Closure Cost Estimate Guidance

Financial Security Requirements for Commercial Oil Field Waste Storage, Processing and Disposal Facilities in Accordance with Statewide Rule 78

Statewide Rule 78 requires financial security in the form of a bond or letter of credit to be filed by commercial oilfield waste storage, processing and disposal facilities in an amount that is “equal to or greater than the maximum amount necessary to close the commercial facility, at any time during the life of the permit term in accordance with all applicable state laws”. The financial security is intended to cover the costs incurred by the State in the event it must close the facility because the operator has gone out of business. Prior to submitting financial security, the operator must submit a closure cost estimate (CCE). The CCE is typically prepared in a tabular form, listing line item costs, units (hours, days, acres, barrels, cubic yards, etc.), and quantities, and must include all assumptions used in calculating the costs (see below for more details).

Statewide Rule 78 (l) requires the determination of conditions that may require the State to reclaim the bond or letter of credit to pay for the “maximum amount necessary to close the commercial facility”. Accordingly, all assumptions necessary for the preparation of a closure cost estimate pursuant to Statewide Rule 78 (l) should be based on the worst-case scenario; again, assuming the facility has been operated in accordance with the terms of its permit. The estimate shall in no event be less than $10,000 as specified by SWR 78 (l)(4)(A). However, the CCE for the commercial facility is not required to include plugging costs for any oil and gas wells or saltwater disposal wells at the facility.

Operators with a commercial facility duly permitted by the RRC may qualify for a “one time” $25,000 exemption under Rule 3.78(l)(4)(B).

Rule 3.78(l)(4)(B): The owner or operator of one or more commercial facilities may reduce the amount of financial security required under this subsection for one such facility by the amount, if any, it filed as financial security under subsection (g)(6) (see below) of this section. The full amount of financial security required under subparagraph (A) of this paragraph shall be required for the remaining commercial facilities.

Rule 3.78(g)(6): Persons with non-well operations not exempted under paragraph (7) of this subsection. A person performing other operations who is not an operator of wells and who is not a person whose only activity is as a first purchaser, survey company, gas nominator, gas purchaser or well plugger shall file financial security in the amount of $25,000.

The CCE is independent of a “Closure Plan”, which is also required in applications for most commercial facilities and consists of a detailed written description of the procedures that will be taken when operations at the facility are terminated.


REQUIREMENTS FOR APPROVAL OF CLOSURE COST ESTIMATES:

All closure cost estimates for commercial oil field waste processing, storage and disposal facilities must be prepared or supervised by a qualified Professional Engineer (P.E.). licensed to practice by the State of Texas. The estimate must be signed, dated, and sealed by the qualified P.E. who prepared or supervised the preparation of the estimate.

Closure cost estimates for Reclamation Plants are not required to be prepared by a Professional Engineer. However, if a Reclamation Plant is collocated with other facilities requiring a permit under Statewide Rule 8, then those requirements supersede.

The CCE must include at a minimum the following information:

    1. List all assumptions used in preparing the estimate. Necessary assumptions include:
      1. The facility is in compliance with its permit at the time of closure
      2. None of the operator’s equipment or facilities (e.g. disposal wells, land treatment facilities, trucks, bulldozers, employees, etc.) are available to assist in the closure.
      3. The facility is at maximum capacity. All tanks and pits are full of waste. Disposal pits are fully constructed but must be backfilled to-grade before capping.
      4. Storage tanks and pits contain significant amounts of basic sediment/sludge.
      5. The estimate cannot assess a salvage value for any material or equipment at the site.
    2. Break down the unit costs for all material, equipment, services, and labor needed to close the facility. Include the source or basis for the specific unit cost. For instance, the estimate should specify the mileage rate for a permitted waste hauler, the distance to the RRC-permitted waste disposal facility to be used, and the cost of disposal.
      • Units and fees used must be appropriate for the type of waste material to be disposed. For example, disposal units and fees for saltwater should not be reported in gallons.
    3. Include costs for sampling and analysis of soil for the areas around any tank batteries, pads, or former pits.
    4. Show all calculations used to arrive at total maximum closure costs.
    5. Include supporting maps and illustrations, such as: facility plot plans and photographs that illustrate the current condition of the facility, and/or anticipated condition of the facility upon reaching maximum permit conditions.
    6. If fill dirt will be excavated from the property to use for any backfilling or grading, the CCE must include calculations for dozer time/cost needed to excavate the fill dirt, the volume of available fill dirt (cubic yards) and provide the following documentation
      • A letter from the property owner to the operator and Technical Permitting specifically stating that the owner agrees that the material (described with specificity as to location, type and amount consistent with what is in the closure plan) will be available for closure whether the operator or the State performs closure, and agreeing to a restrictive covenant that reserves use of the material (described with specificity as to location, type and amount consistent with what is in the closure plan) for closure.
      • Restrictive covenant: The operator should submit an unsigned draft restrictive covenant on the form provided by the Commission (see link for example). The draft must include all of the detailed information the Commission form requests, and a statement that the operator and landowner agree to abide by the terms in the draft restrictive covenant. Once the Commission approves the CCE and closure plan, the operator will be notified and shall submit a signed original of the restrictive covenant. The Commission will sign its portion of the restrictive covenant and return it to the operator for filing in the real property records of the county where the property is located. Once filed in the real property records, the operator shall provide the Commission with a certified copy of the restrictive covenant.
      • A copy of an amendment or addendum to lease between the commercial facility operator and the surface owner with a clause that specifically reserves use of material and states that the reservation shall inure to the Commission (as third-party beneficiary of this provision) if the Commission must close the facility.
    7. The letter and certified copy of the restrictive covenant referenced above must be supplied whether the operator owns or leases the property. The amendment or addendum to the lease agreement applies only to facilities where the operator leases the property. If the above documentation is not provided, the CCE must assume fill dirt will be purchased from a commercial supplier.
    8. A 10% contingency should be added to the total calculated closure cost estimate.
    9. For all estimates submitted for existing facilities, submit a screening survey for Naturally Occurring Radioactive Material (NORM) at the facility.

NORM screening surveys should be performed using a properly calibrated scintillation meter with a sodium iodide detector (or equivalent), with the results reported in microroentgens per hour. Manufacturer’s specifications and relevant calibration records must be submitted to Technical Permitting for all devices used for NORM detection. All equipment, including piping, pumps, and vessels should be surveyed. Readings should be taken around the circumference of the pit(s) and to the extent possible, over the pits. Ground surrounding the equipment and pit(s) should be surveyed in a systematic grid pattern. At a minimum, the following information should be reported:

  • The date of the survey.
  • The instrument used and the last calibration date.
  • A background reading.
  • A site diagram showing where all readings, including the background, were taken
  • The readings (in microroentgens per hour).

Last Updated: 7/30/2018 9:49:13 AM