§ 64-12. Bond, letters of credit, indemnity, insurance.

(a)

General requirements. The operator shall be required to:

(1)

Comply with the terms and conditions of this article and the 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 a gas well permit:

a.

Where such injuries, death, or damages are caused by operator's sole negligence or the joint negligence of operator and any other person or entity; and

b.

Regardless of whether such injuries, death, or damages are caused in whole or in part by the negligence of operator.

(3)

Promptly pay all fines, penalties, and other assessments imposed due to breach of any terms of the gas well permit.

(4)

Promptly restore to its former condition any public property damaged by the gas operation.

(b)

Bond, irrevocable letter of credit. Prior to the issuance of a gas well permit the operator shall provide the gas inspector with a security instrument in the form of a bond or an irrevocable letter of credit, both in a form acceptable to the city attorney as follows:

(1)

Bond. A bond shall be executed by a reliable bonding or insurance institution authorized to do business in Texas, acceptable to the city. The bond shall become effective on or before the date the 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 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 chapter. The original bond shall be submitted to the gas inspector with a copy of the same provided to the city secretary.

(2)

Letter of credit. A letter of credit, in a form approved by the city attorney shall be issued by a reliable bank authorized to do business in Texas and shall become effective on or before the date the gas well permit is issued. The letter of credit shall remain in force and effect for at least a period of six (6) months after the expiration of the gas well permit term. If the letter of credit is for a time period less than the life of the well as required by this chapter, the operator must renew the letter of credit or replace the letter of credit with a bond in the amount required by this chapter, on or before forty-five (45) days prior to the expiration date of the letter of credit. If the operator fails to deliver to the City of Irving either the renewal letter of credit or replacement bond in the appropriate amount on or before forty-five (45) days prior to the expiration date of the letter of credit, the City of Irving may draw the entire face amount of the attached letter of credit to be held by the City of Irving as security for operator's performance of its obligations under this chapter.

The city shall be authorized to draw upon such letter of credit to recover any fines or penalties assessed under this chapter. Evidence of the execution of a letter of credit shall be submitted to the gas inspector by submitting an original signed letter of credit from the banking institution, with a copy of the same provided to the city secretary.

(3)

The principal amount of any security instrument shall be fifty thousand dollars ($50,000.00) for any single well. If, after completion of a well, the applicant/operator, who initially posted a fifty thousand dollar ($50,000.00) bond or letter of credit, has complied with all of the provisions of this chapter and whose well in the producing stage and all drilling operations have ceased, may submit a request to the gas inspector to reduce the existing security instrument to ten thousand dollars ($10,000.00) for the remainder of the time the well produces without reworking. During reworking operations, the amount of the bond or letter of credit shall be maintained at fifty thousand dollars ($50,000.00).

An operator drilling or reworking between one (1) and five (5) wells at any given time may elect to provide a blanket bond or letter of credit in the principal minimum amount of one hundred fifty thousand dollars ($150,000.00). If the operator drills or reworks more than five (5) wells at a time, the blanket bond or letter of credit shall be increased in increments of fifty thousand dollars ($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 provide a blanket bond or letter of credit for the remainder of the time the well produces, without reworking, as follows:

Number of Producing Wells	Blanket Bond/ Letter of Credit Amount Required
Up to 75 wells	$150,000.00
75 to 150 wells	$175,000.00
More than 150 wells	$200,000.00

 

If at any time after no less than a fifteen-day written notice to the operator and a public hearing, the city council shall deem any operator's bond or letter of credit to be insufficient, it may require the operator to increase the amount of the bond or letter of credit up to a maximum of two hundred fifty thousand dollars ($250,000.00) per well.

(4)

Whenever the gas 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 gas 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 over 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, unless there is failure to immediately clean contamination caused by spills, or unless the failure involves the operator's failure to provide periodic reports as required by this article. The city shall be authorized to draw against any irrevocable letter of credit or 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 chapter.

(5)

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 irrevocable letter of credit or 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.

(6)

When the well or wells covered by said irrevocable letters of credit or bond have been properly abandoned in conformity with all regulations of this chapter, 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 irrevocable letter of credit or bond issued in compliance with these regulations shall be terminated and canceled.

(c)

Insurance. In addition to the bond or letter of credit 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 canceled, the gas well permit shall be suspended on such date of cancellation and the operator's right to operate under such 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, A-:VIII 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 of Irving, Inspections Department, 825 West Irving Boulevard, Irving, Texas 75060, evidencing all the required coverages, including endorsements, prior to the issuance of a gas well permit.

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, non-renewal, and/or material change in policy terms or coverage. A ten (10) days' notice shall be acceptable in the event of non-payment of premium.

i.

During the term of the gas well permit, the operator shall report, in a timely manner, to the gas inspector 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 contractors protective liability and personal injury. This coverage shall be a minimum combined single limit of one million dollars ($1,000,000.00) per occurrence location for bodily injury and property damage.

(3)

Excess or umbrella liability. Five million dollars ($5,000,000.00) excess. 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.

Operator shall purchase and maintain in force for the duration of the 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 one million dollars ($1,000,000.00) per loss, with an annual aggregate of at least ten million dollars ($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. The policy should cover the cost of controlling a well that is out of control, re-drilling 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.

Five million dollars ($5,000,000.00) per occurrence/no aggregate, if available, otherwise an aggregate of ten million dollars ($10,000,000.00).

Five hundred thousand dollars ($500,000.00) 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.

a.

Workers' compensation benefits shall be Texas Statutory Limits.

b.

Employer's liability shall be a minimum of five hundred thousand dollars ($500,000.00) per accident.

c.

Such coverage shall include a waiver of subrogation in favor of the city and provide coverage in accordance with applicable state and federal laws.

(7)

Automobile liability insurance.

a.

Combined single limit of one million dollars ($1,000,000.00) per occurrence for bodily injury and property damage.

b.

Coverage must include all owned, hired, and not-owned automobiles.

(8)

Certificates of insurance.

a.

The company must be admitted or approved to do business in the State of Texas, 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 Texas Department of Insurance or Insurance Service Office, or an equivalent policy form written by an eligible non-admitted surplus lines insurer carrier acceptable to the city, with the exception of environmental pollution liability and control of well coverage.

c.

Sets 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 CANCELED OR NON-RENEWED WITHOUT 30 DAYS' ADVANCED WRITTEN NOTICE TO THE OWNER AND THE CITY EXCEPT WHEN THIS POLICY IS BEING CANCELED 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 gas well permit issued by the gas inspector 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 Irving, 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 a gas well permit. The operator shall fully defend, protect, indemnify, and hold harmless the City of Irving, Texas, 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 Irving, Texas, 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 a gas well permit. The operator agrees to indemnify and hold harmless the City of Irving, 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, its departments, its officers, agents, servants, or employees, created by, or arising out of the acts or omissions of the City of Irving 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 IRVING 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 IRVING, TEXAS, AND/OR ITS DEPARTMENTS, AGENTS, OFFICERS, SERVANTS, OR EMPLOYEES FROM THE CONSEQUENCES OF THE NEGLIGENCE OF THE CITY OF IRVING, 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)

Notice. The individual designated to receive notice shall be a resident of Texas upon whom all orders and notices provided in this chapter may be served in person or by registered or certified mail. Every operator shall within ten (10) days notify the gas inspector in writing of any change in such agent or mailing address unless operations in the city are discontinued and abandonment is complete.

(f)

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 or irrevocable letter of credit 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 attorney and the risk manager of the city. The gas inspector may request an annual review of the operator's most recent audited financial statements to assure compliance with this section.