Investigation Summary Report 2014-022: Pengrowth Energy Corp. Licence No. P22822-048

April 2016

Investigation number: 2014-022

Responsible parties: Pengrowth Energy Corp., BA code A5R5 Field centre of origin: Slave Lake

Incident location (nearest town): 09-08-094-03W5M, about 82 km NE of Red Earth Creek Contravention date: January 18, 2014 (reported date)

Authorization numbers and relevant Licence no. P22822-048 legislation, regulations, and rules:

ISR 2014-022

Alberta Energy Regulator Investigation Summary Report 2014-022; Pengrowth Energy Corp.; Licence No. P22822-048

April 2016

Published by Energy Regulator Suite 1000, 250 – 5 Street SW , Alberta T2P 0R4

Telephone: 403-297-8311 Inquiries (toll free): 1-855-297-8311 E-mail: [email protected] Website: www.aer.ca

Alberta Energy Regulator

Contents

Summary of Facts ...... 1 Company Overview ...... 1 Incident Overview ...... 1

Investigation Findings ...... 2 Failure Analysis ...... 2 Hot Oil/Water Flushing ...... 2 Pigging ...... 3 Leak Detection ...... 4 Reporting of the Pipeline Leak ...... 5 Environmental Impacts ...... 5

Contraventions ...... 6 Contravention 1: Duty to Report a Release (EPEA, section 110(1)) ...... 6 Contravention 2: Duty to Take Remedial Measures (EPEA, section 112(1))...... 6 Contravention 3: Loss or Damage to Public Land (PLA, section 54(1)(a.1)) ...... 6

Due Diligence ...... 7

Compliance History ...... 7

Conclusion and Recommended Counts ...... 7 Count 1 ...... 7 Count 2 ...... 8 Count 3 ...... 8

Investigation Summary Report 2014-022: Pengrowth Energy Corp.; Licence No. P22822-048 i

Alberta Energy Regulator

Summary of Facts

Company Overview Pengrowth Energy Corporation (Pengrowth) is a Canadian oil and natural gas company based in Calgary, Alberta. Established in 1988, it is one of the largest of the Canadian royalty trusts, with a of $2.4 billion in 2014. Its assets are approximately evenly distributed between oil and natural gas.

The pipeline under investigation was licensed for multiphase liquids and was constructed in 1995 by Gulf Resources and purchased by Conoco Canada in 1998. Pengrowth Energy Corporation bought the pipeline in January 2007 as part of a larger purchase of Conoco Canada’s Red Earth assets.

Incident Overview On January 17, 2014, at 17:30 Mountain Daylight Time, a Pengrowth operator noted that no fluids were getting into the satellite battery at Legal Subdivision 1, Section 8, Township 94, Range 3, West of the Fifth Meridian, from the 09-08-094-03W5M well while trying to purge for a well test. The operator brought in a pressure truck nearby from Iron Eagle Hot Oiling Ltd. to pressure test the pipeline; however, at 19:05, Iron Eagle informed Pengrowth that the line maintained no pressure, indicating that the line had failed. Pengrowth shut in and isolated the pipeline, and activated its corporate emergency response plan. The pipeline is located at LSD 09-08-094-03W5M (09-08), about 82 kilometres northeast of Red Earth Creek.

On January 18, 2014, at 13:02, the Alberta Energy Regulator’s (AER’s) Energy and Environmental Emergency Response Line received a report from Pengrowth that the pipeline failed and that about 30 cubic metres (m3), or 30 000 litres, of production fluids (emulsion) was released onto its pipeline right- of-way (ROW) and had flowed on top of an adjacent frozen slough. Pengrowth reported that the spilled emulsion on the frozen slough was contained.

During the first few days of the response, it was determined that after travelling along the ROW, the released emulsion entered the slough via two ephemeral draws. The emulsion pooled on and off the ROW following surface contours and flowed both on and under the ice. The release may have caused an adverse effect to the environment and loss or damage to public land.

On April 17, 2014, after reviewing its well pumping data and battery volume reports, Pengrowth revised the spill volume to 537.2 m3 and estimated that the pipeline failure actually occurred sometime on November 11, 2013. This was the day after the last successful well test and all well parameters were within acceptable range, indicating that there was not a problem with the well or the pump, but rather with

Investigation Summary Report 2014-022: Pengrowth Energy Corp.; Licence No. P22822-048 1 Alberta Energy Regulator

the pipeline. Pengrowth assumed that the most of the emulsion produced between November 11, 2013, and January 17, 2014, was released into the pipeline ROW and into the slough.

Investigation Findings

Failure Analysis The failed pipeline segment was excavated on February 18, 2014, and a 130-centimetre sample from the location where the pipeline failed was submitted to Skystone Engineering (Skystone) in Calgary for analysis. After reviewing Skystone’s failure analysis report, an AER subject matter expert concluded that several factors contributed to the pipeline rupture:

1 • During the initial construction, a field bend (also called “cold bend”) was introduced in the pipe at the location of the future failure. At this time, the pipe did not contain any kink.

0 • The operation conditions included hot flushes at 60 Celsius, which resulted in thermal expansion of the pipe. It was likely that the increasing temperature from ambient to 600C resulted in plastic deformation of the pipe at the inner curve of the bend and in the creation or deepening of the kink that contributed to the failure. Cooling from 600C to ambient temperature after hot flushes caused tensile stresses that initiated and propagated fatigue cracks. Due to the kink, cleaning pigs2 were getting hung up and required the use of hot flushes by pressure truck to push the pigs past the pipeline obstruction, which also created pressure variations within the pipeline. These repetitive tensile stresses during heating and cooling cycles initiated and propagated fatigue cracks.

Skystone concluded, and the AER agrees, that the pipeline failure was caused by long-term cyclic thermal stress/fatigue due to hot flush practices done to clear the line of crystalized salt deposits and to push pigs.

Hot Oil/Water Flushing Hot oil/water flushing involves pumping hot fluid into the pipeline system with a truck equipped with a pressure pump, holding tank, and boiler system. Hot oil/water flushing is considered a relatively normal procedure in the operation of production wells and pipeline systems.

Due to pigs getting stuck in this line, operations staff made the decision to only send pigs down the line using pressure trucks providing hot oil/water flushes.3 These flushes would have had a twofold effect on the pipeline at an already stress-compromised interval:

1 A field or cold bend is typically done on smaller bore pipelines where terrain may cause the construction contractor to force-bend the pipeline around a corner while lowering the pipe into the trench. 2 A pig is a device used to perform various types of maintenance (e.g., clearing the pipeline of deposition or water) or to inspect the internal surface of a pipeline. 3 Normally a pig launcher is used to send a pig down a line.

2 Investigation Summary Report 2014-022: Pengrowth Energy Corp.; Licence No. P22822-048 Alberta Energy Regulator

• The heat resulting from hot flushing operations would have caused the pipe to become more plastic and susceptible to deformation due to axial and hoop stresses.

• While the pipeline was in a heated state, excess pressure to push the pig across the kinked section would have caused further deformation and further cracking.

Pigging The line in question was pigged frequently (about 240 times per year). At the time of pigging, pressure would have varied from the normal operating pressure of 270 kilopascals (kPa) to an operating pressure of 1170 kPa. The stress exerted on the kinked section of pipe (axial stress) would have exceeded the fatigue limit.

While these types of operations are considered normal where excessive salts or waxes are encountered during production operations, a significant contributing factor to this failure was the concentration of stress at the inner curve of the field bend, which at the location of the failure, buckled and cracked over time due to the cyclic nature, frequency, temperature, and pressures associated with the hot flush operations.

During the AER investigation, Pengrowth operators stated that they had been experiencing pigging issues with this line for quite some time, even as long as two years as stated by one operator. It had been suspected that the line was being plugged with salts, and pigging was being done daily to weekly. The operators were constantly having issues with pigs being stuck in the line, sometimes multiple pigs being stuck in the line. Pengrowth’s lead operator made the decision in November 2013 that any time the line was pigged, a pressure truck would be brought in to assist. The AER asked the lead operator, as well as all the other operators involved with the pipeline, if they had brought up this issue with the area integrity coordinator. No operator stated that they had mentioned this issue to the integrity coordinator.

Pengrowth has written procedures on what to do in the case of a stuck tool (or pig) in its Guide to In-Line Inspection Manual and also in its Pipeline Operation and Maintenance Manual (POMM). The Guide to In-Line Inspection Manual states that in the case of a stuck pig, the options are to either push the pig out with additional pressure or cut open the pipeline to remove it. The guide goes on to state that once the pipeline is cut open and the tool has been removed, “it is important to figure out what caused the tool to become stuck and what action must be taken to prevent the problem from re-occurring. If the problem is related to a restriction in the line, this restriction should be removed” (section 5.1.1, page 65/203). When asked if they had investigated why the pigs were getting stuck, the operators responded that they did not cut the pipe to see why it was getting stuck because the pigs always seemed to become dislodged when additional pressure was added. When asked if a sizing pig was ever sent down the line to verify pipeline geometry, the operators had responded that they did not ever send one down. The operators had

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discovered a way to make the pigging process on this specific line successful, and that was with the use of a hot oiler every time.

Leak Detection When Pengrowth was experiencing a loss of production and the well was operating within normal parameters, the company should have suspected a pipeline break and looked for alternative methods for leak detection.

Pengrowth had stated that the method used for leak detection for this pipeline was flying the ROW and reporting any observations using GPS locations and aerial photographs of the location in question. Inspections of the ROW before and at the time of the incident were scheduled to be monthly.

Because of adverse weather and mechanical issues, Pengrowth did not conduct any aerial inspections of the ROW for two months (November 1, 2013 to December 31, 2013). During this time, Pengrowth did not find any alternative method to monitor the ROW and did not review or modify its leak detection systems even though it knew of the loss of fluids. Pengrowth, therefore, did not have an acceptable leak detection program for this pipeline, contrary to CSA Z662-11: Oil and Gas Pipeline Systems (clauses 10.3.3.2 and 10.3.3.3).

According to the section on detection of leaks and breaks, page 29, in the POMM:

Detection of Leaks and Breaks may be attained by a variety of techniques: − Visual evaluation of the pipeline right of ways (walking or driving) − Hydrostatic testing of the pipeline − Mass balance transfer − Sensitive leak detection techniques (flame ionization and odor tests) − Flying the right of ways (visual or UV detection) These means of detection of leaks and breaks will be incorporated into the field right of way surveillance and inspection program, as part of the Field Integrity Plan

Based on the POMM, Pengrowth could have used hydrostatic testing of the pipeline, mass balance transfer, or sensitive leak detection techniques; however, none of these other options were explored. When asked by the AER if Pengrowth had ever considered an alternative method to inspect the ROW, like snowmobiles/ATVs or foot patrols, the operators responded that no alternative had been considered. The break occurred only about 100 metres from the wellhead and 808 metres from the 01-08 battery, on a segment of pipeline that was 1.03-kilometres long, and no operator took the time to conduct a patrol on this ROW.

In addition, Pengrowth did not have any devices installed or operating practices in place that would have been capable of early leak detection, in contravention of CSA Z662-11, clause 10.3.3.3.

4 Investigation Summary Report 2014-022: Pengrowth Energy Corp.; Licence No. P22822-048 Alberta Energy Regulator

Reporting of the Pipeline Leak The last successful well test was on November 10, 2013. Two subsequent well tests were done on November 23 and 24, 2013. However, neither was successful, with production volumes lower than anticipated. Pengrowth should have investigated pipeline integrity within a reasonable time after ruling out the other possible causes of the decrease in production on November 24, 2013. A reasonable timeframe is considered to be seven days after the final test on November 24, 2013. Pengrowth should have investigated for a pipeline failure by no later than December 1, 2013. Pengrowth, however, did not detect the failure until January 17, 2014, and did not report it until January 18, 2014 (48 days).

Total monthly production reports (which accounts for volume in the system) were showing a significant decrease in production over December 2013 and January 2014, indicating that there was a net loss of production fluids. Pengrowth conducted troubleshooting and maintenance activities on the well, and was able to achieve optimum results with the pump and well. Therefore, the next step should have been to inspect the pipeline as a potential source of the loss of production fluids.

Environmental Impacts The release, consisting of 218.5 m3 of oil and 319.8 m3 of produced water according to Pengrowth’s internal investigation, affected an area over 1500 square metres (m2), including a water body (the slough).

Eco-Web Ecological Consulting, retained by Pengrowth, reported that two buffleheads, two muskrats, one masked shrew, and some wood frogs died.

Sampling by WorleyParsons from the slough on February 17 and 18, 2015, indicated the following:

• water quality samples exceeded the guideline for chloride of 120 milligrams per litre (mg/L) set out in the Government of Alberta Environmental Quality Guidelines for Alberta Surface Waters (2014) and ranged from 140–150 mg/L

• sediment quality samples from beneath the ice exceeded the guideline for pH of 6.0 to 8.5 for the protection of freshwater aquatic life set out in the Canadian Council of Ministers of the Environment (CCME) Canadian Environmental Quality Guidelines Summary Table (2011)

• multiple sediment quality samples exceeded the Government of Alberta Alberta Tier 2 Soil and Groundwater Remediation Guidelines (2014) for natural land use, coarse-grained soil, for benzene (0.078 milligrams per kilogram [mg/kg]), toluene (0.030 mg/kg), xylenes (0.042 mg/kg), and hydrocarbon fraction F3 (300 mg/kg).

The above effects to the environment, both terrestrial and aquatic, may have been adverse and did result in loss or damage to public land.

Investigation Summary Report 2014-022: Pengrowth Energy Corp.; Licence No. P22822-048 5 Alberta Energy Regulator

Contraventions 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 establishes the contraventions that are also offences:

• Section 227(j) of the Environmental Protection and Enhancement Act (EPEA)

• Section 56(1) of the Public Lands Act (PLA)

Contravention 1: Duty to Report a Release (EPEA, section 110(1)) A person who releases or causes or permits the release of a substance into the environment that may cause, is causing or has caused an adverse effect shall, as soon as that person knows or ought to know of the release, report it to (a) the Director…

In this incident, Pengrowth ought to have known of the pipeline break. If the pipeline had been inspected for integrity after the unsuccessful well tests, it is likely that Pengrowth would have discovered the pipeline break sooner and reported it as required by section 110(1) of EPEA.

Contravention 2: Duty to Take Remedial Measures (EPEA, section 112(1)) Where a substance that may cause, is causing or has caused an adverse effect is released into the environment, the person responsible for the substance shall, as soon as that person becomes aware of or ought to have become aware of the release,

a) take all reasonable measures to

(i) Repair, remedy and confine the effects of the substance, and

(ii) remediate, manage, remove or otherwise dispose of the substance in such a manner as to prevent an adverse effect or further adverse effect,

and

b) restore the environment to a condition satisfactory to the Director.

Pengrowth ought to have been aware of the release and therefore should have taken reasonable steps to take remedial actions to confine the effects of the substance and prevent further adverse effect. No steps were taken until January 18, 2014.

Contravention 3: Loss or Damage to Public Land (PLA, section 54(1)(a.1))

No person shall cause, permit or suffer (a.1) loss or damage to public land

Pengrowth did cause loss or damage to 1500 m2 of public land, and no remedial actions were taken until January 18, 2014.

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Due Diligence EPEA (section 229) and PLA (section 59(3)) 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, there is no evidence to support due diligence by Pengrowth with respect of any of the three contraventions established above. The AER expects energy companies to have adequate procedures, training, communication, and supervision of employees. In addition, training must be ongoing and procedures regularly enhanced to ensure that they remain relevant and current. It is imperative that the chain of command and communication procedures are followed at all times, especially during abnormal operating conditions when coordination and discipline are needed the most.

Compliance History Since June 2013, the AER has issued nine high risk enforcement actions to Pengrowth related to the construction, operation, and maintenance of its pipelines; one warning letter in 2009 for failing to submit air monitoring reports; and one warning letter in 2013 for exceeding water diversion limits.

Conclusion and Recommended Counts The investigation into the pipeline failure reported on January 18, 2014, has identified contributing factors leading to the pipeline failure and three contraventions of EPEA and the PLA. The investigation also found that Pengrowth did not take all reasonable measures to prevent the continued release (over the course of 48 days) of emulsion from the pipeline.

If the director decides that an enforcement response is appropriate, the following counts are recommended.

Count 1 On or about the dates of December 1, 2013, to January 18, 2014 (48 days), Pengrowth, at 09-08-094-03W5M, near Red Earth Creek in the Province of Alberta, did fail to report a release of a substance into the environment that may cause, is causing or has caused an adverse effect as soon as Pengrowth ought to have known of the release to the Director, contrary to section 110(1)(a) of EPEA.

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Count 2 On or about the dates of December 1, 2013, to January 18, 2014 (48 days), Pengrowth, at 09-08-094-03W5M, near Red Earth Creek in the Province of Alberta, did fail to conduct remedial actions on a release of a substance into the environment that may cause, is causing or has caused an adverse effect as soon as Pengrowth ought to have known of the release, contrary to section 112(1) of EPEA.

Count 3 On or about the dates of December 1, 2013, to January 18, 2014 (48 days), Pengrowth, at 09-08-094-03W5M, near Red Earth Creek in the Province of Alberta, did release 537.2 m3 of oil emulsion that may have caused loss or damage to a forested area and water body, which is contrary to section 54(1)(a.1) of the PLA.

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