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 filed in compliance with Statewide Rule 78 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. The closure cost estimate must be prepared by a registered professional engineer (unless it is for a Reclamation Plant that is not operated with an on-site waste storage or disposal facility requiring a permit under Statewide Rule 8) and are to be based on the assumption that the facility is in compliance with the terms of its permit. Some requirements for an acceptable closure cost estimate will tend to increase the estimate over that which the operator may incur. For instance the estimate must not assess a salvage value for any material or equipment at the site.

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 maximum dollar amount necessary to close a commercial facility is to be exclusive of plugging costs for any well or wells at the facility.

II. REQUIREMENTS FOR APPROVAL OF CLOSURE COST ESTIMATES:

All closure cost estimates for commercial oil field waste processing, storage and disposal facilities (other than Reclamation Plants) must be prepared or supervised by a qualified professional engineer licensed to practice by the State of Texas and must show “all assumptions and calculations used to develop the estimate”. In order for the Commission to expeditiously approve the estimate it must be signed, dated, and sealed by the qualified registered professional engineer who prepared or supervised the preparation of the estimate and should:

    1. List all assumptions used in preparing the estimate. Necessary assumptions include:
      1. That the facility is in compliance with the conditions of its permit
      2. The criteria for delineating between waste material that will be hauled to active permitted waste disposal facilities versus that which is to remain;
      3. None of the operator ’s equipment or facilities that may have otherwise been available at the time of closure (e.g. disposal wells, land treatment facilities, trucks, bulldozers, employees, etc.) are available to assist in the closure.
      4. The facility is to be closed in accordance with the permit. For example, collecting pits must be emptied of all waste prior to backfilling, landfarm and/or landtreatment facilities must meet permit parameters for specified constituents, all remaining waste must be disposed of at a commercial waste facility, and the site must be contoured at closure to as close to its native state as possible unless otherwise authorized by the permit. 
      5. The facility closure occurs at a time when all waste storage tanks are full of waste, and that the waste must be disposed of at an authorized off-site facility. Disposal should assume that storage tanks and pits contain significant amounts of basic sediment/sludge.
      6. If fill dirt is to be excavated from the property include calculations for dozer time/cost needed to excavate the fill dirt 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 (attached). 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 closure cost 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.
    2. 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, assume fill dirt must be purchased from a commercial supplier.
    3. List the unit costs for all material, equipment, services, and labor needed to close the facility. The list must be quite specific and must state the source or basis for the specific unit cost. For instance, the estimate should specify the mileage rate for a permitted waste hauler, the hauler’s name, distance to the point of disposal/retrieval of material to be transported from/to the site including name of the RRC-permitted oil field waste disposal facility or other location where waste material is to be taken or retrieved, etc;
    4. Show the total quantity of each unit cost item and how the total quantity was determined (i.e. cubic yards of material divided by size of load equals total number of loads, etc.);
    5. Show all calculations used to arrive at total maximum closure costs.
    6. Include supporting maps and illustrations, such as: before and after topographical maps, 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 at closure. All structures associated with the facility (including but not limited to all buildings, berms, levees, dikes, pipelines, tanks, pits, etc.) that are currently on site or will be upon reaching maximum permitted capacity. For instance, the estimate should assume all permitted but undeveloped pit capacity, treatment cells, or any other structures and/or equipment that would be in place under permitted operations whether such structures and equipment are in place at the time of the estimate or not. All such structures and the proposed method of demolition, disposal, and/or removal must be clearly identified in the closure cost estimate.
    7. For all estimates submitted after November 1, 2001, submit a NORM screening survey of the facility.

NORM screening surveys should be performed using a scintillation meter with a sodium iodide detector, with the results reported in microroentgens per hour. 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: 3/4/2016 11:48:19 AM