Sabco Oil and Gas Corporation — Pipeline Safety Interpretation

Page 1U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration 1200 New Jersey Avenue, SE Washington, D.C. 20590 AUG 1 1 2611 Mr. Max Jameson Environmental/Regulatory Manager Sabco Oil and Gas Corporation 34 S. Wynden Drive Houston, TX 77056 Dear Mr. Jameson: In a letter to the Pipeline and Hazardous Materials Safety Administration (PHMSA) dated April 6, 2011, you requested an interpretation to determine the applicability of the Federal pipeline safety requirements as they relate to the filing of annual reports for your pipeline system. You provided a map of your offshore gas pipeline system and identified the system to include flow lines from wellheads to two platforms, a 1 0-inch gas transmission line, a 4-inch emulsion line, a 3-inch condensate line, a 4-inch produced water line, and a 1 0-inch condensate line. You described your system as a gas gathering operation that transports full-stream product (gas+ condensate+ produced water) in 2.5-inch flow lines from the wellheads to the two production platforms, where it is then separated. The produced water is either discharged or carried in the 4-inch water line to an onshore disposal well. The separated gas is either sold to a commercial gas transmission line at the platforms, or recombined with the separated condensate and carried to an onshore tank battery by a gathering pipeline. You stated that the pipeline system is only a few miles long and is within the offshore waters of the State of Texas. Your opinion of a gathering or transmission pipeline is the line that carries products from your offshore platforms to your onshore tank battery. You ask whether you should include the flow lines in the pipeline safety annual reporting requirements. Per 49 CFR 192.1 (b)(1) and 195.1 (b )(5), the offshore gathering of gas or crude oil in state waters upstream from the outlet flange of each facility where hydrocarbons are produced or where produced hydrocarbons are first separated, dehydrated, or otherwise processed, whichever facility is farther downstream, is not subject to the pipeline safety regulations in Parts 192 and 195. Accordingly, the 2.5-inch flow lines are not regulated by PHMSA. The 1 0-inch gas line, as identified by you, is regulated as an offshore transmission pipeline. Since separation first occurs at platform 62, the 4-inch emulsion line is a regulated offshore gas gathering line beginning at the outlet of the separator on platform 62. Likewise, since separation first occurs for the 3-inch condensate line at platform 62 and then the condensate is combined with additional product at platform 49, this line is a regulated offshore hazardous liquid gathering line beginning at the outlet of the separator on platform 62. The 4-inch produced water line would be a production or The Pipeline and Hazardous Materials Safety Administration, Office of Pipeline Safety provides written clarifications of the Regulations (49 CFR Parts 190-199) in the form of interpretation letters. These letters reflect the agency's current application ofthe regulations to the specific facts presented by the person requesting the clarification. Interpretations do not create legally-enforceable rights or obligations and are provided to help the public understand how to comply with the regulations.#

Page 22 flow line and is not regulated by PHMSA. Finally, the 1 0-inch condensate line that connects platform 49 with the onshore tank battery is a regulated hazardous liquids transmission line. It is important to note that the pipeline system is an intrastate pipeline system regulated by the State of Texas. Therefore, we recommend that you contact the Railroad Commission of Texas (the state's regulatory agency) for determination of any additional annual reporting requirements and applicable pipeline safety regulations within the state's regulatory authority. I hope that this information is helpful to you. If I can be of further assistance, please contact me at 202-366-4046. cc: Texas Railroad Commission The Pipeline and Hazardous Materials Safety Administration, Office of Pipeline Safety provides written clarifications of the Regulations (49 CPR Parts 190-199) in the form of interpretation letters. These letters reflect the agency's current application of the regulations to the specific facts presented by the person requesting the clarification. Interpretations do not create legally-enforceable rights or obligations and are provided to help the public understand how to comply with the regulations.#

Page 3APR 1 8 2011 Via Certified Mail No. 70012510000163028549 Return Receiot Reauested April 6, 2011 Official Request for Interpretation Attn: Mr. John Gale Director of Regulations (PHP-30) USDOT/PHMSA 1200 New Jersey Avenue SE East Bldg., Room E22-321 Washington, DC 20590 Dear Mr. Gale: Sabco Operating Company hereby requests official interpretation of PHMSA of USDOT in regards to jurisdictional status of flow-lines in an offshore production system. Sabco is an oil and gas production company that operates two offshore gas-gathering platforms and one oil platform. In our gas gathering operation, full-stream product (gas + condensate + produced water) is carried in 2.5" flow lines from the wellheads to our production platforms. The full- stream product is separated on the platforms. The produced water is either discharged or carried in a water line to an onshore disposal well. The separated gas is either sold to a commercial gas transmission line at the platform, or it is recombined with the separated condensate and is carried to an onshore tank battery via a gathering line. The attached schematic diagrams illustrate the flow of products in Sabco's gathering system. Our interpretation of a "gathering/transmission" line is the line that carries products from our offshore platforms to our onshore tank batteries. The gathering lines are only a few miles long and are all intrastate. How should we treat our flow lines as applied to our pipeline safety annual reports? Should we report them as part of our gathering system and calculate the total length of all our flow lines to be added to our gathering/transmission line? Or should we only regard the lines between our production platforms and our onshore tank batteries as "gathering/transmission" lines? The line segments have been numbered on the schematic diagrams. Please interpret the jurisdictional status of each line segment by number and specify whether each line segment is part of our production system or a gathering/transmission line. Sincerely yours, Sabco Operating Company Max Jameson#

Page 42008-06-01 EC Flow Diagram-simplified.xls Sabco Encinal Channel Gas Gathering System in Corpus Christi Bay, Texas 2 PLTFM 3 PLTFM 62 4 49 Gregory Onshore Tank Battery 5 Legend Disposal wellheads well 1 B Flow Lines from wellheads 2 B 10" Gas Tansmission line (Southcross Line) 3 E 4" emulsion line (recombined gas, condensate, water) 4 B 3" condensate line 5 ₴ 4" produced water line 6 E 10" condensate line (Southcross Line)#

Page 52008-06-01 EC Flow Diagram-simplified.xis Platform 62 Flow Schematic (Gar Sales) Souncross: 10" to PL49 (HP) Change od Custody LEGEND Wellheads 2.5" Flow Lines (multiple) I A 1 Full well stream Gas Gas HP SEP Condensate 1- Water Water REVISION DATE: 5-1-2008 3" line to PL49 (HP Oil) 4" water line to PL49 → Wellheads 2.5" Flow Lines (multiple) 1 Gas 4" line to PL49 Prod Sep 1 A I LP SEP Oil Water Recom bined Prochet#

Page 6Platform 49 (PL49) Flow Schematic Platform B Southcross 16° GAS LINE TO GREGORY Gas Change of custody 2 HP SEP Oil • 0 • I Water - P4920 LEGEND Full well stream/Emulsion Gas • Condensate REVISION DATE: 5-1-2008 water 4" Water Line FROM PL62 EXISTING 4" H2O LINE TO GREGORY = 5 3" HP OIL Line FROM PL62 Southcross 10" HP GAS Line FROM PLE2 Crosstex 10" OIL LINE TO GREGORY = 6= → Platform A 4" line from PL62 (Recombined products) Gas LP SEP Oil Water P19H20#

Page 72008-06-01 EC Flow Diagram-simplified.x/s Gregory Tank Battery (GR) Flow Schematic 4" Water Line From PL49 Sabco Disposal Well 10°01 Line From PLA SEP Tank#