The Evolution of Reliability: A Q&A with Texas Railroad Commissioner Ryan Sitton

Inspectioneering recently had the opportunity to sit down with Texas Railroad Commissioner Ryan Sitton and discuss the evolution of reliability in the oil and gas industry. As a mechanical engineer and former CEO of Pinnacle Advanced Reliability Technologies, Commissioner Sitton has a unique perspective on the subject of reliability in the upstream, midstream, and downstream sectors. We hope you find the exchange as interesting and informative as we did. A recording of the entire interview can be viewed here.

Before we begin into the subject of reliability in the oil and gas industry, I wanted to get your opinion on the current state of the energy industry as a whole.

RS: Well, as a lot people know, Texas’ energy production has grown substantially over the last eight years. If you look back to 2008, we were producing around a million barrels a day of oil in the state. Today we're producing almost 3.4 million barrels a day; so we’ve seen huge expansion. Now overall, around the globe we've seen consumption in that same time go from a little under 90 million barrels a day to almost 94 million barrels a day. But even though our consumption has increased, our global production has grown at a higher rate. Hence, we see the decline in pricing. When you look at what's driving that decline, it is the overproduction. And it's driven a lot by the increase in production in the United States. However you're also seeing places like Russia and Saudi Arabia producing at near peaks over their history.

Even with all of this decline in pricing, I will say that the fundamentals in the oil business look better in the United States and they have looked probably in 50 years. Our ability to develop these onshore shale plays using a combination of horizontal drilling and hydraulic fracturing is opening up a production environment that wasn't even feasible just 10 years ago, much less 20 and 30. So we're seeing a really, really powerful opportunity in front of us.

Now that's the upstream side. The downstream side in the United States continues to be competitive because our refineries are seeing advantages in terms of their energy prices. Natural gas the United States is cheaper than anywhere else. We're running in a more reliable or at a higher availability rate than anyone else in the world. So our refineries are exporting a lot of refined products and you're seeing the downstream side of the business still stay very strong.

So across the business it's a difficult environment with low oil prices. However, overall long-term energy prices and long term fundamentals are strong, and the downstream business appears to have a very long runway in front of it to be very strong.

Do you think that your engineering and reliability background provide you with a different perspective of the energy industry than your typical politician?

RS: Oh yes. You don't see very many geeks in politics. When we approach any challenge as engineers we tend to think of ourselves as problem solvers. And right now the challenge in front of us is not just one of regulation for drilling an oil well, or the wellbore integrity, or rules around allocation of production. It's also a question of activity in the public domain. In other words, if you look at all this growth we've seen in Texas in the last eight years, you'll see a lot of that growth came through communities. Where new pipelines were constructed through communities or new oil wells went on to people's properties. New surface activity. And that's raised questions. And those aren't political questions. At the end of the day, the average citizen in the state of Texas and I think, frankly, around the United States, doesn't want to invest the time and energy into understanding the safety programs we have in place, or the safety factor that's in this pipeline, or the standards that we adhere to in these refineries. They don't have the time to learn about those and to understand that they are substantial and are really doing the job. So what they're going to do is look to state agencies and regulatory agencies to help ensure that.

Now, as someone who's been in the industry for 15 years, I know the things that we have done and the engineering prowess that the oil and gas companies and the consultants and subject matter experts have brought to the table. But helping provide a glimpse of that to the average citizen out there is very, very important, and that's where the engineer in me comes into play; helping explain those things where people can have confidence.

So we’re here today to discuss reliability. How do you define reliability and how important do you feel reliability is to the growth and advancement of the energy industry in Texas?

RS: Well, great question, because reliability does get a lot of different definitions out there. But at the end of the day, in our space, reliability basically means the ability of an asset to do its job when we want it to do its job, or when we expect it to do its job. We know that not every asset is going to last forever; and that's okay, as long as we can plan around its life and we know what to expect from it and that it can be a reliable asset.

This has become vital to our business. And when I say our business, whether your exploration and production, your midstream pipeline operations, or your refining and petrochemical operations, the name of the game in a commodity business is: “Can I operate reliably?” I can't control the price of the feedstock that I buy, and I can't control the price of the end product that I sell to the consumer. All I can affect is what I do in the middle. And as an operator, one of the basic levers I can pull is “operate more reliably.” When I want this facility to be operating, that it does, and it responds, and it produces on the pace and on the schedule that it should.

If you look at how the US, for example, the US refining regime competes around the world. Our availability, or the use of our refineries, is higher than everybody else. We're running, depending on who you talk to, somewhere in the low nineties. 92-93 % of our refining capacity is online. You look at places like Europe and other areas around the globe; sometimes they’re as low as 70%. That reliability is where our industries in the United States are leading the pack.

Generally speaking, do you believe energy companies, regulatory bodies, and other politicians are giving reliability the attention it deserves?

RS: I think that energy companies, absolutely. If you talk to anybody, whether they’re a small independent producer, or an independent refiner, or a major integrated oil company, everyone knows that the reliability of operations is crucial to, not just surviving and being profitable, but to running a sustainable operation. When you have unforeseen downtime, when you have, heaven forbid, safety incidents, they're not just unprofitable. They mean it's very difficult to operate your business. So everyone has that is a top priority.

Now, when you get to the regulatory side, we take a little different approach. The regulators tend to not focus on the profitability side of reliability because that's not their job. They focus on the safety, and the community or environmental impacts. And that's where they do take reliability very seriously.

And I think when you look beyond that to general industry and the consumer, at the end of the day how important is reliability to a consumer? Well, they may not think of reliability in a refinery, but by golly if they are experiencing brownouts, or power is down because a power plant is not operating, reliability is not just important, it's expected. It's a quality of life issue. So I think a lot of people are aware of it, even though they may use different words to talk about it.

Commissioner Sitton, in your opinion how valuable are organizations like the American Petroleum Institute (API) or the American Society of Mechanical Engineers (ASME) to the improved safety and reliability of the equipment utilized in oil and gas operations?

RS: Well, they’re vital. And the reason I say that is, at the end of the day the oil companies have to be very careful when they talk about their best practices, because there are expectations of them to compete in a free market environment. And institutions like the American Petroleum Institute, the American Society of Mechanical Engineers, or Texas Alliance of Energy Producers, a Texas based organization, they allow the operators forums to share best practices. Because at the end of the day it's good for our state, it's good for our nation, it's good for the consumer, and it's good for the oil company for us to be safe and reliable. It benefits everybody. So as they can share those lessons learned through those forums and establish best practices in codes and standards, that becomes vital to that company's ability, particularly the smaller companies, to advance their performance by understanding what those best practices look like.

Now, the oil and gas industry tends to address mechanical integrity and safety apart from reliability. However many companies have seen success when they look at these two types of practices as complementary rather than mutually exclusive. In your experience as a successful business owner and now is the Texas Railroad Commissioner, what are some of the things companies should be doing to improve the overall reliability of their assets?

RS: What a great question and you're speaking to the evolution of reliability. As we talk about the topic, it really is about the evolution of how we look at these problems. Let's go back in history a little bit. When you looked at the PSM standard that rolled out in the early 90’s and how that was a step change in expectation of people inside refineries and chemical plants for mechanical integrity. “Oh yes, we have to have a defined mechanical integrity program and we're going to adhere to recognized and generally accepted good engineering practice or RAGAGEP.” And so, very quickly you saw the industry take a step change. And what’s cool is some of the people that drove those changes are still around the industry today. They’re some of the expert consultants that we still see advising some of the big oil and gas advances.

What happened over the 90’s and ended into the 2000’s, is that software programs and computers allowed us to do very large-scale analyses much more quickly than we could in the past. In the early 90’s and late 80’s people were doing a thickness calculation and remaining life calculations by hand. Now, all of a sudden computers could do it on the fly when you just entered a new thickness measurement.

Well then, with newer and newer technology and more advanced modeling, we were able to look at facilities more holistically. So instead of looking at just one asset, one pressure vessel, or one piece of pipe, we can look at the entire system. Sometimes that system may include thousands of assets. And to understand the reliability of the whole system you have to treat all of those assets as one group. But you can only really do that with fairly complex modeling and fairly rapid calculations with which computers offer us.

So now what we're seeing is, we've talked in the mechanical integrity space with risk based inspection for a long time about focusing our resources on the areas that present the highest risk. Well, the next evolution is looking holistically at the facility, or at a unit, or at system and saying: “Let me think beyond just putting those resources to the most valuable inspections. Rather, should those resources go to upgrades, or should they go to modifications, or should they go to different operating parameters, should they go to monitoring?” Or should we say in certain assets “we shouldn’t monitor them at all? We should let them run to failure because the odds of that failure and the consequences, or the risk, is so low compared to the other assets in the system that there's practically no value gained in monitoring those assets.”

But only with this more and more advanced, integrated approach at looking at all these different assets, not discreetly, but together, can we get that holistic picture. And that is the future. You'll see that coming into the mainstream today, and I think over the next ten years, your leading companies will all be doing that. They’ll all be looking at these things holistically and be planning their inspection activities, their upgrades, their turnaround efforts, and their modifications and operating parameters all in the same in the same discussion; in the same plan.

So we’ve touched on the evolution of reliability over the past ten years and discussed the evolution over the next ten years where you believe all equipment will be looked at holistically. What other major fundamental changes to you anticipate in the reliability field?

RS: When you think about things like PHAs or HAZOPs, we have been performing those as an industry every five years on every process unit since the PSM standard came into place, some even before. And what you'll hear from some of our operators is: “Well, you know the first couple of PHAs, the first couple HAZOPs, we got good ideas and good recommendations. But in the last 25 - 30 years we've gotten pretty good at operating these facilities. And in the last couple of rounds of HAZOPs or PHAs, the recommendations haven’t been as fruitful. In fact we’re seeing a lot of the same recommendations.”

What we need to do is empower that group. You're getting a lot of very valuable resources from that operating facility together in one room and asking them to do a deep dive on this unit. Well, why not give them the modeling tools and allow them to really delve into the different reliability impacts? Because reliability, as we said, touches safety, touches profit, touches maintainability, your cost of operation, personnel utilization, etc. So when we look at all the things holistically, I can take that one area up tremendously in terms of how the PHA is leveraged within my facility. And you'll see lots of other areas, such as safety systems analysis, that all are touched by our ability to look at reliability holistically.

So, based on your experience what does the long-term future, let's say 50 years from now, hold for reliability within the industry energy industry?

RS: I'll paint a picture of what I think that looks like.  Let's say, 50 years from now you're dropped in the middle of a really complex oilfield, or the refinery of the future. I think you'll find we’ll all be carrying mobile devices. The little desktop things will be some sort of antique that that our kids joke about us old guys using. And we'll be able to see in real-time what data that is coming into your system tells you about the reliability of your of your system.  So for example, oh yes, the temperature on this compressor has gone up five degrees in the last week, or an inspector just went out and took a thickness measurement on a piece of pipe coming out of the top of this crude column, or we see some vibration readings off of this pump and this bearing. And instantly that looks at not just that one asset, but the entire system, and it tells you what the reliably of that system is going to do now; how it gets changed by that little piece of data.

And when it changes, the business unit leaders, plant manager, or the production unit manager for an exploration production field; they're going to look at that data and say: “how do I affect my business practices based on what these discrete pieces of data tell me about the reliability of this system?” And as you can imagine, these pieces of data are not just going to come in one a day; they're coming in thousands a day. But they're all coming in automated into this one system. And now I can say: “Wow, I’m going to need to move my turnaround date ahead,” or “I've got the ability to push that turnaround date out.” Then I can make that decision somewhat on the fly. I'll be able to say: “Wow, I'm going to change my inspection regime for next year based on the reliability, because it looks like instead I'm going to go to an upgrade strategy based on crude sites that were running.”

And to be able to make those decisions on the fly will not only mean, yes we've gotten more reliable and we run our facilities a higher degree of availability. You'll see the companies implementing those things taking real step changes beyond their competition. And I think it will it will cause another shift in terms of the economics around the entire oil and gas industry.

Last question. What advice can you give to someone looking to start their career in the inspection or mechanical integrity field?

RS: Well, I will tell you it's a fantastic field. And that probably sounds a little bit: “Well, of course you’re going to say that Ryan, that's what you built your business in.” But you know I graduated from high school, my parents were both teachers and we didn't have a lot of money. I actually put myself through school at A&M, I was pretty proud of that.

But getting out now and starting PinnacleART, we have been very blessed. Our business is growing like crazy. And I give credit to Inspectioneering. You’ve helped us with getting that message out. I say “us,” however I’m not the CEO there anymore; I just still talk that way sometimes. But certainly that business benefitted and I benefitted from that. And that was, I like to think because, I'm really sharp. But, I also know it's because there was a lot of need for those types of services.

People who are willing to go into that space and innovate, and who are committed to answering questions like “How do I help this facility? How do I help this customer? How help make sure this asset is not only going to have mechanical integrity, but be reliable to operate? How quickly can I learn, not just about taking thickness measurements, or what a shear wave inspection report looks like, but what does this mean in terms of the operation of a FCC or a crude unit? And what does it mean in terms of the operation of this refinery?” The more you can learn quickly, and the more you can absorb what this business looks like and how reliability fits into the overall picture, the better you'll position yourself to have a tremendous career in this industry.

One thing I’ll hit on; yesterday, I was meeting with a group from the Independent Petroleum Association of America (IPAA). It was their Education Advisory Council. This was a group of people that represent the independent producers saying “What do we need to do to advance the education of the next group of oilfield workers?” And their data tells them that over the next 10 years, fifty percent of the people in the oil and gas industry are going to retire. Now that is a massive amount of job opportunities and these are well paying jobs. So as people come into the industry and evaluate “Where's my niche? Where's my opportunity?” They're going to be everywhere. And if you find your passion in reliability and mechanical integrity, there’s going to be a ton of opportunity there. It's all about how quickly you can learn and how committed you can be to really understanding the holistic picture of reliability.