Take a Test    Article Library    CEEJ Home    Submit an Article     Contact CEEJ

Article # 0058

A MEASURED APPROACH TO MANAGING ABANDONED SITES

by

R.L. Langley, P.E.

Introduction

Although current shale plays with horizontal drilling and fracking have contributed to a significant boom in  natural gas production for some areas of the country, for many locations today’s general climate of reservoir declines, consolidations, technology advances, competition and  mergers/acquisitions have resulted  in many midstream assets (gas processing plants, compressor stations, treating facilities, storage/distribution terminals) being shut down. These idle facilities should be properly managed to:  (1) comply with all applicable laws, codes, regulations and company policies, including the Financial Accounting Standards Board (FASB) #143 for financial accounting and reporting of obligations related to asset retirement obligations, (2) minimize future liabilities, and (3) comply with a company’s environmental/ safety commitments in protecting people and the environment.

          The outline described herein is a proven basis for successfully identifying, prioritizing and managing a company’s idle midstream assets. The method could be applied to other types of oil and gas or manufacturing type operations.

Overview

          In the natural gas processing business, the location of facilities can be a two-edged sword. When operating, very remote locations are often “out of sight, out of mind” with minimal public profile, environmental impact or newsworthy events. However, often when those same facilities are idled, they often become abandoned, unsecured, and unmonitored “orphan sites” which can invite liabilities—i.e. “attractive nuisances” (a neat legal term that sort of says that if anyone is “attracted” to the facility and causes injury or damage, the owner company could be liable), or targets for unauthorized use or occupation in an environmentally abusive or unlawful way. (This can include illegal dumping, mobile home move ins, cultivation, running cattle, raising a marijuana crop, etc.) In either case, the owner company could be held liable because it still holds title to the property and owns any idle physical assets still on the property.

A Starting Point-Identify All Idle Operations & Sites

          The first order of business is to identify all company owned sites. This may sound simple, but actually can be a pretty daunting task, depending on the age of the company, its history of mergers/acquisitions, and how properties are dealt with.  The conventional basis is to begin with the Land/Right of Way (ROW) Department or Records Control to obtain a digest of all land holdings and a description of what (surface equipment) used to be on the property, and what remains. Physical inspections of the facility are likely in order to verify what’s on the books. This will include dated photos and perhaps videotaping the site.

            An unconventional, but effective method of obtaining information is to “pass the word” through company publications, retiree newsletters, etc. that the company is looking for any and all information on past operations/sites.  The author is familiar with this approach, and frequently some current employee or a retired “old timer” will come up with a valid location or operational details that were completely missed by conventional means.

Categorize the Sites

          Once identified, it’s often helpful to group the idle sites, as follows:

·        Group I

Sites currently owned or leased. Some action is required or likely. (more on that later). “Actions” can range from implementing a remedial security/inspection program to major dismantling/demolition, remediation, or other measures. If leased, the written lease terms should govern the condition of the land as returned to the landowner.

·        Group II

These are properties that may have been transferred to a different operating division within the company. Action may be required or recommended to the receiving Opco.

·        Group III

Properties that have been sold, transferred to third party, terminated, quit claimed or reconveyed.

·        Group IV

Properties where the status is unknown and further research is necessary.

Prioritize the Sites

            A “Score Card” system is devised to objectively rank facilities for further action. The following is not an exhaustive list of all parameters, but is an example to give the reader the gist of the methodology. For this study, the parameters of general condition, security, safety and environmental considerations are used. Each company would have to devise their own list of parameters based on their facilities, locations, and their Environmental, Safety & Health (ES&H) philosophy, policies and procedures.

            Let’s go through a couple of examples to show how this works. These are based on actual circumstances, but with changes for illustrative purposes. Note the parameters, weighting and rating scale are the same for all properties to assure consistency in assessment.

EXAMPLE 1:

            Facility A is the site of an idle cryogenic gas processing plant located in a remote area of the Texas Panhandle shut down years ago. Essentially all equipment has been removed down to foundations, but the cooling tower basin still exists. Also, a warehouse building still stands. There is evidence of some soil contamination around where the heating oil system used to be. There are no navigable waters nearby. It is only fenced with a 3 strand barbed wire fence, but there is a locked cattle guard type gate. There is a rancher that runs his cattle on the adjacent property.  Score Card as follows:

EXAMPLE 2:

            This is the site of an old lean oil plant originally built in the 1940’s that went through several upgrades before shutting down in the 1980’s due to production field declines. The plant is within the city limits of a small East Texas town of about 15,000, just on the outskirts. The property backs up on an industrialized loop around the city, and the entrance road has residences. The lab building still stands, as does the rail car loading rack. Several unlabelled drums are under a shed behind the lab building (one drum is labeled “Amine”, but doesn’t smell like it.). Several light poles are still standing, and the bolts fastening them to their foundations are corroded. Three have fallen down. There are indications around the compressor building slab indicating oil contamination of soil. The lab sump remains, and a hydrocarbon odor emanates occasionally (on hot days) from the handle holes in the sump lid. There is a locked gate, but oddly one of the locks is a combination lock, not keyed. (Multiple locks are necessary because a few landowners need access to their nearby property through the gate.)  There is a running creek at the back of the property that is on the low side of the terrain—i.e. surface runoff can go to the creek. At the location where the maintenance shop was, there’s a maintenance pit where company vehicle oil changes, lubrication and other work was done. There’s evidence that this is currently being used by intruders for oil changes on vehicles as evidenced by tire tracks, new empty oil cans and used oil filters strewn about, and oil staining in the pit. There is some insulated pipe remaining on site labeled “Boiler Feedwater”, and “Steam” which is likely asbestos. The property has an intact 6 ft. chain link fence, but the only “No Trespassing” sign near the entrance has fallen on the ground, face down.  One electrical transformer is located at the lab building, and although not labeled as such, it’s of manufacture date such that it could contain polychlorinated biphenyls-PCB’s. Score card for this example is as follows:

The absolute numbers in these two examples aren’t as importance as the relativity. In these two examples, it’s obvious that Example 2 should get priority attention, but it doesn’t necessarily mean that Example 1 should receive no attention. For example, for minimal expense, the cooling tower basin could be bulldozed to render harmless as an attractive nuisance or cattle entrapment hazard for the nearby rancher. Also, perhaps more secure fencing could be considered.  There are several items that need attention on Example 2.

Next Steps

            Once the properties/sites are identified, score cards devised, inspections made, ratings designated and the priority list assembled, then the next order of activity could be as follows:

·        Using the information to obtain qualified quotations for budgeting and FASB #143 reporting (asset retirement obligations) financial reporting.

·        Plan Actions for high priority sites

·        Designate nearest operating company facilities as overseers of the “orphaned” sites and implement safety/security actions followed by regular inspections and ongoing monitoring.  (Separate inspection list developed for each facility.)

·        Continue work, as necessary (which may take several years) to accomplish what’s necessary to get the facility status resolved.

Conclusion

            This paper is but a brief outline of how one can structure a consistent methodology to identify abandoned sites, prioritize them for further correction action, implement ongoing monitoring and assure proper reporting of ongoing financial obligations. All of these efforts are conducive to minimizing future liabilities related to these facilities. 

R.L. Langley, P.E. #37315

9/17/2012

Bibliography:

Chevron ES&H Policy 530-“Protecting People and the Environment” Company Publication (no copyright)

Credits:

J. D. Morris-Sr. Environmental Engineer-Warren Petroleum Company

Biography:

Robert (Bob) Langley, P.E. holds a B.S. Degree in Chemical Engineering from the University of Oklahoma. For over 30 years he worked for Fortune 500 midstream (natural gas processing) companies as Process Engineer, Plant Engineer, Plant Supervisor, Plant Manager, Supply and Distribution Manager, Supply Chain Manager and Environmental, Safety & Health Manager. As both a facility and ES&H Manager, he had direct responsibility for overseeing implementation of the abandoned sites management program described herein.
 

Article # 0058         

Take a Test    Article Library    CEEJ Home    Submit an Article     Contact CEEJ