The Pipeliners Podcast is pleased to welcome first-time guest Yogi Schulz of Corvelle Consulting to discuss the key elements of a SLMS (Safety and Loss Management System) in Canada.

You will learn about the differences between pipeline regulations in the U.S. and Canada, the importance of collecting evidence that supports “assurance” for compliance purposes, and how to determine the appropriate audit support for all size pipeline operations. Listen for valuable insight to apply directly to your role!

Pipeline SLMS Self-Assessment: Show Notes, Links, and Insider Terms

• Yogi Schulz was the founding partner of Corvelle Consulting, now serving as an Associate. Find and connect with Yogi on LinkedIn. Contact Yogi through Corvelle.com.
• A SLMS (Safety & Loss Management System) is defined in Canada as a systematic, proactive process to manage safety and loss control associated with pipeline design, construction, operation, maintenance, discontinuation, and abandonment.
  • SLMS is a regulatory requirement detailed by the CSA Z662 standard in Canada, which was issued to provide guidance on the safe design, construction, and maintenance of pipeline systems.
  • The U.S. equivalent regulatory document is the Pipeline Safety Act.
  • Read the Alberta Pipeline Safety Review.
• The Alberta Energy Regulator (AER) is the Alberta regulatory agency that ensures the safe, efficient, orderly, and environmentally responsible development of oil, oil sands, natural gas, and coal resources over their entire life cycle. The AER was previously named the ERCB.
• The NEB (National Energy Board) is a federal regulatory agency created by the Canadian government to oversee “international and inter-provincial aspects of the oil, gas, and electric utility industries.”
• PHMSA (Pipeline and Hazardous Materials Safety Administration) is the U.S. government agency that ensures the safe transportation of energy and hazardous materials to protect people and the environment.
• The OGC (Oil & Gas Commission) regulates oil & gas and pipeline activity in the province of British Columbia.
• Sarbanes Oxley (SOX) was a regulatory act introduced in 2002 by two U.S. Senators designed to address malfeasance in deregulated industries following the Enron and WorldCom scandals. SOX 404 determines a company’s internal system of checks and balances.
• Colorado Amendment 74 — the Compensation to Owners for Decreased Property Value Due to State Regulation Initiatives — was on the ballot in the 2018 U.S. mid-term elections in November. The proposed amendment to the state’s constitution was defeated.

Pipeline SLMS Self-Assessment: Full Episode Transcript

Russel Treat:  Welcome to the Pipeliners Podcast, episode 49.

[music]

Announcer:  The Pipeliners Podcast, where professionals, Bubba geeks, and industry insiders share their knowledge and experience about technology, projects, and pipeline operations. Now your host, Russel Treat.

Russel:  Thanks for listening to the Pipeliners Podcast. I appreciate you taking the time, and to show that appreciation, Pipeliners Podcast is giving away a customized YETI tumbler to one listener each episode.

This week, our winner is Cameron Leavitt with Enterprise. Congratulations, Cameron, your YETI is on its way. To learn how you can win this signature prize pack, stick around to the end of the episode.

This week on the Pipeliners Podcast, we have Yogi Schulz joining us to talk about pipeline safety management and the Canadian context for pipeline operations. Yogi, welcome to the Pipeliners Podcast.

Yogi Schulz:  Thank you, Russel. I appreciate the invitation. I look forward to having a discussion with you about pipeline issues.

Russel:  I think it’s kind of neat that you reached out to me on LinkedIn, and we had an opportunity to talk a little bit. I’m glad to have you. I think you’re going to add some interesting context for the listeners. Hopefully, we can all learn something today.

Maybe you could tell us a little bit about yourself and how you got into pipelining.

Yogi:  Certainly, Russel. Our Corvelle Consulting organization works almost exclusively with oil & gas producers in Calgary, Canada. One day the regulator here, the Alberta Energy Regulator, phoned and said, “We need to make improvements in our processes for compliance assurance of pipelines.

“Since you and your organization helped us with a big problem on compliance assurance on measurement and reporting, we want to repeat that huge success and see if we can apply it to pipelines.”

That’s how I became introduced to the world of pipelines and helped the regulator’s pipeline engineers develop an improved process for compliance assurance of pipelines, mostly those operated by producers as opposed large pipeline companies.

Russel:  I think that’s kind of interesting. You got into pipelining because you were in regulatory compliance for the production community and then because of that work got asked to move into pipelining.

Yogi:  Correct. We barely knew how to spell pipelines before the regulator phoned.

Russel:  I think that’s true of everybody in the pipeline business. All of us came here from somewhere, right?

Yogi:  Right.

Russel:  I don’t know where you would go to school and get a degree in pipeline management.

Yogi:  I don’t know of any place.

Russel:  Yeah, I don’t think it exists. What’s the nature of regulatory compliance in Canada? How’s it structured? Maybe you can help the listeners that aren’t familiar with the Canadian market.

Yogi, you might get a kick out of this. I often say that the U.S. and Canada are two countries separated by a common language.

Yogi:  I think that’s a great synopsis, Russel. We think they’re very similar. We drive on the same side of the road. We drive the same cars. We fly in the same airplanes. We go to the same McDonald’s and other restaurants, but there are significant differences between the two countries.

Russel:  Yeah, exactly. Those things begin to show up, in particular, in things like regulatory compliance because the nature of how the government is structured in Canada is different than how it’s structured in the U.S. Maybe tell us a little bit about the nature of compliance in Canada.

Yogi:  Sure. At the federal level, we have the National Energy Board that has responsibility for large transmission pipelines, the ones that cross provincial borders.

Every province has an energy regulator that’s responsible for the gathering pipelines that typically don’t cross any borders. Each of those provinces has developed a different regulatory regime, and with it, a different regime for licensing pipelines, monitoring pipelines, auditing pipelines, and compliance assuring pipelines.

In our case, we were asked to develop a compliance assurance methodology for the Alberta Energy Regulator. As you can tell that’s in the province of Alberta. That’s where most of the oil and gas in Canada is located.

Russel:  Right. In the U.S., the states also have regulatory authority. I believe that Canada actually has stronger state level or provincial level regulatory authority than federal in many cases. In the U.S., it tends to be different.

In the U.S., the federal government sets minimum standards and then the states can do that and something more if they choose to, where I think in Canada, it’s the opposite of that. The primary standard comes from the state. Do I understand that correctly?

Yogi:  You’re right, Russel. It’s quite different. In Canada, the provinces jealously guard their authority and sometimes are loath to accept advice from the federal government, and that’s constitutional. It starts right back at the constitution where responsibility for the development of oil and gas is a provincial matter, not a federal matter.

The other huge difference between Canada and the United States is that the mineral rights are owned by the state or the crown whereas, as you know, in the United States most of the mineral rights are owned by the surface landowner.

That sets a huge different tone for the regulatory environment because the surface landowner, who’s upset that he’s not getting any royalty income, at least wants to make sure that his or her land is protected from irresponsible behavior on the part of oil and gas operators.

Russel:  Does that mean that in Canada, oil and gas production is done by eminent domain?

Yogi:  A little bit. There’s a lot of rules, mostly well-spacing rules, that try to minimize the adverse impact on the surface landowner. Certainly, pipelines have eminent domain in crossing lots of people’s land the way they do in the United States.

Yes, there is a distinct element of eminent domain, even for the location of wells and production facilities.

Russel:  That’s very different than the U.S. I would assume that because all this is generated from the state level, that the requirements can be somewhat different from province to province.

Yogi:  The requirements are different from province to province, and they’re more voluminous, probably in all provinces. For example, in B.C., British Columbia, there is a more finicky environmental aspect to locating wells, and production facilities, and pipelines.

Alberta has the most exhaustive and most comprehensive regulations, but generally, it has a pro-business attitude.

Saskatchewan had an anti-business attitude for at least 30 years. The last decade has had a change in government to a pro-business government and has experienced a surge in investment in oil and gas. It’s catching up in the development of their regulatory environment.

Russel:  We should probably also talk about national pipelines because I know, just like in the U.S., there’s large pipelines or large companies that have pipelines that cross provincial borders. How is that different, and who regulates those pipelines?

Yogi:  At the national level, we have the National Energy Board that regulates those pipelines, and holds hearings on applications to build new pipelines, and approves them or doesn’t. You don’t get to build a national pipeline without a certificate of approval from the National Energy Board.

Russel:  It’s interesting. There are certainly a lot of similarities, and I think for a lot of people that don’t know the differences between Canada and the U.S., the challenges, on the surface, they look the same, but the minute you start really digging in a little bit, more of details get really different really fast.

Yogi:  They do.

Russel:  I know a lot of your work is focused on producers who happen to have pipelines. How are producers who own pipelines uniquely challenged in Canada?

Yogi:  The challenge that producers face is they’re under operating cost pressure, and I’m sure all of the producers in the U.S. are under a similar pressure. The way that manifests itself is they want to be sure that, for every dollar they spend, they see a real value statement.

Sometimes on pipelines, because so much of it is out of sight and out of mind underground, there’s a great temptation to underfund the risk analysis and risk assessment.

There’s a temptation to think, “Hey, we did a good job installing this pipeline. We’re doing a good job operating it,” that that’s good enough. If the regulator thinks we should do more, we respond to that quite cautiously. That’s the attitude of many producers. That’s one of the motivators why the regulator phoned us in 2012.

They said some of the processes that are described in the regulation are being interpreted in ways that are quite expensive, how to maintain compliance, how to assess compliance. It’s causing some producers to not be compliant with those regulations. They’d rather skirt the regulation and not spend any money on this.

The regulator’s challenge to us was, “Come up with something cheaper. Something that is still useful, still valuable, to producers but nonetheless demands less of them in terms of staff effort, dollars, and consultants that can become the basis for producers to pay attention to the risks that they have, to understand them better, and start to embark on a continuous improvement plan. Over many years, but nonetheless embark on that plan and move forward with it,” as opposed to just ignore the whole issue and assume everything’s fine because no disaster has occurred.

Russel:  I think that’s a big challenge in pipelining just in general. Pipelines typically operate on pretty thin margins. There’s lots of things that are competing for dollars in terms of operations, maintenance, and all the things you have to do to operate a pipeline entity. It’s sometimes difficult to know how to optimally apply what limited resources you have.

Pipeline safety management is a required compliance task. Is that a fair statement?

Yogi:  Absolutely. That’s black and white. There’s not a lot of debate about that being a requirement, but that’s such a fuzzy, high-level term. You can engage in a lot of rationalization around what compliance really means and what you need to do.

Russel:  That’s actually what I wanted to unpack a little bit. One of the questions that comes up is, “What’s the definition of a pipeline?”

Yogi:  I don’t think we have a lot of debates about that because the regulation makes it very clear where a pipeline starts and just ordinary piping inside a facility ends. Generally, there’s acceptance of the definition of pipelines.

Russel:  What is the definition of a pipeline again?

Yogi:  There’s two definitions really, the gathering system, the pipelines that connect wells to producing facilities, such as batteries or gas plants. Transmission pipelines, those that connect producing facilities to refineries.

Russel:  The reason I’m asking this question, Yogi. I don’t know if you’re aware of this. There’s a new rulemaking that’s working its way through PHMSA and its process on gathering pipelines. There are changes coming in how gathering is defined. There has generally been a distinction between what’s considered a flowline and what’s considered a gathering line.

This is the reason I want to tee this up. I think what you’re talking about in Canada about producers have pipelines, and those pipelines fall under regulatory domain, I think that’s going to become truer than it already is in the U.S. given this new rulemaking that’s working its way through. There are some valid reasons for that.

If you look at gas pipelines in the Utica Shale, there’s 16-inch, 1,400 PSI pipelines that are called gathering lines.

Yogi:  Why?

Russel:  It’s because of the way the pipeline definitions were written. Nobody contemplated doing gathering of rich gas at those pressures, because nobody contemplated what was going to be the result of shale production when those rules were originally written. Anyways, I’ve taken us down a little bit of a rabbit hole.

I think it’s important for listeners to understand about what we’re talking about and the reality of the challenge that producers face because pipeline’s not really their core business.

Yogi:  You bring up a couple of different points, Russel. For us, the word “flowline” and the word “gathering system” in a pipeline context are essentially synonyms. Although, you hear the word “flowline” used more in an oil context and the word “gathering system” used more in a gas context.

You notice I’m not including any words like “diameter,” “material,” or “pressure” in these definitions because that’s all irrelevant to compliance. It doesn’t really matter how high the pressure is, what the volume is, or how far the pipelines go. If it fits into this role and is licensed by this kind of a regulator, then these are the rules that apply.

Russel:  That’s a little different than the way it works in the U.S. I would say, too, that I don’t know if oil and gas is more regulated in Canada. It’s certainly differently regulated in Canada.

Yogi:  Certainly, producers think it’s more regulated. That stems from the fact that the landowner has very little say in the matter here. The landowner in the United States presumably is interested in that royalty check and less concerned about regulatory or environmental issues.

Russel:  You would think that’d be true. I don’t know if that will always be true.

Yogi:  I’m expecting that landowners have developed a lot more sophistication over the last few decades and are upset now when oil companies leave a lot of garbage behind after the production is finished.

Russel:  There’s a lot of work that goes on in the approach to development of assets to minimize footprint for sure.

Yogi:  Absolutely.

Russel:  That’s a big conversation that’s going on in Colorado right now. By the time this episode airs, it’ll probably be after the vote in Colorado. I think the listeners would know which side of that issue I come down on.

All I’m saying is you have some of the same issues. The fact that the landowner owns the land and participates in the profits makes a difference. That’s certainly true.

Yogi:  It changes the motivational model and the definition of what’s more important and what’s less important. It changes that a lot.

Russel:  That’s very well said. I want to talk to you about SLMS, because I know that that’s the regulatory framework, if you will, in Canada. Can you tell me, help the listeners understand, what is SLMS and how is it applied in Canada?

Yogi:  SLMS is a regulatory requirement. It’s described a little bit conceptually in the regulations. It’s described in excruciating detail in many pages in the CSA Z662 standards document. It talks about best practices for the design of pipelines, best practices for construction, commissioning, operation, maintenance, and eventual abandonment.

It tries very deliberately to cover the entire lifecycle of pipelines. It provides very detailed and exhaustive best practice guidance ideas for pipeline operators and pipeline designers to consider as they manage their pipelines through their full lifecycle.

Russel:  It’s the Canadian equivalent of the Pipeline Safety Act.

Yogi:  I think so.

Russel:  That’s a lot of stuff. [laughs]

Yogi:  It is.

Russel:  How is it that you guys are helping producers do a better job of complying?

Yogi:  Our contribution to this is to help producers assess how well they’re doing. As you said, it’s a lot of material. Some producers find it intimidating, overwhelming, or just altogether too much.

We often spend time saying to people, “Let’s just not get too concerned about the volume of material. Let’s just see what you’ve got in place already and where you have an opportunity to improve the operations that you have, and thereby reduce the risk around your pipeline and improve your compliance.”

That’s where we come in. Some of our producers are aware of the audit practices of the regulator in British Columbia named OGC and the federal regulator named NEB. Frankly, they’re panicked by those audit practices, because they think they’re over the top in terms of the resource consumption of those audits.

Producers don’t find they get a lot of value to help themselves improve their act from participating in those audits. They do it because it’s a part of the regulatory regime.

Russel:  Yogi, you and I talked about that before we got on the microphones here together. That’s certainly been a theme in other conversations that I’ve had about compliance and performance while they’re not the same thing, when done well, they’re first cousins.

Yogi:  I think so. You’re on the right wavelength there, Russel. Some of these producers look at us fairly skeptically initially. However, at the end of our process, they say, “Okay, now, I really, really get it.” We end up with a very good list of what they’re doing well. We end up with an equally good list of what they agree they’re not doing well.

That second list then becomes the basis for creating a plan to achieve remediation and continuous improvement. It’s happening at a scale and at a pace that doesn’t scare anybody in terms of consumption of staff time or consumption of dollars.

Russel:  How do you all go about doing this? You come out of an information technology background. I would assume you have a technology approach to accomplishing this. Maybe you could tell us a little bit about that.

Yogi:  We found that dialing in too much technology here is actually not helpful. We are using fairly primitive technology, i.e., Excel, to run the whole process. What we emphasize is that you come up with very clear conclusions. It’s either yes or no.

Some of our competitors, they make these general statements about the state of the universe in text. Producers can’t grapple with those, and they can’t really know what to do next. What we do is we have a lengthy interview with the people who are involved in pipeline operations.

We ask them very specific questions about various aspects of what they should be doing, what SLMS says they should be doing. Often, they understand the question and they say, “Yes, we’re doing that,” or “No, we’re not doing that.” When they struggle to understand the question, we usually have a very good educational moment.

If they’re struggling to understand the question, you can already tell they’re not doing it. That’s okay. We have an educational moment where we get to explain what the question means and what its implications are. The conversation typically ends with them saying, “Yeah, we don’t do that, but based on what I’ve just learned here, I see value in doing that.”

I’ve been talking in generalities. Let me give you a very specific example, Russel. We ask this question: How do you assure yourself that risk management, risk assessment using the risk management procedure is being conducted? Very simple question, are you conducting risk management?

Russel:  It’s a simple question, Yogi, and that it’s easy to understand. It may not be simple in terms of what it takes to answer it.

Yogi:  Absolutely. The risk management procedure is the next question. After that question, we ask, how do you assure yourself that ongoing risk assessment is evident? This isn’t just something you do once a decade. There has to be some indication that you’re doing it on an ongoing basis.

The third question is, how do you assure yourself that the risk assessment procedure itself has been reviewed within the last year? Are you thinking about how you’re doing this work? We ask, how do you assure yourself that the risk assessment results have been reviewed within the last year? The issue is maybe you’ve done a risk assessment, but if nobody’s looked at the results, who really cares?

We ask, how do you assure yourself that the risk assessment results produced procedure improvements where those were indicated? We finish it off by asking, how do you assure yourself that continuous improvement in risk assessment is evident?

We say this phrase, “How do you assure yourself that?” a lot. We use that phrase ad nauseam, because that’s really useful.

If you’re in charge of some work, how do you really know that something useful is happening, something exists? If it’s simply a case of “Joe is a good guy and I trust him,” that doesn’t cut it. We can all agree that Joe is a good guy and we should trust him, but how do we know he’s really doing some useful work?

We say, “Okay, Joe, you did a risk assessment. Did you write a report about that?” He said, “No, I just scribbled a bunch of things in the logbook.” I asked, “Well, do we consider that adequate?” Obviously, I don’t. People listen to the flow of this discussion and say, “No, that doesn’t cut it.” We agree that the conclusion is not effective. Joe needs to be doing more.

Russel:  The way you frame that is really, really interesting because it’s the whole phrase, “How do you assure yourself that?” Really, to me, that’s a creative way of asking a little bit of a different question, which is, “Are you moving the needle?” Are you actually getting better, safer, more effective, or not?

Yogi:  We think that’s a hugely important question. “Are you moving the needle?” If people shrug at you and say, “Yeah, I think I have good people. I think we are,” that’s not evidence. That’s somebody’s opinion.

Russel:  How do you know you’re moving the needle? A lot of these things, as I’m sure you well know that this thing can get complicated real fast. We as human beings tend to make things more complicated than they need to be. If we could set aside egos and the need to perform, yes/no gets really easy.

The reality of it is we are humans and we are organizations. We do want to do a good job. I believe that people in our business are really aware of the need to do good jobs. They’re aware of the need for safety and so forth. It’s interesting. This is very interesting. We’re coming to the end of our time. I want draw maybe some conclusions.

Yogi:  Can I hit you with one more item first?

Russel:  Yes, absolutely.

Yogi:  We emphasize a collaborative approach between us and the staff of the producer. Mostly, when you hear the word audit, you immediately click in an adversarial mode between the auditor and the auditee. We think it’s hugely important to not go there. We try to set a tone and an approach that this whole thing is very collaborative.

We’re interested in your answers. We’re not going to roll our eyes. We’re not going to challenge the consensus among the staff of the producer. If you guys think something is working, we accept that. That makes us more effective and sets the right tone and gets everybody thinking positively about how to get better in the future.

Russel:  I’m reminded of a joke that I was told when I was in the Air Force. In the Air Force, there’s an inspector general. The inspector general goes around. He audits various organizations. You also have the base commander who’s the guy who is in charge of running the base.

I was once told that the two biggest lies in the Air Force are when the IG gets off the plane and says, “We’re here to help,” and when the base commander shakes his hand and says, “We’re glad to see you.” [laughs] We’d like for that to actually be true that we’re actually collaboratively trying to get better as an industry, that that’s what this is all about.

Yogi:  At the risk of boasting, we like to think that those two statements are in fact true once the staff of a given producer have completed our self-assessment process with us. They don’t go to the vice president after we’re shown to the door, whisper in his ear and say, “Don’t ever invite those idiots into our office again.” We don’t think that happens, and we’re proud of the fact that it doesn’t.

Russel:  I think you’ve laid out a process and a way of approaching this that can be very constructive. I think, what I like to do at the end of a lot of these episodes is kind of what are my three key takeaways?

I’m noodling on what that might be, so I think one takeaway here is that the idea that the answer is either “yes or no” versus “I want to give myself a score.” That actually simplifies and clarifies the process. I think that’s a pretty powerful idea.

Yogi:  We think it is, and if you look at pipelinesms.org and look at their evaluation Excel spreadsheet, they try to rank things between one and five. We think that’s a horrible idea because people always want to debate whether we’re a two, or three or a four, and all that does is build conflict, not harmony.

Russel:  I think in larger pipeline operations like the large multistate transmission lines, that is a more valid way of understanding the nature of my current level performance, and it’s helpful in terms of understanding how to apply resources, because in a company whose core business is pipelining, they’re doing all of that.

The question is how effective are we doing it, versus in a smaller operator, the issue is more, “Am I doing it or not?”

Yogi:  I agree with the difference you’re referring to is between pipeline companies and oil companies that have pipelines.

Russel:  Yeah and SMS is written as a standard for people whose core business is pipeline. That’s my first key takeaway. I think for the smaller guy who’s struggling with it, kind of a digital answer yes/no, I think that’s really powerful.

I think the other really creative thing you’re doing in the way you’re asking your questions, kind of my second key takeaway, is this phrase, “How do you assure yourself that?” That is a really powerful concept. In fact, I might co-op that and train some people here to say that — when we do some kind of work for our customers.

Yogi:  We’d love to have you walk away, Russel, thinking we invented that, but the reality is that we unabashedly stole that from the SOX auditors. They’re the ones who really, when SOX came into being a decade or two ago, they’re the ones who invented that.

Russel:  I think the third takeaway here is that — and this is kind of a conclusion I’m come to as we’re wrapping up the conversation — is that the nature of how you do this needs to be kind of appropriate to the kind of operation you have.

What’s appropriate for a small producer that has pipelines that’s trying to demonstrate I’m moving the needle in a good direction is very different than what a large pipeline operator might need to do.

While the details might be the same, the approach might need to be materially different. And I think that’s an important takeaway in this conversation as well.

Yogi:  To build on that, we’re very successful by getting all the pipeline people in a room for one day, and it’s usually just five or six people, and we can get through the whole process in one business day. You can’t do that with a national pipeline organization, because they have a roomful or a building full of people who do these things.

Russel:  It’s a much more complicated thing. Yogi, this has been really good. I’ve certainly learned some things here and enjoyed the conversation. I appreciate you coming on and being a guest.

I think we’d like to have you back and talk about some of these other issues in more detail at some point in the future. Thanks for joining us.

Yogi:  I appreciate you giving us the opportunity to chat with you and build what I hope will be a useful podcast for your audience. Thank you very much.

Russel:  If our listeners wanted to reach out and get in touch with you, what’s the best way to do that?

Yogi:  Easiest way is just to type my name into Google, Yogi Schulz, and you’ll get my email address, and you’ll get to our website, and we’d be pleased to start a discussion.

Russel:  Awesome. Thanks again, Yogi.

Yogi:  Great to chat with you, Russel. Thank you.

Russel:  I hope you enjoy this week’s episode of the Pipeliners Podcast and our conversation with Yogi Schulz. Just a reminder, before you go, you should register to win our customized Pipeliners Podcast YETI tumbler.

Simply visit pipelinepodcastnetwork.com/win to enter yourself in the drawing. If you would like to support the podcast, please leave us a review on your smart device podcast application. You can find instructions at pipelinepodcastnetwork.com.

If you have ideas, questions or topics you would be interested in, please let us know on the Contact Us page of pipelinepodcastnetwork.com or reach out to me on LinkedIn. Thanks for listening. I’ll talk to you next week.

Transcription by CastingWords