Investigation Summary Report 2015-007: Pengrowth Energy ... · according to Pengrowth’s Management Information Circular for annual meeting, April 2016 it has a market capitalization

Investigation Summary Report 2015-007: Pengrowth Energy Corporation

Pipeline Licence No. 3995

February 8, 2017

Investigation number:

2015-007

Responsible parties:

Pengrowth Energy Corporation Business Associate code: A5R5

Field centre of origin:

St Albert/Edmonton Regional Office

Incident location (nearest town):

04-31-064-11W5M, about 27 km southwest of Swan Hills, AB (Municipal District of Big Lakes)

Pipeline release date:

March 19, 2015

Authorization numbers and relevant legislation, regulations, and rules:

Pipeline licence no. 3995, line no. 16

Alberta Energy Regulator

Investigation Summary Report 2015-007: Pengrowth Energy Corporation; Pipeline Licence

No. 3995

February 8, 2017

Published by


Suite 1000, 250 – 5 Street SW

Calgary, Alberta

T2P 0R4

Telephone: 403-297-8311

Inquiries (toll free): 1-855-297-8311

Email: [email protected]

Website: www.aer.ca

mailto:[email protected]


Investigation Summary Report 2015-007: Pengrowth Energy Corporation; Pipeline Licence No. 3995 i

Contents

Summary ....................................................................................................................................................... 1

Company Overview ................................................................................................................................ 1

Pipeline and System Overview ............................................................................................................... 1

Incident Overview ................................................................................................................................... 2

Response ................................................................................................................................................ 3

Release Footprint and Environmental Impact ........................................................................................ 5

Investigation Findings and Potential Contraventions .................................................................................... 7

Failure Analysis ...................................................................................................................................... 7

Contravention 1 ...................................................................................................................................... 9

Findings ........................................................................................................................................ 9

Supporting Evidence ..................................................................................................................... 9

Contravention 2 .................................................................................................................................... 10

Findings ...................................................................................................................................... 10

Supporting Evidence ................................................................................................................... 13

Findings ...................................................................................................................................... 13

Supporting Evidence ................................................................................................................... 14

Due Diligence .............................................................................................................................................. 14

Compliance History ..................................................................................................................... 15

Mitigating Factors ................................................................................................................................. 16

Aggravating Factors ............................................................................................................................. 16

Conclusion and Recommended Counts ..................................................................................................... 17

Conclusion................................................................................................................................................... 17

Count 1 ................................................................................................................................................. 17

Count 2 ................................................................................................................................................. 17

Count 3 ................................................................................................................................................. 17


Investigation Summary Report 2015-007: Pengrowth Energy Corporation; Pipeline Licence No. 3995 1

Summary

Company Overview

Pengrowth Energy Corporation is an intermediate Canadian oil and natural gas producer with

headquarters in Calgary, Alberta. Established in 1988, it is a large Canadian royalty trust company, and

according to Pengrowth’s Management Information Circular for annual meeting, April 2016 it has a

market capitalization of $1.95 billion and gross asset value of $6.17 billion as of December 31, 2014.

Pengrowth’s average daily production as of September 30, 2016, was 55 137 barrels of oil equivalent per

day with a production mix of 20% light oil, 28% heavy oil, 13% natural gas liquids, and 39% natural

gas.

Pipeline and System Overview

The Virginia Hills pipeline is part of the solution gas gathering system for the Pengrowth Judy Creek

Production Complex located in the Swan Hills area. The system was originally installed in 1964 by

Imperial Oil Ltd. and was purchased by Pengrowth in March 2000. The pipeline, licence number 3995,

consists of six line segments. Two of the segments (lines 11 and 13) are 273.1 millimetres (mm; 10

inches) outside diameter (OD) and run for 12.78 kilometres (km) from Legal Subdivision (LSD) 16,

Section 34, Township 64, Range 13, West of the 5th Meridian (16-34-065-13W5M) to a riser and

pigging station at LSD 04-36-064-12W5M (4-36 riser). The remaining four line segments (lines 16, 18,

30, and 31) are 323.9 mm (12 inch) OD and make up the remaining 11.23 km of pipeline running from

the 4-36 riser to the Pengrowth gas plant located at 10-25-064-11W5M (10-25 gas plant). The subject

pipeline (line 16) has been in service for approximately 51 years.

Source: Corrpro Canada Inc. cathodic protection survey report

Figure 1. Pipeline licence 3995, showing integrity digs, initial failure location, and pipe size change

According to AER records, line 16, which runs from the 4-36 riser to 08-29-064-11W5M, is 4.57 km

long and connects to line 18, which connects to the 10-25 gas plant. This segment of pipeline is

323.9 mm OD, carbon steel, type 5L, grade B pipeline and is coated with a high-density extruded

polyethylene “yellow jacket.” The line is licensed for sour service with a maximum hydrogen sulphide

4-31

failure

location

4-36 pig sender. 10 to

12 inch size transition.

Start of line 16. Line 18 to 10-25

gas plant

14-28 (line 13)

integrity dig in

March 2012

Line 16, no

corrosion

monitoring

13-25 (line 11)

integrity dig in

March 2012


2 Investigation Summary Report 2015-007: Pengrowth Energy Corporation; Pipeline Licence No. 3995

(H2S) concentration of 3000 parts per million (ppm). The maximum licensed operating pressure is 1380

kilopascals (kPa), and the normal operating pressure is approximately 140 kPa.

Incident Overview

In the evening of March 19, 2015, the St. Albert Field Centre (SAFC) was receiving complaints from

operators in the Swan Hills area about having to flare their solution gas as a result of an unplanned sales

gas pipeline outage. At 6:42 p.m., the AER contacted Pengrowth about to inquire about the status of their

lines. Pengrowth responded that they believed their Swan Hills sales gas gathering pipeline had failed.

The 10-25 gas plant accepts raw gas via the subject pipeline from five other producers in the Swan

Hills / Judy Creek area. Below is a list of those producers and the current status of gas production

activities for each facility/well as a result of the Pengrowth pipeline outage:

Coral Hill Energy Ltd. (now Crescent Point Energy Corp.)

04-12-066-13W5M battery – 36.6 103 cubic metres per day (m

3/day). This facility curtailed 75% of

their gas production at the outset of the outage for approximately three months. Due to downhole

issues associated with an extended outage, they were allowed to restart 25% (running at 50%

production) of their production for approximately 10 months until a new short segment of pipeline

could be built and tied into an existing 114.3 (4 inch) pipeline going back to the 10-25 gas plant.

Penn West Petroleum Ltd.

06-32-064-12W5M – 1.3 103 m

3/day. Currently shut in.

11-08-065-12W5M – 0.0 103 m


Lightstream Resources Ltd.

08-25-065-14W5M – 3.4 103 m


White Ram Resources Ltd.

12-19-064-11W5M – 6.3 103 m


Crescent Point Energy Corp.

01-19-064-13W5M – 1.3 103 m


16-30-064-13W5M – 0.4 103 m


14-30-064-13W5M – 2.3 103 m


The potential pipeline failure was reported to Pengrowth by an individual inspecting an adjacent pipeline

in the same pipeline right-of-way (RoW) belonging to Pembina Pipeline Corp. The release was identified

at about 3:00 p.m. and located at 04-31-064-11W5M, approximately 48 km north of Whitecourt, Alberta,

and about 22 km southwest of Swan Hills. Initial indications of the release were hydrocarbon and H2S



odours, dark liquids and staining on the ground surface, and the sound of gas releasing at surface where

the release was first identified. The released volume was estimated at 20 m3 hydrocarbon condensate

(liquid) with some water condensate. Released fluids migrated in a northeast direction (downhill)

approximately 330 metres (m) on and off the RoW then migrated into a secondary tributary that flows

into the Freeman River, a fish-bearing watercourse downstream from the point of entry (PoE).

Subsequent to this initial release, on April 8, 2015, additional release areas were identified west of the

initial PoE and excavation area along the RoW. In total, nine additional release areas (known in the

Pengrowth information request response as investigation areas A through I) were identified, greatly

increasing the release footprint.

Response

On March 20, 2015, at 6:47 p.m., the SAFC, in consultation with the AER’s Field Incident Response and

Support Team (FIRST), classified this event as a level-1 emergency based on the AER’s assessment

matrix for classifying incidents in Directive 071: Emergency Preparedness and Response Requirements

for the Petroleum Industry. This emergency level was agreed upon by both the AER and Pengrowth.

Because the release migrated into an unnamed fish-bearing watercourse, and an aquatic assessment of

the stream shore and bed could not be completed until analytical results from sampling could be

evaluated, the level-1 emergency was deemed appropriate by provincial regulatory and responding staff.

Pengrowth immediately shut down and isolated the suspected pipeline and mobilized response crews to

confirm the failure. Once the line was depressurized and the area deemed safe, personnel began initial

response/recovery activities. The released fluids migrated in a northeast direction (downgradient)

approximately 330 metres on and off Pengrowth and Pembina Pipeline Corporation (Pembina) pipeline

RoWs. The released fluid then migrated into an unnamed, fish-bearing secondary tributary which

intersects with the Freeman River downstream from the PoE.

In response to the release, Pengrowth contracted the services of SWAT Consulting Inc., Aquality

Environmental Consulting Ltd., and Millenium EMS Solutions Ltd. to assist with spill remediation and

to develop and implement water, and soil monitoring plans. The AER requested an evaluation of the

entire tributary up to its confluence with the Freeman River; however, it was deemed unsafe to continue

the assessment beyond 2 km downstream (northeast) of the POE because the ice became unstable and

there was no condensate observed further downstream in the unnamed creek.

Pipe at all ten failure locations were evaluated, and the corrosion mechanisms appeared to be identical

(see figure 4for in-field pipe analysis). Spill response and assessment activities included pipeline

daylighting, surficial soil sampling, removal of visibly affected soil, surface water sampling, soil and

groundwater investigation, and remedial excavation of affected soil.



Figure 2. Map of area with spill locations

The incident did not receive media attention. Pengrowth notified Environment Canada, the AER, Alberta

Environment and Parks (wildlife biologist), the municipality, and Driftpile, Kapawe’no, Sawridge,

Sturgeon Lake, and Swan River First Nations bands. The incident was downgraded from a level-1 to a

level-0 emergency on March 27, 2015.



Release Footprint and Environmental Impact

The site lies within an area known as the Lower Foothills Natural Subregion. The subject pipeline runs

in an east-west direction within a 15 m RoW. The areas affected (10 failure locations) extend over

approximately 2.5 km in an area that starts from the low-lying PoE heading upgradient to the west.

The topography is hilly with low-lying areas typically consisting of muskeg, seasonal watercourses, and

streams. Typical plant species in the area consist of aspen, balsam poplar, white birch, lodgepole pine,

black spruce, white spruce, balsam fir, and tamarack. No rare plant species or rare and sensitive

vegetation communities have been reported in the area of the release. However, the pipeline failure and

subsequent spill occurred within grizzly bear habitat and about 400 metres from a key wildlife

biodiversity area (see figure 3).

In a SIR response [dated/received] November 23, 2016, Pengrowth stated that the remediation and

reclamation work was complete, and they provided the following information:

The total [footprint or affected area] including reclamation activities (e.g., vehicle traffic) was

45 000 square metres (m2), but only 4300 m

2 showed visible signs of condensate on the surface.

14 807.62 tonnes (~12 340 m3) of soils and organic materials and approximately 4709 m

3 of

water/hydrovac slurry were removed.

There was no wildlife (including amphibians and fish) affected by the condensate release itself. Fish

species captured during the fisheries habitat assessment did not exhibit any deformities, lesions, or

diseases. In total, two water shrews (drowned in a minnow and a pitfall trap), a masked shrew

(drowned in a pitfall trap), and a wood frog (crushed by an on-site vehicle) were found deceased.



Figure 3. Pipeline failure and spill in proximity to sensitive habitat

The ten failure locations are within grizzly bear

habitat and about 400 metres south of a key wildlife

biodiversity area

Grizzly bear habitat border

Key wildlife biodiversity areas



Figure 4. Significant internal corrosion features (pitting) on pipe evaluated at other failure locations

Investigation Findings and Potential Contraventions

Failure Analysis

Skystone Engineering Lp was contracted to do a metallurgical assessment of the failed segment of pipe

and draft a report detailing the potential causes or mechanisms of failure.

Skystone’s analysis determined that internal pitting corrosion was the cause of failure for the submitted

sample of pipe (a one-metre segment taken from the first failure location) . H2S corrosion and

microbiologically influenced corrosion (MIC) were the two main processes identified. Skystone also

identified the following additional factors:

Dehydrators were not operating. Water was present inside the pipeline.

Gas phase contained 1200–1500 ppm H2S.

The line was not pigged after 2013. The internal surface was covered with a scale and contained

corrosion/mineral deposit at the bottom.

A continuous inhibitor was injected to prevent corrosion. Corrosion processes occurred underneath

the scale/deposit, which did not allow the continuous corrosion inhibitor to reach the metal surface.

It was questionable if the continuous corrosion inhibitor applied (CG09178C) could prevent MIC if

MIC had already been established in the line.

The mechanisms that led to the failure of the Pengrowth Virginia Hills gas pipeline and the consequent

spill of hydrocarbon condensate were compounded by the absence of pigging and a pipeline integrity



management program for this segment of pipe—standard practices in the pipeline industry. Pigging the

line is necessary to keep it clean internally, and an integrity management program would have helped to

detect and monitor internal corrosion features and monitor for other potential failure threats to the

pipeline. These practices help to ensure safe pipeline operations and compliance with the Pipeline Act,

Pipeline Rules and CSA Z662. In addition, the flow of gas in the pipeline of this size was indicated to

have been at a very low rate, which may have allowed water and entrained solids to drop out and build

up along the bottom of the pipe, providing a supportive environment for under-deposit corrosion.

Because the primary cause of the failure and failure mechanisms had been established by Skystone, the

AER investigated several other risk factors when assessing the causes of this pipeline failure. These

factors took into account risks or combinations of risks that are considered in CSA Z662, the National

Association of Corrosion Engineers’ recommended practices, industry-recommended practices, and the

investigator’s applied knowledge and experience. The risk factors that the AER focused on were

operating procedures,

construction practices (pipe handling or backfill procedures),

maintenance and repair (cleaning/pigging),

internal/external corrosion monitoring and mitigation,

leak detection systems and processes, and

training.

After considering all the evidence collected through the investigative process and the information

gathered from initial and supplementary information requests, the investigator had grounds to believe the

following:

The release caused an adverse effect to the environment—specifically, the total of the condensate-

impacted areas was 4360 m2 and the total area affected by the response was 40 640 m

2. The total release

footprint with work areas and staging areas was about 4.5 hectares. The release affected local vegetation

and an unnamed fish-bearing watercourse; approximately 14 807.62 tonnes (~12,340 m3) of soils and

organic materials were also removed from the affected areas.

An evaluation of Pengrowth’s chemical corrosion inhibition program by Baker Petrolite Ltd.

(Pengrowth’s chemical vendor) of Pengrowth’s Swan Hills gas gathering system indicated a potential for

high corrosion rate on this pipeline.

The corrosion monitoring and mitigation program for this segment of pipeline was insufficient.



This segment of line experienced ten separate failures within a 2.5 km section of the 4.57 km segment,

and the internal corrosion features observed on other pipe segments evaluated after the failure indicated a

systemic corrosion condition.

The investigation has uncovered contraventions of legislation under the jurisdiction of the AER, some of

which are also offences that can be prosecuted by the Crown. The following are the contraventions that

are also offences:

Contravention 1

Legislation/Guideline name Section Citation

Public Lands Act 54(1) No person shall cause, permit or suffer (a.1) loss or damage to

public land

Public Lands Act (Prohibitions) 56(1) A person who…(g) contravenes section 53, 54, 54.01(2), (3),

(4) or (5), 57, 58 or 69.6 is guilty of an offence

Findings

The release caused damage to public land.

The release occurred in the Swan Hills, Judy Creek area on Crown land within grizzly bear habitat and

about 400 m south of a key wildlife biodiversity area. The total area impacted by the ten releases

encompassed approximately 45 000 m2 (4.5 hectares) of previously disturbed (pipeline corridor) and

undisturbed (off the pipeline RoW) public lands (this includes the surface areas required for access to the

release sites and work/staging areas). Once delineated, a total of 14 807.62 tonnes (~12 340 m3) of soils

and organic materials were removed from the affected areas. In addition, approximately 4709 m3 of

water/hydrovac slurry was removed from the affected areas.

Supporting Evidence

Millenium EMS Solutions Ltd.’s weekly summary issued July 13, 2015, indicating excavation

activities for areas D, E, and F and file pictures showing significant excavation activities at areas A,

B, E, and F.

Email from Pengrowth’s environmental advisor indicating total area impacted and volumes of soils

and water removed from the sites.

Situation reports indicating remedial activities for soil removal; creek, ground, and surface water

monitoring activities; and waste management activities. Included with the reports are pictures of

these activities.



Contravention 2

Legislation/Guideline name Section Citation

Pipeline Rules

7(1)

Operations, maintenance and integrity management

manuals

A licensee shall prepare and maintain a manual or

manuals containing procedures for pipeline operation,

corrosion control, integrity management, maintenance

and repair and shall on request file a copy of each

manual with the Regulator for review.

Pipeline Rules

7(3) Operations, maintenance and integrity management

manuals

A licensee shall…(b) be able to demonstrate that the

procedures contained in the manuals are being

implemented

Pipeline Act 52(2)(a)

A person who (a) whether as a principal or otherwise,

contravenes any provision of this Act or of the rules or of

any order, direction or licence under this Act,

is guilty of an offence

Findings

Pengrowth failed to demonstrate that they implemented their procedures.

Section 6.6, “Mitigation Program Management,” of Pengrowth’s pipeline operations and maintenance

manual (POMM) indicates the following for internal corrosion control (pg. 43, first clause):

Scope

This section describes the responsibilities and requirements for the following:

Internal and external corrosion control

o Pigging for corrosion control

o Chemical inhibition programs (continuous inhibition and batching)

Pengrowth’s POMM also indicates the following for internal corrosion control (pg 43,

“Responsibilities/Internal Corrosion Control,” fourth bullet):

Operations Personnel will execute the pigging & batching program as per the approved schedule

and document activities for compliance.

According to Pengrowth, pigging on this pipeline had not occurred since February 2014. Pigging is

standard practice as a means to mitigate corrosion because it removes the build-up of scale, clears

deposits of sessile bacteria (the failure mechanism detailed in Skystone’s report), and clears the line of

water in low points. Pengrowth was also unable to provide the AER with pigging information for this

line before February 2014, and there was no approved pigging schedule as required by their POMM.



Pengrowth stated that they discontinued pigging operations in 2014 due to valve problems and scheduled

the replacement of these valves for June 2015, during the Judy Creek gas conservation plant turnaround.

Canadian Standards Association (CSA) Z662, clause 11.26.8.1 “Control and Safety Devices” states as

follows:

Control and safety devices shall be inspected and tested at least annually to determine that such

devices are functioning properly. Records of such tests and inspections, including any corrective

actions taken, shall be kept.

For employee and public safety and pipeline integrity reasons, Pengrowth should have initiated a

pipeline outage early in 2014 to conduct the repairs necessary to get the control valves in working order

instead of waiting about 16 months for the next planned major plant turnaround.

On Page 44 of Pengrowth’s POMM under the “Requirements for Internal Corrosion Control” heading

are the following statements:

Internal mitigation program shall be established based on an evaluation of the following;

o Mitigation recommendations from the chemical vendor;

o Mitigation recommendations from Integrity Engineering;

o Field operations experience.

Pigging and batching activities will be tracked for audit and compliance reporting

purposes using the Pig and Batch Tracking Form, or alternate form capturing the

following items at a minimum:

o Pig or batch run (pipeline license number(s), send and receive location);

o Pig type(s) used (serial numbers, if available);

Pengrowth’s chemical vendor evaluated the chemical corrosion inhibition program in August 2014 and

determined that there was a corrosive environment present in this pipeline. The evaluation indicated;

the internal corrosion rate in this pipeline was moderate to severe – ranging from 1.67 to 88.15

millimetres per year,

high Co2 and high temperature had significant impact on the calculated corrosion rates,

there is H2S in the gas stream which may lead to localized pitting and

there is no scheduled pigging maintenance program to remove solids that may

accumulate in low flow conditions. Potential for under deposit corrosion exists.

Although Pengrowth was injecting chemical on a continuous basis into the line, they were not batch

pigging or maintenance pigging (monthly cleaning with a squeegee pig) and did not have any pigging

records (or tracking forms) available. Pengrowth indicated that no pigging activities took place from

about the beginning of February 2014. Further, Pengrowth could not provide any direct internal



corrosion evaluations (integrity dig, in-line-inspection or corrosion coupon analysis) of the subject

pipeline when requested.

Pengrowth has a “management of change” policy in place; however, this policy was not being adhered to

for this pipeline (pg. 43, “Responsibilities/Internal Corrosion Control,” sixth bullet):

The Asset Integrity Coordinator shall use the Management of Change (MOC) Procedure to evaluate

changes to the mitigation programs.

Pengrowth had a corrosion monitoring device (corrosion coupon extraction fitting) in place for this

pipeline on the pig receiver/riser located outside the fence at the 10-25 gas plant (see figure 5). Piping

modifications on the riser near the fitting resulted in the coupon access being obstructed, which

prevented the coupon vendor (Caproco Ltd) from installing and monitoring corrosion coupons for this

section of pipeline. While this omission did not lead directly to the pipeline failure, information gathered

from corrosion coupon history may have revealed a corrosion issue in this pipeline, and Pengrowth staff

may have been able to mitigate the corrosion before the pipeline failure.

Picture of main gas pipeline riser at

10-25 gas plant (near pig receiver).

Corrosion coupon extraction fitting

installed too close to pipe rack and

too close to the ground to

accommodate coupon extraction

tools.



Figure 5. Corrosion coupon extraction fitting at 10-25 gas plant (pig receiver)

Supporting Evidence

Pengrowth Document 21, “Virginia Hills Root Cause Investigation Report.”

Pengrowth Document 37, “Pipeline Operations and Maintenance Manual.”

Pengrowth Document 38, “Management of Change Procedure.”

Contravention 3

Legislation/Guideline Name Section Citation

Pipeline Rules

54(1) Annual evaluation for internal corrosion mitigation

Unless otherwise authorized by the Regulator, a

licensee shall conduct and document an evaluation of

any operating or discontinued metallic pipelines in a

pipeline system to determine the necessity for, and the

suitability of, internal corrosion mitigation procedures

(a) annually

Pipeline Act 52(2)(a)

A person who (a) whether as a principal or otherwise,

contravenes any provision of this Act or of the rules or

of any order, direction or licence under this Act,

Is guilty of an offence

Findings

Pengrowth failed to evaluate the internal corrosion mitigation program for the pipeline annually.

The investigation determined that the internal corrosion mitigation program for this segment of pipeline

was not being evaluated annually as required by section 54 of the Pipeline Rules. Pengrowth was unable

to provide in-line inspection records for this segment of pipeline and was unable to provide analysis of

solids received at the pig receiver (at the 10-25 gas plant) because the pipeline was not pigged since

February 2014 and no pigging records could be produced for dates before then.

Pengrowth conducted an integrity dig program in March 2012 consisting of ultrasonic thickness tests and

radiographic examination (X-ray) of this pipeline at two locations (lines 11 and 13) upstream of the 4-36

riser (pigging facility) where the pipeline changes from 273.1 mm (OD) to 323.9 mm (OD). Two

integrity dig locations were surveyed downstream of the 4-36 riser and upstream of the 10-25 gas plant;

however, access limitations during the spring of 2012 prevented Pengrowth from evaluating the pipe at

these locations. For unknown reasons, Pengrowth did not return to evaluate the pipeline when conditions

improved. Pengrowth did not provide any documentation to the AER indicating that an internal

corrosion evaluation of this pipeline past the 4-36 riser to the 10-25 gas plant had been completed

since 2010.



Pengrowth had a corrosion monitoring device (corrosion coupon fitting) in place for this pipeline on the

pig receiver/riser located outside the fence at the 10-25 gas plant. Piping modifications on the riser near

the fitting resulted in a coupon access obstruction, which prevented the coupon vendor (Caproco Ltd.)

from installing and monitoring corrosion coupons for this section of pipeline. While this omission did

not lead directly to the pipeline failure, information gathered from corrosion coupon history may have

revealed a corrosion issue in this pipeline, and Pengrowth staff may have been able to mitigate the

corrosion before the pipeline failed. Pengrowth should have installed the corrosion monitoring device at

a different location on the line so that evaluations could be carried out by their vendor.

Supporting Evidence

Pengrowth cover letter response 2015-007. Item #7 requesting Pengrowth’s Integrity Management

Plan for this pipeline and associated pipeline system (second bullet).

Pengrowth cover letter response 2015-007. Item #7 requesting Pengrowth’s Integrity Management

Plan for this pipeline and associated pipeline system (fourth bullet).

Pengrowth document 23, Skystone Report, Virginia Hills Final (section 6.0, “Conclusion”).

Pengrowth document 21, Virginia Hills Root Cause Investigation Report (“Root Cause 1:

Management of Change”).

Due Diligence

Section 54(2) of the Pipeline Act and section 59(3) of the Public Lands Act each provide a defence to

certain offences—namely, if an operator takes all reasonable steps to prevent the commission of an

offence, they will not be convicted. This is what we call “due diligence.” Having established the

contraventions above, it is necessary to determine whether the facts establish a defence to the

contraventions.

After a review of all information available, Pengrowth has not met the standard for due diligence for the

following reasons:

1) Although there were pigging facilities available on this pipeline, Pengrowth stopped pigging this

pipeline in February 2014, indicating that there were valve seating issues at the main plant that made

pigging operations unsafe. There was a pipeline size change from 273.1 mm (10 inch) to 323.9 mm

upstream of the failure location. This step change occurred at the riser located at 4-36 which is also a

pigging station. Based on the service conditions present in this pipeline (low/laminar flow regime, some

water, H2S and CO2, large diameter pipe) and an indication from their chemical supplier that a corrosion

risk was present, prudent and safe operation practices should have been to repair the valves to facilitate

pigging the line.



2) Pengrowth was unable to provide assessment information for this pipeline segment dating as far back

as 2010. Other than a pipeline corrosion mitigation recommendation from Baker Petrolite of specific

chemical inhibition, there was nothing indicating the condition of the pipeline from the 4-36 riser and

pigging station to the 10-25 gas plant for the previous five years.

Compliance History

Table 1. AER inspection results for Pengrowth, 2010 through 2014

Inspection Type

Number # Low

Risk

% Low

Riska

# High

Risk

% High

Riska

# Satisfactory

% Satisfactory

a

Drilling 27 3 11.11

(−2.69)

2 7.41 (−1.52)

22 81.48 (−4.22)

Drilling waste 5 0 0.00 (−9.61)

0 0.00 (−9.9)

5 100.00 (+19.51)

Gas facility 181 51 28.18 (+5.83)

2 1.11 (−0.85)

128 70.72 (+4.61)

Oil facility 104 15 14.42 (−2.19)

1 0.96 (−0.85)

88 84.62 (+3.05)

Pipeline 136 9 6.62 (−1.99)

7 5.15 (−6.46)

120 88.24 (+8.46)

Well service 12 1 8.33 (+1.83)

0 0.00 (−2.51)

11 91.67 (+0.68)

Well site 181 23 12.71 (−1.95)

4 2.21 (+0.59)

154 85.08 (+1.36)

Totals 646 102 15.79 (+0.26)

16 2.48 (−0.73)

528 81.73 (+0.47)

Source: Field Inspection System. a The number in parentheses is the difference between Pengrowth’s percentage and industry average.

Table 2. The Government of Alberta’s enforcement history for Pengrowth, 2000 through 2014

Accountable

party

Action Decision

date/penalty

Municipality

Legal

Description

Acts

and

sections

Comments/disposition

Pengrowth

Energy Corp

Warning

Letter

17-Mar-2009 Cypress

County

NE-34-019-09

W4M

AEPA

(R)

227 (e)

The company operates the Jenner Sour

Gas Processing Plant pursuant to an

approval. It contravened its approval

with the failure to submit monthly air

monitoring reports from February to

December of 2007. These reports were

not received until November 4, 2008.

Pengrowth

Energy Corp

Warning

Letter

21-Jan-2013 MD of Provost

NE-21-037-07

W4M

WA 142

(1)(e)

The company contravened its licence

with the annual groundwater diversion

allocation for 2011 being exceeded.

Source: Environmental Law Centre.



Mitigating Factors

Based on recommendations from its chemical supplier, Pengrowth was injecting corrosion mitigation

chemicals into the line on a continuous basis.

Pengrowth conducted an integrity dig program in 2012 on two separate locations upstream of the failure

location and did not find corrosion features significant enough to warrant shutting that specific segment

of the pipeline down and doing more evaluation or repairs. Due to seasonal access issues, they were

unable to do the integrity digs that were intended on the failed segment of line when the first two were

completed.

Pengrowth had scheduled an in-line inspection of the pipeline in June 2015; however, the failures in

March 2015 and subsequent abandonment of the line prevented Pengrowth from doing the inspection.

Pengrowth carried out an effective response to the release. The line was immediately shut down and the

source of the spill isolated. The area has since been remediated to the satisfaction of the AER.

Pengrowth’s percentage of inspections resulting in high-risk noncompliance is slightly below industry

average, and their overall satisfactory inspection percentage is slightly above industry average (see tables

1 and 2).

Aggravating Factors

A sufficient corrosion monitoring and mitigation program may have prevented the internal corrosion that

was present on the 4.57 km segment of pipeline. A total of ten failures were recorded in a 2.5 km section

of the line and significant corrosion features were evident when pipe at the other failure locations was

exposed and evaluated after the failure.

Pengrowth stopped pigging this pipeline in February 2014. Based on the service conditions present in

this pipeline (low/laminar flow regime, some water, H2S and CO2, large diameter pipe) and an indication

from their chemical supplier that a corrosion risk was present, prudent operation practices should have

been to pig the line.

Pengrowth was unable to provide assessment information for this pipeline segment dating as far back as

2010. Other than a pipeline corrosion mitigation recommendation Baker Petrolite of specific chemical

inhibition, there was nothing submitted indicating the condition of the pipeline from the 4-36 riser and

pigging station to the 10-25 gas plant for the previous five years.

Pengrowth shut in and abandoned this pipeline. An indirect environmental and resource management

result of this outage is that operating companies that relied on this pipeline to process their solution gas

were forced to flare or shut in their gas production.



Conclusion and Recommended Counts

Conclusion

The investigation into the pipeline failure reported on March 19, 2015, has identified contributing factors

leading to the pipeline failure and three potential contraventions of the Pipeline Act, Pipeline Rules, and

the Public Lands Act. The investigation finds that Pengrowth did not demonstrate due diligence in

relation to the contraventions found.

The following counts are recommended.

Count 1

On or about the 19th day of March 2015, at or near Swan Hills, in the Province of Alberta, Pengrowth

did cause damage to public lands. This is contrary to section 54(1) of the Public Lands Act, which states

“no person shall cause, permit or suffer (a.1) loss or damage to public land, which is an offence under

56(1) of the Public Lands Act,” which also states that “a person who…(g) contravenes section 53, 54,

54.01(2), (3), (4) or (5), 57, 58, or 69.6 is guilty of an offence.”

Count 2


failed to demonstrate that the procedures contained in their operations, maintenance and integrity

management manuals were being implemented. This is contrary to section 7(3) of the Pipeline Rules,

which states that “a licensee shall…(b) be able to demonstrate that the procedures contained in the

manuals were being implemented.” This is an offence under section 52(2)(a) of the Pipeline Act, which

states that “a person who;(a) whether as a principal or otherwise, contravenes any provision of this Act

or of the rules or of any order, direction or licence under this Act, is guilty of an offence.”

Count 3


failed to conduct and document an annual evaluation of the subject pipeline to determine the necessity for,

and the suitability of, internal corrosion mitigation procedures. This is contrary to section 54(1) of the

Pipeline Rules, which states that “unless otherwise authorized by the Regulator, a licensee shall conduct

and document an evaluation of any operating or discontinued metallic pipelines in a pipeline system to

determine the necessity for, and the suitability of, internal corrosion mitigation procedures.” This is an

offence under section 52(2)(a) of the Pipeline Act, which states that “a person who;(a) whether as a

principal or otherwise, contravenes any provision of this Act or of the rules or of any order, direction or

licence under this Act, is guilty of an offence.”

Investigation Summary Report 2015-007: Pengrowth Energy ... · according to Pengrowth’s Management Information Circular for annual meeting, April 2016 it has a market capitalization

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