Closure Cost Estimate Guidance

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

All commercial oilfield waste storage, processing and disposal facilities must maintain financial security, in the form of a bond or letter of credit, 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”, as required by Statewide Rule 78. 

Prior to submitting financial security, the operator must submit a closure cost estimate (CCE) for approval. There is no required form for the CCE, but it 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).

Plugging costs for any oil and gas wells or saltwater disposal wells at the facility are not required to be included in the CCE.

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). This must be requested at the time of application but should not be considered part of the CCE.

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 as part of the 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.

The CCE must be prepared or supervised and approved by a Professional Engineer (P.E.) licensed in the state of Texas and must show all assumptions and calculations used to develop the estimate.  Once a CCE is approved by Technical Permitting, an approval letter is sent to the operator requesting financial security in the agreed upon amount. The operator must then submit an approved bond (Form CF-1) or letter of credit (Form CF-2) which will be processed by the P-5 department in Austin.

Closure Cost Estimate Requirements

  1. The following assumptions must be used for the CCE:
    • The facility is in compliance with permit conditions.
    • The facility will be closed according to the permit or approved closure plan. Collecting pits must be dewatered, emptied and demolished prior to backfilling; landspreading facilities must meet closure sampling limits; disposal pits must be capped, closed and vegetated; all remaining waste must be disposed of at an authorized facility; and the site must be restored to its native state unless otherwise authorized by the permit. 
    • 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.
    • 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.
    • Storage tanks and pits contain basic sediment/sludge (BS&W). The typical volume calculated is 10% BS&W for each tank and pit. The BS&W volume must be representative of the tank and pit use and conditions at the time the estimate is calculated.
    • The estimate cannot assess a salvage value for any material or equipment at the site.
  2. Include costs for sampling and analysis of soil for the areas around each waste management unit, including tank batteries, pads, and former pits.
  3. Show unit costs for all material, equipment, services, and labor needed to close the facility.  Units and fees used must be appropriate for the type of waste material to be disposed. For example, disposal units for saltwater should be reported in oil barrels rather than gallons. The CCE must be specific and must state the source or basis for the specific unit cost.  For example, the estimate should specify:
    • The permitted waste hauler to be used and their mileage rate
    • The distance that waste will be transported for disposal
    • The name of each facility where waste will be taken and the disposal costs for that facility
    • The source of any material being brought to the facility, such as clean fill material
    • If fill dirt will be taken from the property, include calculations for dozer time and cost needed to move the fill dirt (see below for additional Restrictive Covenant requirements)
    • The total labor costs, including the titles and billing rates for personnel
    • The quantity of each unit cost item and how the total quantity was determined (for example, cubic yards of material divided by size of load equals total number of loads, etc.)
  4. Include maps and illustrations, such as: facility plans and photographs that show the current condition of the facility, and/or the condition of the facility upon reaching maximum permit conditions.
  5. For facilities with groundwater monitoring wells, include costs to plug and abandon the monitoring wells.
  6. For facilities that will require post-closure monitoring, such as disposal pits, include costs for a minimum of 5 years of monitoring.
  7. Show all calculations used to arrive at total maximum closure costs.
  8. A 10% contingency must 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)

If the submitted estimate includes lump sum values the written estimate must be provided. The estimate must include all closure activities covered by the lump sum agreement. 

Restrictive Covenant

If fill dirt will be excavated from the property, a Restrictive Covenant must be submitted with the CCE. The following requirements must be met whether the operator owns or leases the property:

  1. Provide a letter from the property owner 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 for closure.
  2. Submit an unsigned draft restrictive covenant on the form provided by the Commission (see template for Restrictive Covenant). Once the Commission approves the closure cost and closure plan, the operator will be notified to 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 must provide the Commission with a certified copy.
  3. If the facility operator leases the property, provide a copy of an amendment or addendum to the lease between the 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 initiate actions to close the facility.
  4. Submit supporting documentation showing that the dimensions of the restrictive covenant area can realistically store a stockpile in the amount needed. If soil will be excavated from the restrictive covenant area rather than stockpiled, the depth of the excavation is limited to what can be graded to prevent storm water from ponding in the excavated area.

If the above documentation is not provided, the CCE must assume that fill dirt must be purchased from a commercial supplier.