SHELL PIPELINE CO., L.P. — Notice of Probable Violation

party submissionOfficial PDF420105006_Response to NOPV PCP PCO_03112010.pdf#

420105006_NOPV PCP PCO_02112010_text.pdf, page 1Official PDFNOTICE OF PROBABLE VIOLATION PROPOSED CIVIL PENALTY and PROPOSED COMPLIANCE ORDER CERTIFIED MAIL - RETURN RECEIPT REQUESTED February 11, 2010 Ms. Mary Mujica President Shell Pipeline Co., L.P. 777 Walker, Suite 1500, (Two Shell Plaza) Houston, TX 77252 CPF 4-2010-5006 Ms. Mujica: On August 6 and September 2, 2009, representatives of the Pipeline and Hazardous Materials Safety Administration (PHMSA) pursuant to Chapter 601 of 49 United States Code investigated an accident that occurred on July 25, 2009 on Shell Pipeline Co., L.P.’s (Shell) 20-inch crude oil transmission pipeline (MMS segment #4006) in the Eugene Island pipeline system in the Gulf of Mexico in Ship Shoal Area Block 142. As a result of the accident investigation, it appears that you have committed probable violations of the Pipeline Safety Regulations, Title 49, Code of Federal Regulations. The items inspected and the probable violation(s) are: 1. §195.52 Telephonic notice of certain accidents (a) At the earliest practicable moment following discovery of a release of the hazardous liquid or carbon dioxide transported resulting in an event described in §195.50, the operator of the system shall give notice, in accordance with paragraph (b) of this section, of any failure that:#

420105006_NOPV PCP PCO_02112010_text.pdf, page 2(1) Caused a death or a personal injury requiring hospitalization; (2) Resulted in either a fire or explosion not intentionally set by the operator; (3) Caused estimated property damage, including cost of cleanup and recovery, value of lost product, and damage to the property of the operator or others, or both, exceeding $50,000; (4) Resulted in pollution of any stream, river, lake, reservoir, or other similar body of water that violated applicable water quality standards, caused a discoloration of the surface of the water or adjoining shoreline, or deposited a sludge or emulsion beneath the surface of the water or upon adjoining shorelines; or (5) In the judgment of the operator was significant even though it did not meet the criteria of any other paragraph of this section. (b) Reports made under paragraph (a) of this section are made by telephone to 800- 424-8802 (in Washington, DC 20590-0001 (202) 372-2428) and must include the following information: (1) Name and address of the operator. (2) Name and telephone number of the reporter. (3) The location of the failure. (4) The time of the failure. (5) The fatalities and personal injuries, if any. (6) All other significant facts known by the operator that are relevant to the cause of the failure or extent of the damages. Shell failed to provide a telephonic notice to the National Response Center (NRC) (NRC # 912739) that included the most accurate release volume estimate available at the time of the notification. On July 25, 2009 at 8:09 PM CDT, Shell telephonically notified the NRC of the release of crude oil from their Eugene Island pipeline system following confirmation of the release by a flyover of the release site. NRC # 912739 details that the quantity released was reported as “0 unknown amount”. This flyover on July 25, 2009 provided information on the coloration and size of the oil sheen on the water from which an estimate of the amount of product released could have been calculated from available industry applications, and an accurate estimate should have been reported. Shell failed to provide prompt follow-up reports during the emergency phase of the response when a revised estimate of the product release amount identified that the release was significantly greater than the original amount reported. A subsequent fly-over of the release site on July 26, 2009 provided additional information from which Shell could have estimated the volume released and provided updated information to the NRC. Also, information readily available to Shell from pipeline specifications and SCADA data provide for making estimates of release volumes using available industry applications. On July 29, 2009, Shell provided telephonic notification to the NRC for report # 913179 (update to NRC # 912739) with the estimated quantity released being 1500 bbls. 2#

420105006_NOPV PCP PCO_02112010_text.pdf, page 32. §195.54 Accident reports. (a) Each operator that experiences an accident that is required to be reported under §195.50 shall as soon as practicable, but not later than 30 days after discovery of the accident, prepare and file an accident report on DOT Form 7000-1, or a facsimile. (b) Whenever an operator receives any changes in the information reported or additions to the original report on DOT Form 7000-1, it shall file a supplemental report within 30 days. Shell failed to file a supplemental report for the Eugene Island pipeline system accident that occurred on July 25, 2009 within 30 days after the metallurgical failure report was obtained that provided information on the probable cause of failure. On July 25, 2009, at approximately 5:54 p.m. CST, a 20-inch crude oil transmission pipeline (MMS segment #4006) in the Eugene Island pipeline system, owned and operated by Shell Pipeline Company LP (Shell), ruptured in the Gulf of Mexico in Ship Shoal Area Block (SS) 142. A metallurgical failure analysis was performed by Stork Testing & Metallurgical Consulting, Inc. (Stork), in Houston, TX. The probable cause of the rupture was determined to be abrasion and gouging of the pipe, followed by fatigue cracking. The Stork Metallurgical Failure Report # 0608-09-19272 was provided by Stork to the operator on or about October 27, 2009. As of February 4, 2010, a supplemental PHMSA 7000-1 report has not been filed, updating the original report with the final metallurgical failure report information as to the cause of the accident. Proposed Civil Penalty Under 49 United States Code, § 60122, you are subject to a civil penalty not to exceed $100,000 for each violation for each day the violation persists up to a maximum of $1,000,000 for any related series of violations. The Compliance Officer has reviewed the circumstances and supporting documentation involved in the above probable violation(s) and has recommended that you be preliminarily assessed a civil penalty of $18,800 as follows: Item number PENALTY 2 $ 18,800 Warning Items With respect to item 1 we have reviewed the circumstances and supporting documents involved in this case and have decided not to conduct additional enforcement action or penalty assessment proceedings at this time. We advise you to promptly correct these item(s). Be advised that failure to do so may result in Shell being subject to additional enforcement action. 3#

420105006_NOPV PCP PCO_02112010_text.pdf, page 4Proposed Compliance Order With respect to item number 2 pursuant to 49 United States Code § 60118, the Pipeline and Hazardous Materials Safety Administration proposes to issue a Compliance Order to Shell Pipeline Co., L.P. Please refer to the Proposed Compliance Order, which is enclosed and made a part of this Notice. Response to this Notice Enclosed as part of this Notice is a document entitled Response Options for Pipeline Operators in Compliance Proceedings. Please refer to this document and note the response options. Be advised that all material you submit in response to this enforcement action is subject to being made publicly available. If you believe that any portion of your responsive material qualifies for confidential treatment under 5 U.S.C. 552(b), along with the complete original document you must provide a second copy of the document with the portions you believe qualify for confidential treatment redacted and an explanation of why you believe the redacted information qualifies for confidential treatment under 5 U.S.C. 552(b). If you do not respond within 30 days of receipt of this Notice, this constitutes a waiver of your right to contest the allegations in this Notice and authorizes the Associate Administrator for Pipeline Safety to find facts as alleged in this Notice without further notice to you and to issue a Final Order. In your correspondence on this matter, please refer to CPF 4-2010-5006 and for each document you submit, please provide a copy in electronic format whenever possible. Sincerely, R. M. Seeley Director, Southwest Region Pipeline and Hazardous Materials Safety Administration Enclosures: Proposed Compliance Order Response Options for Pipeline Operators in Compliance Proceedings 4#

420105006_NOPV PCP PCO_02112010_text.pdf, page 5PROPOSED COMPLIANCE ORDER Pursuant to 49 United States Code § 60118, the Pipeline and Hazardous Materials Safety Administration (PHMSA) proposes to issue to Shell Pipeline Co., L.P. a Compliance Order incorporating the following remedial requirements to ensure the compliance of Shell Pipeline Co., L.P. with the pipeline safety regulations: 1. In regard to Item Number 2 of the Notice pertaining to failure to comply with the requirements of §195.54, Shell must immediately file a supplemental DOT Form 7000-1 report for number 20090235 specifying the cause of failure of the Eugene Island pipeline accident and updating any other information obtained since the accident. If all of the information about the accident is known, this information must be included and the accident report filed as a final report. 2. Shell shall maintain documentation of the safety improvement costs associated with fulfilling this Compliance Order and submit the total to R.M. Seeley, Director, Southwest Region, Pipeline and Hazardous Materials Safety Administration. Costs shall be reported in two categories: 1) total cost associated with preparation/revision of plans, procedures, studies and analyses, and 2) total cost associated with replacements, additions and other changes to pipeline infrastructure. 5#

420105006_FinalOrder_05022011_text.pdf, page 1Official PDFMAY 02 2011 Mr. Greg Smith President Shell Pipeline Company, LP One Shell Square 701 Poydras Suite 1000 New Orleans, LA 70139 Re: CPF No. 4-2010-5006 Dear Mr. Smith: Enclosed please find the Final Order issued in the above-referenced case. It makes a finding of violation and assesses a reduced civil penalty of $6,300. It further finds that Shell Pipeline Company, LP, has completed the actions specified in the Notice to comply with the pipeline safety regulations. When the civil penalty has been paid, this enforcement action will be closed. Service of the Final Order by certified mail is deemed effective upon the date of mailing, or as otherwise provided under 49 C.F.R. § 190.5. Thank you for your cooperation in this matter. Sincerely, Jeffrey D. Wiese Associate Administrator for Pipeline Safety Enclosure cc: Mr. Rod M. Seeley, Director, Southwest Region, PHMSA Mr. Brian Sitterly Shell Pipeline Company, LP Two Shell Plaza 1536 777 Walker Street Houston, TX 77002 CERTIFIED MAIL - RETURN RECEIPT REQUESTED [7005 1160 0001 0075 9152]#

420105006_FinalOrder_05022011_text.pdf, page 2U.S. DEPARTMENT OF TRANSPORTATION PIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION OFFICE OF PIPELINE SAFETY WASHINGTON, D.C. 20590 ____________________________________ In the Matter of ) Shell Pipeline Company, LP, ) CPF No. 4-2010-5006 ) ) ) Respondent. ) ____________________________________) FINAL ORDER Between August 6, 2009, and September 2, 2009, pursuant to 49 U.S.C. § 60117, a representative of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Office of Pipeline Safety (OPS), investigated an accident that occurred on July 25, 2009, on Shell Pipeline Company, LP’s 20-inch crude oil transmission pipeline in the Eugene Island pipeline system. Shell Pipeline Company, LP (Shell Pipeline or Respondent), is a wholly-owned subsidiary of Shell Oil Products US, a unit of Shell Oil Company, and transports over two billion barrels of crude oil and refined products annually, with pipelines in several states.1 The accident occurred on July 25, 2009, at approximately 5:54 p.m. C.S.T., on the Eugene Island pipeline system and resulted in the release of 1,500 barrels of crude oil into the Gulf of Mexico.2 The Eugene Island pipeline system moves crude oil from offshore platforms through a 20-inch pipeline to Caillou Island, Louisiana, and through a 16-inch line to the Houma Tank Farm.3 As a result of the inspection, the Director, Southwest Region, OPS (Director), issued to Respondent, by letter dated February 11, 2010, a Notice of Probable Violation, Proposed Civil Penalty and Warning (Notice). In accordance with 49 C.F.R. § 190.207, the Notice proposed finding that Shell Pipeline had violated 49 C.F.R. § 195.54 and proposed assessing a civil penalty of $18,800 for the alleged violation. The Notice also proposed finding that Respondent had committed a probable violation of 49 C.F.R. § 195.52 and warning Respondent to take appropriate corrective action or be subject to future enforcement action. Shell Pipeline responded to the Notice by letter dated March 11, 2010 (Response). The company contested the warning item (§ 195.52) but did not contest the alleged violation of § 195.54. Respondent asserted that the proposed penalty for Item 2 was excessive, but indicated that it 1 http://www.shellpipeline.com/home.asp (last visited March 15, 2011). 2 Pipeline Safety Violation Report (Violation Report) (August 6, 2009 – September 2, 2009), at 1. 3 http://www.shellpipeline.com/custinfo_crude_maps.asp (last visited March 16, 2011).#

420105006_FinalOrder_05022011_text.pdf, page 32 would pay the civil penalty in order to resolve the item.4 Respondent did not request a hearing and therefore has waived its right to one. FINDING OF VIOLATION In its Response, Shell Pipeline did not contest the allegation in the Notice that it violated 49 C.F.R. § 195.54, as follows: Item 2: The Notice alleged that Respondent violated 49 C.F.R. § 195.54, which states: § 195.54 -- Accident reports. (a) Each operator that experiences an accident that is required to be reported under § 195.50 shall as soon as practicable, but not later than 30 days after discovery of the accident, prepare and file an accident report on DOT Form 7000-1, or a facsimile. (b) Whenever an operator receives any changes in the information reported or additions to the original report on DOT Form 7000-1, it shall file a supplemental report within 30 days. The Notice alleged that Respondent violated 49 C.F.R. § 195.54(b) by failing to file a supplemental report within 30 days after it received changes in the information initially reported on DOT/PHMSA Form 7000-1. Shell Pipeline submitted the original and supplemental DOT/PHMSA 7000-1 reports on August 17, 2009, and September 28, 2009, respectively, listing the cause of the accident as unknown and designating the “root cause analysis and metallurgical investigation [as] ongoing.”5 On October 27, 2009, Shell Pipeline received a final metallurgical failure analysis report (Metallurgical Report) from Stork Testing & Metallurgical Consulting, Inc. (Stork Testing).6 In this report, Stork Testing stated that the rupture in the 20-inch pipeline accordance with Section 195.54(b), Shell Pipeline should have submitted a supplemental was caused by “severe abrasion and gouging of the pipe, followed by fatigue cracking.”7 In DOT/PHMSA 7000-1 report within 30 days of its receipt of this Metallurgical Report. However, Shell Pipeline did not file the final supplemental DOT Form 7000-1 until after the Notice was issued. In its Response, Shell Pipeline did not contest this allegation of violation. Instead, Shell Pipeline noted that company representatives met with PHMSA on November 13, 2009, sixteen days after its receipt of the Metallurgical Report, and delivered a copy of the supplemental DOT Form 7000-1 to OPS at that time. Shell Pipeline acknowledged that this action did not relieve the company of the requirements of § 195.54(b) and agreed to pay the proposed civil penalty. 4 Response, at 3. 5 Pipeline Safety Violation Report (Violation Report) (August 6, 2009 – September 2, 2009), Exhibit B, Original accident report, DOT Form 7000-1, dated August 17, 2009 (Report ID 20090235) and Supplemental accident report, DOT Form 7000-1, dated September 28, 2009 (Report ID 20090235). 6 Violation Report, Exhibit B, Stork Metallurgical Failure Report #0608-09-19272 (Metallurgical Report). 7 Id., at 2.#

420105006_FinalOrder_05022011_text.pdf, page 43 Under 49 U.S.C. § 60122, Respondent is subject to an administrative civil penalty not to exceed $100,000 per violation for each day of the violation, up to a maximum of $1,000,000 for any related series of violations. In determining the amount of a civil penalty under 49 U.S.C. § 60122 and 49 C.F.R. § 190.225, I must consider the following criteria: the nature, circumstances, and gravity of the violation, including adverse impact on the environment; the degree of Respondent’s culpability; the history of Respondent’s prior offenses; the Respondent’s ability to pay the penalty and any effect that the penalty may have on its ability to continue doing business; and the good faith of Respondent in attempting to comply with the pipeline safety regulations. In addition, I may consider the economic benefit gained from the violation without any reduction because of subsequent damages, and such other matters as justice may require. The Notice proposed a total civil penalty of $18,800 for the violations cited above. Item 2: The Notice proposed a civil penalty of $18,800 for Respondent’s violation of 49 C.F.R. § 195.54(b), for failing to file a supplemental report within 30 days after it received changes in the information initially reported. In its Response, Shell Pipeline argued that the proposed penalty was excessive and noted that it had provided the supplemental report to PHMSA at an in- person meeting prior to the expiration of the 30-day deadline. Regardless, Shell Pipeline evidence and considered the assessment criteria including § 190.225(a)(5) and find that the operator acted in good faith by delivering a copy of the supplemental report to region personnel before the deadline. Accordingly, having reviewed the record and considered the assessment indicated that it would pay the civil penalty in order to resolve the item.9 I have reviewed the criteria, I find that a reduced civil penalty is appropriate and assess Respondent a civil penalty of $6,300 for violation of 49 C.F.R. § 195.54(b). Payment of the civil penalty must be made within 20 days of service. Federal regulations (49 C.F.R. § 89.21(b)(3)) require such payment to be made by wire transfer through the Federal Reserve Communications System (Fedwire), to the account of the U.S. Treasury. Detailed instructions are contained in the enclosure. Questions concerning wire transfers should be directed to: Financial Operations Division (AMZ-341), Federal Aviation Administration, Mike Monroney Aeronautical Center, P.O. Box 269039, Oklahoma City, Oklahoma 73125. The Financial Operations Division telephone number is (405) 954-8893. I have reviewed all of the evidence and note that the supplemental report was formally filed with PHMSA outside of the 30-day requirement. PHMSA has a defined process for collecting and analyzing this information. Pursuant to the instructions for DOT Form 7000-1, operators are required to submit accident reports to the Information Resources Manager at PHMSA’s copies of this form at a meeting with Southwest Region representatives in November 2009, Respondent should have also filed it with the Information Resources Manager. Accordingly, I headquarters building in Washington, D.C.8 Although Shell Pipeline may have distributed find that Shell Pipeline violated 49 C.F.R. § 195.54(b) by failing to file a supplemental report within 30 days after it received changes in the information initially reported. ASSESSMENT OF PENALTY 8 The new instructions applicable to all accidents occurring after January 1, 2010 permit operators to file accident reports online, by mail, or by facsimile. 9 Response, at 3.#

420105006_FinalOrder_05022011_text.pdf, page 54 COMPLIANCE ORDER The Notice proposed a compliance order with respect to Item 2 in the Notice for violation of 49 C.F.R. § 195.54(b). Under 49 U.S.C. § 60118(a), each person who engages in the transportation of hazardous liquids or who owns or operates a pipeline facility is required to comply with the applicable safety standards established under chapter 601. The Director indicates that Respondent has taken the following actions specified in the proposed compliance order: 1. With respect to the violation of § 195.54(b) (Item 2), Respondent filed a final supplemental DOT/PHMSA Form 7000-1 report on February 18, 2010, which included the information from the Metallurgical Report related to the cause of the July 25, 2009 accident. Accordingly, I find that compliance has been achieved with respect to this violation. Therefore, the compliance terms proposed in the Notice are not included in this Order. WARNING ITEM With respect to Item 1, the Notice alleged a probable violation of Part 195 but did not propose a civil penalty or compliance order for this item. Therefore, this item is considered to be a warning item. The warning was for: 49 C.F.R. § 195.52 (Item 1) ─ Respondent’s alleged failure to provide a telephonic notice to the National Response Center (NRC) that included the most accurate release volume estimate available at the time of the notification. On July 25, 2009, at 8:09 p.m. C.S.T., Shell Pipeline conducted a fly-over of the accident site and telephonically notified the NRC of a release of crude oil.10 In incident report # 912739, Shell Pipeline indicated the quantity released was “0 unknown amount.” However, in the Notice, PHMSA alleged that during this July 25, 2009 fly-over, Respondent should have calculated the estimated quantity release using industry applications from the information gathered from the fly-over. Namely, Respondent should have considered the coloration and size of the oil sheen on the water and used SCADA data to estimate the volume of the spill. PHMSA further alleged that Respondent failed to provide prompt follow-up reports during the emergency phase of the response, when a revised estimate indicated that the release quantity was significantly greater than the amount originally reported. In its Response, Shell Pipeline argued that it reported the release volume as “unknown” during the initial call to NRC because the July 25, 2009 fly-over was conducted at dusk and visibility was poor. Respondent also stated that the NRC erred in reporting the release volume as unknown, when it should have entered a default spill estimate of “1000 barrels.”11 Finally, Shell Pipeline argued that it had used SCADA data later in the 10 Violation Report, Exhibit A, Telephonic notice to the NRC on July 25, 2009 (Incident Report #912739). 11 “Pipeline Safety: Required Notification of National Response Center”, 67 Fed. Reg. 57060-01 (September 6, 2002).#

420105006_FinalOrder_05022011_text.pdf, page 65 evening on July 25, 2009, that it conducted a fly-over on the morning of July 26, 2009, and calculated a visual estimate. On July 29, 2009, PHMSA staff informed Shell Pipeline that the initial NRC report contained ‘0’ as the estimated spill volume. Shell Pipeline then provided an update to the NRC (report # 913179) indicating that the quantity released was 1,500 barrels.12 Shell Pipeline also explained in its Response that it communicated these estimates directly to Coast Guard personnel on July 26, 2009, and later to PHMSA and MMS (now Bureau of Ocean of Energy Management, Regulation and Enforcement). Since Item 1 is a warning item, no finding of violation is made as to the validity of these arguments or whether the evidence of the alleged conduct supports a warning of probable violation. Accordingly, having considered such information, I have determined, pursuant to 49 C.F.R. § 190.205, that a probable violation of 49 C.F.R. § 195.52 (Notice Item 1) has occurred. In the event that OPS finds a violation of this provision in a subsequent inspection, Respondent may be subject to future enforcement action. Under 49 C.F.R. § 190.215, Respondent has the right to submit a Petition for Reconsideration of this Final Order. The petition must be sent to: Associate Administrator, Office of Pipeline Safety, PHMSA, 1200 New Jersey Avenue, SE, East Building, 2nd Floor, Washington, DC 20590, with a copy sent to the Office of Chief Counsel, PHMSA, at the same address. PHMSA will accept petitions received no later than 20 days after receipt of service of the Final Order by the Respondent, provided they contain a brief statement of the issue(s) and meet all other requirements of 49 C.F.R. § 190.215. The filing of a petition automatically stays the payment of any civil penalty assessed but does not stay any other provisions of the Final Order, including any required corrective actions. If Respondent submits payment of the civil penalty, the Final Order becomes the final administrative decision and the right to petition for reconsideration is waived. The terms and conditions of this Final Order are effective upon service in accordance with 49 C.F.R. § 190.5. ___________________________________ __________________________ Jeffrey D. Wiese Date Issued Associate Administrator for Pipeline Safety 12 Violation Report, Exhibit A, Telephonic notice to the NRC on July 25, 2009 (Incident Report #913179).#