworking operations, the amount of the bond shall be maintained at two hundred thousand dollars ($200,000.00).
(3)
Blanket bond for multiple wells.
An operator drilling or reworking between one and five wells at any given time may elect to provide a blanket bond in the principal minimum amount of two hundred fifty thousand dollars ($250,000.00). If the operator drills or reworks more than five wells at a time, the blanket bond shall be increased in increments of $50,000.00 per each additional well. Once the wells are in the producing stage and all drilling operations have ceased, the operator may elect to submit a request to the city for approval to reduce the existing bond and provide a blanket bond of one hundred and fifty thousand dollars ($150,000.00) for the remainder of the time the wells produce without reworking.
(4)
Default in performance.
Whenever the city, through its inspector, finds that a default has occurred in the performance of any requirement or condition imposed by this article, a written notice shall be given to the operator. Such notice shall specify the work to be done, the estimated cost and the period of time deemed by the inspector to be reasonably necessary for the completion of such work. After receipt of such notice, the operator shall, within the time therein specified, either cause or require the work to be performed, or, failing to do so, shall pay to the city one hundred twenty-five (125) percent of the estimated cost of doing the work as set forth in the notice. In no event, however, shall the cure period be less than thirty (30) days unless the failure presents a risk of imminent destruction of property or injury to persons or unless the failure involves the operator’s failure to provide periodic reports as required by this article.
(5)
Recovery on bond.
The city shall be authorized to draw against any bond to recover such amount due from the operator. Upon receipt of such monies, the city shall proceed by such mode as deemed convenient to cause the required work to be performed and completed, but no liability shall be incurred other than for the expenditure of said sum in hand. In the event that the well has not been properly abandoned under the regulations of the commission, such additional money may be demanded from the operator as is necessary to properly plug and abandon the well and restore the drill site in conformity with the regulations of this article.
(6)
Civil or criminal action.
In the event the operator does not cause the work to be performed and fails or refuses to pay over to the city the estimated cost of the work to be done as set forth in the notice, or the issuer of the security instrument refuses to honor any draft by the city against the applicable bond, the city may proceed to obtain compliance and abate the default by way of civil action against the operator, or by criminal action against the operator, or by both such methods.
(7)
Termination.
When the well or wells covered by said bond have been properly abandoned in conformity with all regulations of this article, and in conformity with all regulations of the commission, and notice to that effect has been received by the city, or upon receipt of a satisfactory substitute, the bond issued in compliance with these regulations shall be terminated and cancelled.
(c)
Insurance.
In addition to the bond required pursuant to this article, the operator shall carry a policy or policies of insurance issued by an insurance company or companies authorized to do business in Texas. In the event such insurance policy or policies are cancelled, the oil and gas well permit shall be suspended on such date of cancellation and the operator’s right to operate under such oil and gas well permit shall immediately cease until the operator files additional insurance as provided herein.
(1)
General requirements applicable to all policies.
(A)
The city, its officials, employees, agents and officers shall be endorsed as an “additional insured” to all policies except employer’s liability coverage under the operator’s workers’ compensation policy.
(B)
All policies shall be written on an occurrence basis except for environmental pollution liability (seepage and pollution coverage) and excess or umbrella liability, which may be on a claims-made basis.
(C)
All policies shall be written by an insurer with an “A-” class VIIII or better rating by the most current version of the A.M. Best Key Rating Guide or with such other financially sound insurance carriers acceptable to the city.
(D)
Deductibles shall be listed on the certificate of insurance and shall be on a “per occurrence” basis unless otherwise stipulated herein.
(E)
Certificates of insurance shall be delivered to the city administrator evidencing all the required coverages, including endorsements, prior to the consideration of an oil and gas well permit by the city council.
(F)
All policies shall be endorsed with a waiver of subrogation providing rights of recovery in favor of the city.
(G)
Any failure on the part of the city to request required insurance documentation shall not constitute a waiver of the insurance requirement specified herein.
(H)
Each policy shall be endorsed to provide the city a minimum thirty-day notice of cancellation, nonrenewal, and/or material change in policy terms or coverage. Ten days’ notice shall be acceptable in the event of nonpayment of premium.
(I)
During the term of the oil and gas well permit, the operator shall report, in a timely manner, to the city administrator any known loss occurrence which could give rise to a liability claim or lawsuit or which could result in a property loss.
(J)
Upon request, certified copies of all insurance policies shall be furnished to the city.
(2)
Standard commercial general liability policy.
This coverage must include premises, operations, blowout or explosion, products, completed operations, sudden and accidental pollution, blanket contractual liability, underground resources damage, broad form property damage, independent contractor’s protective liability and personal injury. This coverage shall be a minimum combined single limit of $1,000,000.00 per occurrence for bodily injury and property damage.
(3)
Excess or umbrella liability.
(A)
Coverage shall be $5,000,000.00 excess if the operator has a stand-alone environmental pollution liability (EPL) policy.
(B)
Coverage shall be $10,000,000.00 excess if the operator does not have a stand-alone EPL policy.
(C)
Coverage must include an endorsement for sudden or accidental pollution. If seepage and pollution coverage is written on a “claims made” basis, the operator must maintain continuous coverage and purchase extended coverage period insurance when necessary.
(4)
Environmental pollution liability coverage.
(A)
The operator shall purchase and maintain in force, for the duration of the oil and gas well permit, insurance for environmental pollution liability applicable to bodily injury, property damage, including loss of use of damaged property or of property that has not been physically injured or destroyed, cleanup costs, and defense, including costs and expenses incurred in the investigation, defense or settlement of claims, all in connection with any loss arising from the insured site. Coverage shall be maintained in an amount of at least $1,000,000.00 per loss, with an annual aggregate of at least $10,000,000.00.
(B)
Coverage shall apply to sudden and accidental pollution conditions resulting from the escape or release of smoke, vapors, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste material or other irritants, contaminants or pollutants.
(C)
The operator shall maintain continuous coverage and shall purchase extended coverage period insurance when necessary. The extended coverage period insurance must provide that any retroactive date applicable to coverage under the policy precedes the effective date of the issuance of the permit by the city.
(5)
Control of well.
(A)
The policy should cover the cost of controlling a well that is out of control, redrilling or restoration expenses, seepage and pollution damage as first party recovery for the operator, and related expenses, including, but not limited to, loss of equipment, experts and evacuation of residents.
(B)
Coverage shall be $5,000,000.00 per occurrence/no aggregate, if available, otherwise an aggregate of ten (10) million dollars.
(C)
Coverage shall be $500,000.00 [sic] Sub-limit endorsement may be added for damage to property for which the operator has care, custody and control.
(6)
Workers’ compensation and employer’s liability insurance.
(8)
Certificates of insurance.
(A)
The company must be admitted or approved to do business in the state, unless the coverage is written by a surplus lines insurer.
(B)
The insurance set forth by the insurance company must be underwritten on forms that have been approved by the state department of insurance or ISO, or an equivalent policy form acceptable to the city, with the exception of environmental pollution liability and control of well coverage.
(C)
Certificates shall set forth all endorsements and insurance coverage according to requirements and instructions contained herein.
(D)
Shall specifically set forth the notice of cancellation, termination, or change in coverage provisions to the city. All policies shall be endorsed to read “THIS POLICY WILL NOT BE CANCELLED OR NON-RENEWED WITHOUT 30 DAYS’ ADVANCE WRITTEN NOTICE TO THE OWNER AND THE CITY EXCEPT WHEN THIS POLICY IS BEING CANCELLED FOR NONPAYMENT OF PREMIUM, IN WHICH CASE 10 DAYS’ ADVANCE WRITTEN NOTICE IS REQUIRED.”
(E)
Original endorsements affecting coverage required by this section shall be furnished with the certificates of insurance.
(d)
Indemnification and express negligence provisions.
Each oil and gas well permit issued by the city council shall include the following language: “Operator does hereby expressly release and discharge, all claims, demands, actions, judgments, and executions which it ever had, or now has or may have, or assigns may have, or claim to have, against the City of Fairfield, and/or its departments, agents, officers, servants, successors, assigns, sponsors, volunteers, or employees, created by, or arising out of personal injuries, known or unknown, and injuries to property, real or personal, or in any way incidental to or in connection with the performance of the work performed by the operator under an oil and gas well permit. The operator shall fully defend, protect, indemnify, and hold harmless the City of Fairfield, Texas, and its departments, agents, officers, servants, employees, successors, assigns, sponsors, or volunteers from and against each and every claim, demand, or cause of action and any and all liability, damages, obligations, judgments, losses, fines, penalties, costs, fees, and expenses incurred in defense of the City of Fairfield, Texas, and its departments, agents, officers, servants, or employees, including, without limitation, personal injuries and death in connection therewith which may be made or asserted by operator, its agents, assigns, or any third parties on account of, arising out of, or in any way incidental to or in connection with the performance of the work performed by the operator under an oil and gas well permit. The operator agrees to indemnify and hold harmless the City of Fairfield, Texas, its departments, its officers, agents, servants, employees, successors, assigns, sponsors, or volunteers from any liabilities or damages suffered as a result of claims, demands, costs, or judgments against the city and its departments, its officers, agents, servants, or employees created by or arising out of the acts or omissions of the city occurring on the drill site or operation site in the course and scope of inspecting and permitting the gas wells including, but not limited to, claims and damages arising in whole or in part from the negligence of the City of Fairfield occurring on the drill site or operation site in the course and scope of inspecting and permitting the gas wells. It is understood and agreed that the indemnity provided for in this section is an indemnity extended by the operator to indemnify and protect the City of Fairfield, Texas and/or its departments, agents, officers, servants, or employees from the consequences of the negligence of the City of Fairfield, Texas and/or its departments, agents, officers, servants, or employees, whether that negligence is the sole or contributing cause of the resultant injury, death, and/or damage.”
(e)
Acceptance and indemnity agreement.
The operator who has a net worth of not less than twenty-five million dollars ($25,000,000.00), as shown in such owner’s or operator’s most recent audited financial statements, may substitute an acceptance and indemnity agreement in lieu of the bond and insurance requirements set forth in this article, provided that such acceptance and indemnity agreement shall be in a form acceptable to and approved by the city. The city may request an annual review of the operator’s most recent audited financial statements to assure compliance with this section.
(Ordinance adopted 12/17/07, sec. 8)