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An Overview of the Uses of an

Holistic QMS Standard for


Improved Operational Performance in
the Oil & Gas Industries
James L. Gooding
Enterprise Management Solutions
Black & Veatch Corp.
September 16, 2008
Topics

z Overview of the Oil & Gas Industries


z Industry segmentation through the Carbon Value Chain
z Globalization of markets and infrastructure
z Complexity of projects

z QMS Standards in Practice


z Challenges for unified (holistic) QMS standards
z Recent history of QMS standards for the oil & gas industries
z Value of further harmonization of standards

z Summary

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Topics

z Overview of the Oil & Gas Industries


Industry segmentation through the Carbon Value Chain
z Globalization of markets and infrastructure
z Complexity of projects

z QMS Standards in Practice


z Challenges for unified (holistic) QMS standards
z Recent history of QMS standards for the oil & gas industries
z Value of further harmonization of standards

z Summary

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The New Carbon Value Chain

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Carbon Industry Segmentation: Upstream
z Upstream Energy
1. Extraction of natural carbon from
Earths sub-surface
2. Transportation of raw, natural
carbon to facilities where it can be
refined
Examples:
Oil & gas exploration & production
Oil & gas pipelines
Oil tankers
Coal mining
Coal barges & trains

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Carbon Industry Segmentation: Midstream

z Midstream Energy
3. Refinement of raw carbon into marketable commodities
4. Transportation of carbon commodities to markets
Examples:
Oil refineries
Petrochemical plants
Natural gas processing plants
Pipelines
Product storage facilities
Natural gas liquefaction plants
Liquefied natural gas (LNG) tankers

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Carbon Industry Segmentation: Downstream
z Downstream Energy
5. End-user distribution or consumption
of carbon commodities
a) Fuel to provide heating
b) Fuel to generate electrical power
c) Fuel to transport goods or people
d) Raw material for manufacturing
Examples:
Natural gas distribution companies
Electric power plants
Planes, trains & automobiles
Fertilizer, plastics & pharmaceutical
manufacturing

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Industrial Contrast of Gas vs. Oil

Pipelines Pipelines,
& Ocean Ocean Tankers
Oil Play Tankers Refinery or & Trucking Refined-
(with Petrochemical Product
Oil Liquid Fuels &
Associated Gas) Plant Chemical Markets
Feedstocks
Wet
Pipelines
Gas
Natural Gas
Liquids
Natural Gas Play Gas (NGLs)
Processing NGL Markets
(no Oil) Pipelines Plant Pipelines

Dry Natural
Gas (NG) NG Markets
Pipelines
Gas
Liquefaction
Plant Ocean Tankers

Page - 8 Holistic QMS Standards for the Oil & Gas Industries Sep 16, 2008
Topics

z Overview of the Oil & Gas Industries


z Industry segmentation through the Carbon Value Chain
Globalization of markets and infrastructure
z Complexity of projects

z QMS Standards in Practice


z Challenges for unified (holistic) QMS standards
z Recent history of QMS standards for the oil & gas industries
z Value of further harmonization of standards

z Summary

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Globalization of Crude Oil Markets

1 Tonne = 7.33 Barrels = 307.86 US Gallons


Source: BP Statistical Review of World Energy 2008

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Global Net Oil Movements

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Globalization of Natural Gas Markets

1.2

1 Billion m3 = 35.3 Billion ft3


= 0.73 Million Tonnes LNG
= 0.90 Million Tonnes Oil-Equivalent
Source: BP Statistical Review of World Energy 2008

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Global Net Natural Gas Movements

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Topics

z Overview of the Oil & Gas Industries


z Industry segmentation through the Carbon Value Chain
z Globalization of markets and infrastructure
Complexity of projects

z QMS Standards in Practice


z Challenges for unified (holistic) QMS standards
z Recent history of QMS standards for the oil & gas industries
z Value of further harmonization of standards

z Summary

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Complexity of Oil & Gas Projects as a
Challenge for QMS* Standards
z Many different companies employed for specialized skills
z Resource administration
z Exploration & drilling
z Equipment manufacturing
z Pipeline construction
z Production operations
z Shipping operations
z Geographically extended (global) supply chains
z Long lead times for project completion
z Typically 10-15 years from oil first discovered to commercial
production (sometimes faster for gas-only resources)
z Frequent mergers & acquisitions involving participating companies
* Quality Management System (QMS), possibly including also Safety & Loss Management System (SLMS) and / or Risk Management System (RMS)

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Complexity of Oil & Gas Projects
USA Natural Gas Pipelines

302,000 total miles as of 2007

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Complexity of Oil & Gas Projects
Example: The Independence Hub
z Location & Purpose
z Gulf of Mexico, Lease Block
Mississippi Canyon 920
z Produce & gather 1 Bcf / d of
natural gas and condensate from
Graphic credit: RigZone
10 different fields in 4 different
lease blocks
z Physical Challenges
z Deepest setting for pipelines &
risers: 8,000 ft (2,440 m)
Graphic credit:
z Deepest setting for a platform: Norsk Hydro ASA
8,000 ft
z Deepest sub-sea production: 9,000
ft (2,745 m)
z 15 sub-sea wells with 220 miles
(354 km) of sub-sea flow lines
z Gas travels 134 miles (216 km)
through Independence Trail pipeline
to platform in West Delta 68, where
it divides to separate shore bases
z Production Start: July 2007

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Complexity of Oil & Gas Projects
Example: The Independence Hub
z Co-Owners
z Enterprise Products Partners LP (80%)
z Helix Energy Solutions (20%)
z Producer Group
z Anadarko Petroleum Corp. (Leader / Manager)
z Kerr-McGee Corp. . . . which merged with
Anadarko
z Spinnaker Exploration Co. . . . which was acquired
by Norsk Hydro, which later merged into Statoil-
Hydro
z Dominion Exploration and Production Inc. . . . later
acquired by ENI Petroleum
z Constructor Contractors
z Atlantia Offshore Limited
z Heerema Marine Contractors
z Alliance Engineering
z Kiewit Offshore Services
z Allseas USA, Inc.
z Development Cost: $693 M Graphic credit: E&P

Page - 18 Holistic QMS Standards for the Oil & Gas Industries Sep 16, 2008
Topics

z Overview of the Oil & Gas Industries


z Industry segmentation through the Carbon Value Chain
z Globalization of markets and infrastructure
z Complexity of projects

z QMS Standards in Practice


Challenges for unified (holistic) QMS standards
z Recent history of QMS standards for the oil & gas industries
z Value of further harmonization of standards

z Summary

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Challenges for Unified (Holistic) QMS* Standards
in the Oil & Gas Industries
z Long-Standing Historical Segmentation
z Upstream - Midstream - Downstream
z Gas Industry related to - but not the same as - Oil Industry

z Uneven Globalization
z Regional differences exist both in business practices and in
preferred standards
z Complexity of Large Projects
z Many projects (especially Upstream) are joint ventures
z A single prime contractor usually employs several different sub-
contractors a diverse workforce with various corporate cultures

* Quality Management System (QMS), possibly including also Safety & Loss Management System (SLMS) and / or Risk Management System (RMS)

Page - 20 Holistic QMS Standards for the Oil & Gas Industries Sep 16, 2008
Topics

z Overview of the Oil & Gas Industries


z Industry segmentation through the Carbon Value Chain
z Globalization of markets and infrastructure
z Complexity of projects

z QMS Standards in Practice


z Challenges for unified (holistic) QMS standards
Recent history of QMS standards for the oil & gas
industries
z Value of further harmonization of standards

z Summary
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Recent History of QMS* Standards for the
Oil & Gas Industries
ISO/TS 29001:2007 API Q1
7
ISO/TS 29001
plus API
ISO/TS 29001:2003 admin reqs.
Detailed, sector-specific
requirements for:
ISO 9001:2000 Design
General requirements with Development
wide applicability Production
Installation
Service
American -----
Petroleum Emphasis on
independent
Institute assessments of:
(API) Design reviews
Product / service
acceptance
ISO 9001:1994 Internal audits

* Quality Management System (QMS), possibly including also Safety & Loss Management System (SLMS) and / or Risk Management System (RMS)

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Comparative Review & Approach to an Holistic
QMS* Standard for the Oil & Gas Industries
ISO ISO ISO API
CSA European
QMS Element 29001 29001 9001 Q1 BQ
Z662.01- Directive
(Harmonized) - - - (7th 9000
07 97 / 23 / EC
2003 2007 2000 Ed.)

1. Management Responsibility
ASQ-EED Gas & Oil Committees Analysis:
2. Resource Management
3. Product, Service, Project or
z Compare & contrast seven (7) existing
Operation Realization standards, including special O&G issues
4. Design and Development z Safety & Loss Management
(including selection of materials) z Risk Management
5. Purchasing z Producers
6. Production and Service Provision
z Suppliers
(including construction and
installation) z High-pressure equipment
7. Measurement, Analysis and z Harmonize comparable elements to
Improvement (including approach an Holistic Standard
Continuous Improvement)
* Quality Management System (QMS), possibly including also Safety & Loss Management System (SLMS) and / or Risk Management System (RMS)

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Harmonized Elements in a Possible Holistic QMS*
Standard for the Oil & Gas Industries
No. Major
QMS Element (Harmonized) Major Responsibilities
Requirements
z Demonstrate top management commitment
1. Management Responsibility and clearly communicate same to 3
employees & contractors
z Assure that necessary resources are
2. Resource Management available and that performance standards 8
are clear to employees & contractors
3. Product, Service, Project or z Develop, document and implement specific
9
Operation Realization plans & procedures for accomplishing work
z Develop and implement specific procedures
4. Design and Development
for design and documentation of design 6
(including selection of materials)
conformance
z Implement procedures for control of
5. Purchasing 1
suppliers and all purchased products
6. Production and Service z Develop, document and implement specific
Provision (including construction plans and procedures for delivery of 12
and installation) services, including safety & reliability
7. Measurement, Analysis and
z Implement procedures for monitoring,
Improvement (including 3
measuring and improving work processes
Continuous Improvement)
* Quality Management System (QMS), possibly including also Safety & Loss Management System (SLMS) and / or Risk Management System (RMS)

Page - 24 Holistic QMS Standards for the Oil & Gas Industries Sep 16, 2008
Topics

z Overview of the Oil & Gas Industries


z Industry segmentation through the Carbon Value Chain
z Globalization of markets and infrastructure
z Complexity of projects

z QMS Standards in Practice


z Challenges for unified (holistic) QMS standards
z Recent history of QMS standards for the oil & gas industries
Value of further harmonization of standards

z Summary

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Value of More Harmonized O&G QMS Standards
z Streamline quality assurance during hand-off of raw
carbon or refined carbon commodities
z Reduce variance among QMS standards along the Carbon Value Chain
z Enhance commerce by simplified administration of quality assurance
Example: Getting natural gas to the end-user
Midstream
Upstream Remove impurities & Downstream
Produce gas split liquids
Distribute to
Perform early Perform final metering retail markets
metering Ship to wholesale
markets
Examples of Dominant Influences Regarding Practices:
Minerals Management
Service (MMS) or Federal Energy Regulatory State Public Utility
Bureau of Land Commission (FERC) Commissions (PUCs)
Management (BLM) Gas Processors North American Energy
American Petroleum Association (GPA) Standards Board (NAESB)
Institute (API)
- - - - - American Gas Association (AGA) - - - - -

Page - 26 Holistic QMS Standards for the Oil & Gas Industries Sep 16, 2008
Value of More Harmonized O&G QMS Standards
z Facilitate Emerging & Evolving Interfaces with Other Energy
Industries . . .
z Electric-power generation, transmission & distribution
Nuclear as well as fossil fuels
z Coal mining industry
z Disposal of carbon waste (capture & sequestration)
z Alternative / renewable energy sources (wind, solar, hydro)
z . . . And Their Traditional Sources of Practices . . .
Edison Electric Nuclear Regulatory North American Electric
Institute (EEI) Commission (NRC) Reliability Corporation
(NERC)

Environmental Protection Emerging Standards


Agency (EPA) Organizations for
Capture & Sequestration
of Carbon Dioxide

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Summary
z Oil & Gas Industries Have Made Significant Progress
Toward a Unified Quality Management System (QMS)
z Functional differences between Gas & Oil industries have presented
challenges for a single, comprehensive QMS standard
z ISO/TS 29001 (derived from ISO 9001) initiated in 2003 but not yet
universally adopted
z Additional Value and Effort Remain in Further
Harmonization of Oil & Gas QMS Standards
z A uniform standard adopted along all portions of the Carbon Value
Chain (Upstream Midstream Downstream)
z Additional progress will require collaborations among professional
organizations that traditionally have influenced different portions of
the Carbon Value Chain
ASQ-EED Gas & Oil Committee could serve as
facilitator / catalyst for the industry-wide campaign
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Thank You
z This Presentation Was Brought to You By:
Gas & Oil Committee
Energy & Environmental Division
American Society for Quality

James L. Gooding
GoodingJ@bv.com
713-590-2264

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