Engineering Manufacturing Systems

& Management

Master of Science:

Engineering & Systems Management

8/22/2011

Research Thesis:

Supply Chain in Oil & Gas Industries, Quality

Developments within the Business

| Alanazi, Hassan Saleh

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Acknowledgements

I would like to thank my family and especially my father for supporting me financially

before the beginning of King Abdullah Scholarship program and continued thereafter. Without

his continued support and encouragement I would not have had the resolve to complete this

degree. Again, I would like to thank King Abdullah, Ministry of Higher Education and Saudi

Cultural Mission to the U.S. for their great effort, opportunity and support.

Finally, I would like to thank Dr. Bavarian, for all of his support during the course of my

thesis research. His dedication to the improvement of the engineering and management systems

at California State University of Northridge was instrumental in my continued education. The

time spent by Dr. Rajai, Douglas and Waleed, reviewing this research and participating as part of

my committee is very much appreciated.

Furthermore, I would like to thank Chevron Engineering and Projects department for

providing me with the resources and support necessary to complete my research properly. It is

my pleasure to be working in an environment where pursuing new technologies are encouraged

and rewarded.

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Table of Contents

1. Abstract…………………………………………………………………………………….....5

2. Introduction ………………………………………………………………………………..6-7

3. Chevron & Other Oil & Gas Industries Overview ………………………………..……...….7

4. Upstream Business

4.1Exploration………………………………………………………………….…....9-12

4.2. Drilling………………………………………………………………………....12-15

4.3. New Production Development of Heavy Oil………………………………..…16-18

4.4. New Standards & Technology………………….……………………………...18-22

4.5. British Petroleum BP Blowout Investigation………………………...………..23-29

4.6. Engineering & Projects Management ………………………………...………30-33

5. Downstream

5.1. Refining Process……………………………………………………………….35-38

5.2 Storage & Transportations……………………………………….……………..38-39

5.3. Pipelines………………………………………………………....……………...…40

5.4. Marketing…….……………………………………………….…………..…....41-43

6. Quality

6.1. Lean Six Sigma & Process Phases…………………….…….……………...…44-47

6.2. Quality Management………………………………………...………….….…..…47

6.3. Quality Control Continues Reservoir Modeling…………….…………………....48

6.4. The International Organization of Standardization ISO…………………..…..…48

6.5. American Petroleum Institute API………………………………………...….….49

6.7. Application of Lean Sigma Real Life Projects……………………...…...…....49-55

7. Recommendations & Conclusions…………………………………………………....…….56

8. References………………………………………………....…………………………….57-60

9. Figures & Tables Index …………………………………………………………………61-62

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Abstract

Supply chain is a cascaded process that starts from a raw material ending up delivered to

customers. As in oil industry, supply chain starts from under the ground crude oil passing

through a daily process ending up to customer. An upstream business involves exploration of oil

reserves and drilling after confirming the location of oil reserves. Work over, outsourcing,

commissioning, purchasing and project management are also is part of the upstream

organizations. The cost of oil fields projects could be any range of Mega Million Dollars. When

the oil gets produced of the ground, it gets transported to downstream business for storage,

delivery or further processing means. The downstream business receives the crude oil through

special specified pipelines. Either the crude oil gets shipped or goes for further processing and

refining. The refining process involves separation of oil, water and gas where this process cost an

oil organization Millions of dollar. Then, the oil goes for cracking and further processing to

produce petroleum products as of gasoline, kerosene, gas, jet fuels, manufacturing fuels and

other products. The prices of these oil products are controlled by the quality of the chemical

composites and efficiency. As we can see, Chevron and Shell gas prices are the highest in the

U.S. compared to Arco and other stations. Then, the oil, gas and its products are shipped based

on the demand of customers by oil ocean tankers, pipelines and vacuum trucks. Every aspect of

upstream and downstream processes, a lean six sigma is applied to resolve a technical,

management or performance issue for future improvement purposes. Quality aspects and

requirements are embedded in the oil process to ensure customer satisfactions, implementation of

international standards and quality management systems QMS, which is also in line to minimum

costs, safety issues and cost effects (1 – 39).

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Introduction

Supply chain is defined as the flow of materials from an original source to another and

finally to the consumer. Supply chain consists of logistics purchasing, procurement, leadership,

management, manufacturing, distribution and marketing. It is a system made up of business

activities, information, resources and technology in moving a product from its original supplier

to customers (1). When consumers have a demand for a quantity of a petroleum product, it is in

general possible to meet the demand using a number of equivalent products”. There are some

factors that affects the “supply chain decision” such as “ season of the year” , the “availability of

appropriate transportation and time”(2).

Figure 1: Supply Chain Flow Diagram

Within oil and gas industries, supply chain consists of sophisticated system where its

initial process starts at upper stream to downstream as shown in the block diagram shown in the

above figure. Supply chain starts from the original supplier where the crude oil and gas have

been produced through a complex process. A downstream business is where gas and oil get

separated, transported and stored in oil or gas tanks in order to be refined and shipped to the

downstream sub divisions. Ending up to selling and shipping of oil, gas or oil get pumped to oil

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tankers where a crude oil is sold depending on the type and quantity by Barrels. Customers and

companies use these products in their daily life production such as companies producing

petrochemicals, navigation industries, chemical products and other oil derived products. Most of

the large producing oil and gas companies in the world follow relatively similar supply chain

process where the process is divided into upstream, midstream and downstream such as Chevron,

British Petroleum, ExxonMobil, Saudi American Oil Company (ARAMCO) and other

specialized Oil Producers Exporting Countries OPEC(1)(2).

In this research, I am going to discuss the supply chain process from upstream to

downstream and how quality is embedded into the oil and gas industries such as Chevron,

British Petroleum BP and other oil businesses.

Chevron & Other Oil & Gas Industries Overview

Chevron headquarter is located at San Ramon California. It is one of the fortune 500

companies and its major focus is oil and gas production. Shell, ExxonMobil and other oil

producing industries supply chain is classified into upstream and downstream related to each

other. For example, if there is a higher production and revenues from producing oil , there would

be more financial support to other department such as projects, facilities engineering, research

and development areas for improvements. Chevron’s supply chain is divided into four major

global organizations:

Latin America and Africa

North America

Europe, Eurasia and middle east

South Asia (3)

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Upstream Business

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Upstream is an organization that is specialized in initiating the oil production process.

Geologists, engineers and scientists are heavily involved in this stage. Thus, it requires more

scientific theories and earth crusts studies to confirm an existence of oil reservoirs below the

earth. Most of oil industries contract and consult with other specialized organizations. For

example, Schlumberger or Baker Hughes companies are specialized in performing a high-tech

drilling instruments, exploring and offshore installation of equipment of special oil and gas

exploration early phases.

Exploration

In a global upstream gas and oil operations, business organizations partners develop and

share best practices involving people, embedding quality performance improvement and risk

management leadership. Thus, always strive to a better in ways that positively impact the full

value supply chain management in the upstream business.

Exploration and drilling are typically different and dependable on the type of weather. Since

there is an offshore and onshore operation, scientists and engineers have to consider risk,

complexity and other natural scientific factors. In the drilling process, mechanical or electrical

errors may exist where diverse fields of engineering professionals have to be available. Thus,

project engineers have a comprehensive knowledge and background in every field to ensure

reliability, operability and maintainability. Also, communications within diverse engineering

fields is important in all operations and production. At the offshore operations, there are

additional constraints that have to be considered such as the deepness of the water, weather

conditions, the distance of the logistical base. Also, geologists consider mainly the type of the

soil or surface geology. Offshore and onshore are different in the way the rig is supported. A

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drilling could cost a company average of hundred thousand dollars daily till the drilling process

reach to the oil and gas reservoir then the production (4)(5).

There are high technology techniques and tools most of the leading oil companies

utilize. The most important tool is seismic surveying. It ensures an extensive result in detection

of oil and gas and brings up to date drilling operation and rig system employment in exploration

and production of crude oil. An adequate quality systems and standardized measures is

established in techniques adopt accepted in carrying out wiring, logging, casing, tubing and

drilling operations in exploration and production of high volume of crude oil in the

company(4)(5).

Surveying team consists of two crews on board the exploration vessel:

- One crew is for the normal navigational operations

- Another crew is for carrying out the seismic measurements.

There are two and three dimensional surveying (2D & 3D). The 2D and 3D is used for

“structural and reservoir mapping in the oil exploration”. Other types of surveying are used in

some applications such as surveying in deserts and hills. In Saudi Arabia, a “vibroseis” vibration

surveying is used. Other ways of exploration methods are also used such as “Satellite imagery

and air photos” (4) (5).

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“Wire line logging for down-hole formation evaluation is extremely important after

exploratory well drilling. Type of Logs: Gamma ray, neutron density, resistivity, porosity,

cement bond, caliper, FMI and pressure, to name just a few” (6).

Offshore : Seismic Surveying Aero Magnetic exploration (7)

In the Middle Eastern and Eurasian development, the black sea is under investigation of an

offshore deep water exploration and drilling stages to produce about 6.5 million barrels a day.

The proposed working area is going to be about “3320 square miles” in the black sea. The

drilling of the licensed area is going to be executed in 2011 (5) (6).

Electro-Magnetotelluric ( EMT ) – eField Exploration LLP

This is a new system implemented by California-based eField Exploration LLP. Instead

of transmitting high energy Electromagnetic singles, this system uses natural EM fields as the

energy source. This system measures resistivity and conductivity where it flies 100 miles

offshore over water up to thousand feet deep, the data acquisition gets completed by less than a

week using a specially designed sensor package. Oil and gas wells are basically a blend of salty

water and dissolved hydrocarbons. When currents flow through the limits between hydrocarbons

and water, they generate intensive double layer electric charge effects. The accumulated charges

affects on the variance that can be seen from the air by the eField Airborne EMT system. This

concept is known as a “Natural Field Induced Polarization”, or NFIP(5)(6).

For the offshore exploration and drilling operation, Chevron achieved great results in the two

of the top 5 projects among other companies as BP and ExxonMobil in Tahiti in the gulf of

Mexico and Tombua-Landana offshore Angola.

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Figure 2: 3-D Seismic Simulation

Subsurface exploration:

The aim of subsurface exploration is to explore the nature of the soil, sand and rocks

formation. Due to the complexity of oil drilling and production, scientists have to find a the right

equipment, factors and appropriate materials to drill inside the reservoir. Also, they consider

factors such as cores, porosity, rocks formation and reservoir rocks either a limestone or

sandstone they’ll be treated differently. Offshore drilling are conducted from platforms which

either float or are fixed to the sea bed. Offshore drilling rig has a diver support and meteorology

station. Once a seismic survey is being conducted, geologists attend the site surveys and test the

sand and rocks nature to ensure efficiency in production and drilling services before a drilling

request is being ordered(4)(5).

Drilling

To ensure quality drilling, a final casing is being installed of different lengths to assure

drilling efficiency. A logging system then has to be put to confirm there are hydrocarbons in the

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oil wells. Thus, a successful and safe operating of tubing is ensured to the production area. Then,

a Christmas tree is being fixed where a design of different valves is being installed based on

specifications and specification and requirement of everyday tasks (5).

In association with Chevron partners, who are market leaders in the drilling services,

most of the companies offer comprehensive oilfield services such as seismic services, specialty

chemical production, petro physical and data acquisition, processing and analyzing services.

Some of these specialized companies are Schlumberger, Baker Hughes and Synergy (6) (8).

General Drilling Quality Components

o Application of common process

o Technology

o Engaging with the Marketplace and people

Common process is a way of finding comprehensive way of implementing plans across

the whole drilling and completions community based on operation practices. Each company that

is brought to Chevron, British Petroleum and Saudi ARAMCO has a different way of planning

and executing wells. Most likely oil or gas drilling has to go through these five general processes

to avoid failures and achieve an optimum successful rig drilling completion. The five drilling

processes are as follow:

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Drilling Process

Who are the people expected to be Involved in the Process?

Geologists Geologists Geologists Geologists Advisor

Scientists Artist Salesman Supervisor Geologists

Geophysicist Designer Procurement Engineers Engineers

Petroleum& Other Engineers Engineers Petroleum Engineers

F A C T O R S

Porosity Maps Marketing Drill Bits Perforation

Pressure Cross Sections Cost Estimation Mud Logger

Drilling record Budgeting Well Cuttings

Maps Legal Rights Cores

Cross Sections Financing Logging Tools

Computer Simulation Buyers

Figure 3: Drilling Process

Most of the leading drilling companies identify the technology that are currently available

or that needs to be developed to assure, improve quality and ensure excellent performance. Every

year there is an improvement of minimum 10% of drilling methodology and materials that keeps

drilling companies informed from users and observers to give feedback when facing drilling

problems as we can see in the latest British Petroleum company oil spill disaster in the Gulf of

1

Prospecting

2

Packaging

3

Selling the

Deal

4 Drilling 5 Completion

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Mexico as I’ll discuss a summarized approach of the cause of this problem at the end of this

research (8).

Technology types are most likely to be involved for the purpose of development where it

usually starts from the research and development institution within an organization. A

development involves studies of existing technology, extrapolation of existing and new

technology. Existing technology consist of equipment, machinery, tools, assets and other existing

technology that has been tested and utilized successfully on one or more comparable prior

occasions. For instance, a new technology has to be previously used and described in previous

design specifications, design standards, identified end users and established organized processes

with full description of details. Thus, quality standards ensure general safety procedures and

assurance of risk minimization. A new technology has to be assessed before its use to avoid any

high risk associated and it has to be suitable for the industry demand and service. Professionals

and experts employ and test new technology instruments to an oil drilling facilities by

installation, instruction and a whole up to date procedure to avoid uncertainties at any time,

reduce future failures and risks (8).

The complexity of the wells is raising and the demand for right people in the right places

is high. Oil industries are demanding more specialized personnel in drilling operations and

completions due to the complexity of the drilling and risk associated with it. To ensure efficiency

on services, drilling services companies are being conducted through drilling contractors and

suppliers such as Schlumberger Company and Baker Hughes where they are known to their

service provider of an excellent performance (8).

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New Production Development of Heavy Oil

Due to the complexity of most of the heavy crude oil composite, a new era of oil well

simulation technology has been invented. Nowadays, oil industries are facing a problem with the

oil extracting out of the wells. Therefore, the new invention is to inject steam under the ground to

facilitate its movement out of the well. Porosity composite in the sandstones as we can see in

Wafra Oil wells and Bakersfield need more well simulation. Thus, there are steam flood projects

under structure in Bakersfield California and Wafra Kuwait (9) (10).

Chevron has pioneered the integration of horizontal wells, water flooding, sand control

and lifting techniques to successfully develop heavy oil fields offshore. The company’s Captain

and Alba fields in North Sea are among the world’s premier offshore heavy oil projects. Many of

the same methods are in use at the heavy Kuito Field, offshore Angola and in China’s Bohai Bay

developments. The company has announced plans to develop the Frade Filed deepwater heavy

oil project in Brazil. Potential future developments include the heavy Herbon Field, off-shore

Newfoundland (11).

Chevron’s new “Intersect” reservoir simulator, being jointly developed with

Schlumberger, a specialized oil drilling services company, will rapidly churn out multiple

simulations in much greater detail, revealing new ways to optimize current heavy oil projects and

improving Chevron’s ability to design new ones. The two companies are also building a

simulator exclusively for the unique subsurface conditions and specialized methods of heavy oil

projects (11).

Delivering steam of the correct mass quality to complex, stacked reservoir sands is a

critical skill. Based on proprietary steam-flow research, Chevron has developed special, down-

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hole steam-control devices to double production in areas of poor steam distribution in its major

thermal reservoirs. The company’s unique steam-profile control systems use specialized packing

elements and low- or ultra-low pressure loss flow control devices (10)(11).

Figure 4: Kern River Production Development

As shown in the graph above, production data of Kern River in California. In the

beginning of 1960 to 1970 an increase in production rate when they embedded heated oil

reservoir. Thereafter, they started using steam wells injection where a remarkable increase of 20

in the oil production. Forecast of steam flood injection future is going to be rising over the next

30 to 40 years (11) (12).

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Figure 5: Onshore & offshore Rig Parts (13)

Shell & Other Industries New Standards & Drilling Technology:

Chevron & other oil companies have developed a new technology of drilling. They set

new standards for drilling throughout their global stream. It’s called an “AutoTrak@ steerable

rotary system” and PowerDrive rotary system which manufactured by Schlumberger specialized

company for drilling services. These systems are controlled remotely by a computer operator. It

sends back and forth signals from the rig to the computer and vice versa. These signals control

the drilling procedure by an advanced computer operator regardless of how complex the drilling

is. Depending on the system’s capability, digging into more details of the drilling specifications

could play a major role in the performance and efficiency of the drilling. For example, Power

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Drive rotary system can adjust the drilling bits according to the rock’s formation underground

(14).

Also, one of Chevron joint operation companies in Kuwait is using a communication

technology called WiMAX communications system. This system ensures efficiency in

communication between drilling and work over rigs operating in remote locations. There are

eight rigs where they are all linked up to a Local Area Network and “gives 360 degree coverage

for up to 17 Kilometers”. This covers Wafra Joint operations and Om Gudair. This partitioned

area is called a Partitioned Neutral Zone where the crude oil produced is been divided between

two governments shares. Therefore, this goes into Middle East upstream exploration and

production (9).

Figure 6: Interconnection of Many Oil & Gas Platforms

In the drilling, production and crude oil operations, a specialized company for drilling or

work over areas is on a close communication with other joint operations to ensure high

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performance, high quality performance and reliability. For example, in Kuwait and Saudi Arabia

Partitioned Neutral Zone, Chevron monitors its production and drilling operations through a

SCADA system and other communication methodology with the support of Schlumberger’s

scientists and engineers’ expertise. SCADA shell oil pipelines facilities is capable of providing

the monitoring centers with data of wellhead pump and provide chevron monitoring centers with

typically monitoring, control and emergency shutdown capabilities in case of fire or emergency.

These data that are used within chevron SCADA system is linked and shared among all Chevron

organization globally (15).

In General, there are few major drilling systems:

1- Power System

o Diesel engines are the main source of power to be supplied to electrical generators

and provide the drilling with electricity at voltage approximately equals to 440

Volts.

o Electrical generators work with the aid of diesel engines to provide power to

facilitate the drilling process(16)

2- Rotary System

o Drilling Bits Types:

Steel Tooth roller cone bit

Tungsten

Imperiled Diamond Bit

Gold Series

3- Figure 7: Drilling Bits

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Figure 7: Drilling Bits

Each of these drilling bits types get improved by performance every year by 10% from

previous model to increase the performance of the drilling and productivity. This is done with the

quality control and assurance team (17).

o Top Drive or swivel is a tool that takes control of the weight of the drilling and

rotation movement and applies pressurized seal into the hole.

o Kelly is a set of sided pipes that connect turntable and drill string together. It

transports the movement between the turntable and drill string.

o Pipe Connections has a process of adding a new length pipe referred as “making

connection”.

o A rotary movement drilling depends on the category of the well. There are three

basic techniques of drilling by rotary movement:

First, a rotary motion is transmitted through a pipe produced by a rotary table.

- “A power swivel is connected directly to the last drill pipe” (16)

- Drilling Engine “Turbo-Drilling” (16).

While drilling mud is dispersed into the well, Mud is pumped by a mud pump flowing

through the center of the “drill-string” and exiting to the surface by flowing through the drill

pipes and the well. The drilling mud has five main functions. It helps cleaning the base of the

well. Also, drilling mud helps with cooling down the drilling bits. During drilling, drilling bits

get in touch with the rocks and thus, generate high temperature which causes the bits to increase

its temperature from a deep high fraction between the bits and rocks. Third,, the mud helps on

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lubricating the drilling bits and strengthening the walls of the “well-borne”. Finally, it helps in

adjusting the pressure such as to contain the flow of oil, gas or water from a drilled formation

(16).

Figure 8: Derrick

4- Derrick :

Derrick is a lifting machine that facilitates the lifting process of pipes and drilling rotary

system. In the old days, derrick is used to be carried manually with human power. Nowadays, oil

drilling firms use motors with a torque of five hundred horsepower and above to lift and lower

down objects. This is located above the drilling bore and in the same direction of the drilling bits.

There are many types of Derrick such as Hallen, Velle and Stülcken Derrick where they have

different uses depending on how heavy the operations and objects they carry(16)

5- Mechanical System

o Hoisting system is used for lifting and lowering heavy objects and cables.

o Turntable

6- Circulating System consists of pumping mud and cutting rocks. The systematic approach

of this system is as follow:

o A pump to suck the mud and pump into the drilling pipes.

o Mud pits: is a pit where all chemicals mix together and form a mixture that eases

the rock cutting down-hole.

o Pipes and hoses are used to extend pipes together and connect them to the drilling

equipment.

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British Petroleum BP Blowout Investigation

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Possible Causes of the Oil Spill Crisis

The main cause of the oil spill disaster is still under investigation and is unclear. There

could be possible sources of errors as lack of routine maintenance, lack of training and lack of

inspections. In the drilling progress, a casing is installed and extracted through the Christmas

tree. Then, the mud fluid that goes inside the drilling tubes is a mixture of chemicals and water to

ease the drilling process. While drilling, a high underground pressure occurred under the blowout

preventer. Oil and high pressure gas over fifteen thousand PSI came out with the mud fluid

through the blowout preventer. As a result the hydraulic system ( Blind Shear Ram ) as shown

the figures below, broken and could not handle the high pressure coming out of the well.

Therefore, an explosion occurred in the well (18).

According to the business insider article stating that:

“Apparently, a pressure surge occurred that could not be controlled. While the equipment

includes all kinds of controls and alarms, and a huge 450 ton device called a blowout preventer,

somehow it was still not possible to control the hydrocarbon flow”(19). With a high pressure,

some uncontrollable gases came out of the oil and which apparently caused ignition and

explosion.

Impacts of the Oil Spill

Environmental Impacts

Gulf of Mexico BP oil spills had its major impact on the fisheries life and tourism in

remarkable figures. It reduced the number of fisheries on the Gulf of Mexico, the countries,

states and cities adjacent to the Gulf. We can notice the figures affect on the table below and how

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the spill threaten the fisheries and mammals and it became a high risk to both tourism, nature,

health, sulfuric acid pollution and threaten of sea creatures distinction(18)(19)

Financial Impacts

Year 1 Year 2 Year 3 Year 4

Alabama

Tourism 3200 3200 3200 3200

Fisheries 1154 1154 1154 1154

AL Total 4354 4354 4354 4354

Lousisana

Tourism 9300 9300 9300 9300

Fisheries 3107 3107 3107 3107

LO Total 12407 12407 12407 12407

MI

Tourism 1600 1600 1600 1600

Fisheries 205 205 205 205

MI Total 1805 1805 1805 1805

Florida

Tourism 57000 57000 57000 57000

Fisheries 5000 5000 5000 5000

Florida

PanHandle(@20%)

Tourism 11400 11400 11400 11400

Fisheries 1000 1000 1000 1000

FL total 12400 12400 12400 12400

Total Tourism 25500 25500 25500 25500

Total Fishiries 5466 5466 5466 5466

Total Tourism &

Fisheries 30966 30966 30966 30966

Assumed Earnings 50% 50% 50% 50%

Economic Losses

Toursim 25% 20% 15% 10%

Fishing 100% 50% 25% 25%

Clean-up Costs 15586

Lost Earnings 5921 3917 2596 1958

Total out of Pocket 21509 3917 2596 1958

Discount Rate 8.00%

Present Value 26773

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Figure 9:Four States Charts Impacted by the Oil Spill (Alabama, Louisiana, Florida &

Mississippi) (18) (19)

Figure 10: Weekly Statistics of BP Oil Spill Frequency of Claims (19)

0

2000

4000

6000

8000

10000

12000

14000

Year 1 Year 2 Year 3 Year 4

AL Total

LO Total

MI Total

FL total

0200400600800

1000120014001600

5-May

10-May

13-May

20-May

28-May

1-Jun

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Figure 10: Weekly Statistics of BP Oil Spill Frequency of Claims (19)

Figure 11: New Containment System by Chevron

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

BP Oil Spill Claims May-June 2010

Claims

Calls in

Claims Made

Claims

Processed

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Figure 12: Blowout Preventer Inner System Parts (18)

Figure 13: Blind Shear Ram

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Figure 14: Blowout Preventer, Rig & Blind Shear Ram(18)

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Engineering and Projects Management

The base line in engineering and project management goal is to ensure a course in a profit

growth by looking into the following factors. A good projects and engineering organization

should have metrics, milestones, key tactics, operation excellence ( Quality Assurance ) and a

detailed cost optimization(22).

Project Engineering

Engineering Projects provide the appropriate project management services and through a

specific system at all phases of projects (opportunity development, develop alternatives; develop

best alternative, execution, commissioning and feedback including support services to all Joint

operations divisions. Chevron Projects Development & Execution Process is a general process

map for projects planning and it is used internally within the company facilities. The purpose of

this process is to provide the project a good quality decision, good team communications, values,

goals and metrics. In most oil industries, the facility project engineering is classified into three

main divisions (Utilities /Services Facilities, Oil/Water Processing Facilities and Production

Facilities). Project engineering functions are as illustrated as opportunity and alternative

development (22).

Opportunity development

Opportunity development function conducts realistic and clear perceptive of the

opportunity on hand by developing project framework in which the scope will include

(opportunity Statement, project scope, vision, stakeholders, vendors, objectives. etc.) Also,

another objective is to ensure alignment with business goals as to develop alternatives by

generating a wide range of potential alternatives for the project and assess these alternatives

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against the project value measures, and select the preferred alternative. Thus, to develop the best

alternative , project engineers coordinates as required with other disciplines and stakeholders for

further development of best alternative(21)(22).

Engineering Services Request

Engineering Service Request is required when a project needs a routine maintenance, new

installation construction, modifying existing facilities, modifying contracts shut down, modifying

running design and running operations. In some other organizations, they are called Engineering

Work Request and the objective is one, to establish a commitment and quality decision making

to achieve the job right.

Request For Recommendation

Most commonly ESR forms are used to authorize an official document for an urgent or

proactive request for recommendation of services such as a design or upgrade to an existing

facility and construction in the company assets.

This type of ESR is used when a design is out of date and on demand for an update or

upgrade to an up to date specifications. This could be implemented by project engineers and

other specialized professionals. An ESR could be requested for a last phases of the design or

before execution of a plan. It is helpful in determining the completion of a project and the

process of the plan. Thus, there would be a weekly, biweekly or monthly inspection to ensure

most the products and materials that are used in construction and design follow certain

company’s standards and laws.

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Other reasons of engineering service request can be a problem Investigation for a current

or pitfalls in design that could affect the people’s safety. Also, engineering service request can be

varied on purpose such as a request for land survey, inspection of materials, inspection of hazard

and request for consultation(21)(22)(23).

Cost Estimates

Every project has a monetary value and time frame regardless of the currency type.

Usually a cost estimate can be conducted by specialized personnel who are experienced and

educated about the market and contractors agreements. Follow up with prices and rates globally

or locally depending on the type of organization or the ongoing project. A good cost estimate

should be conducted with the cooperation of a team looking into a project from different views.

For example, when we look at a project that’s critical to safety and environment we have to

consider the outputs of the project whether they are affecting the environment and what level of

risk is associated with the project output, process or input. Each organization has a cost

management that combines a comprehensive cost tracking characteristics with flexible

systematic tools to facilitate a reasonable product costs. Cost management provides also a

detailed “why-why or what if “analysis for further analysis and inventory appraisal (21).

“Benchmarking has indicated that while both upstream and downstream projects were

achieving good Front End Loading FEL scores, there was still room for improvement. While

Upstream projects 2001-2007 achieved competitive outcomes, recently completed downstream

projects (2008) experienced slippage in both cost competitiveness and cost predictability.

Furthermore, we were starting to see an alarming increase in the frequency and amount of

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supplements from ongoing projects in both upstream and downstream. While the cost of goods

and services COGS was certainly an issue (21)

At the end of project cost estimates and engineering work request orders, alternatives are

being studies to prepare the project for final decision. A final decision making for final selection

and approval will come from the top management.

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Downstream

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Figure 15: Oil & Gas Downstream Flow Process

Downstream organization is a continuation of the upstream and midstream process. A crude

oil gets carried out to be either shipped to customers or it goes to a further processing and

refining. Refining is a valued stage where crude oil gets processed and heated up to produce

chemical products, Kerosene, Gasoline, jet fuels and other power supplement products.

Refining Process:

Figure 16: Refining Process – a

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Crude oil gets pumped through pipes with a specified pressure. The oil goes into boiler

with super heated steam. Then, it goes into a distillation column to facilitate the cracking of the

molecules. Then, it goes into cracking and Alkylations process where they get cracked from

Hydrogen or other type of molecules. Before it gets cracked, the oil goes into a different grades

distillation column as shown in the pictures below to produce Gasoline, Kerosen and other types

of gases and products for daily life usage. The heavier the crude oil, the more difficult to separate

the oil products from each other. (20)

Figure 17: Refining Process – b (24)

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Alanazi, H.S.

Figure 18: Refining Process – c (25)

Crude oil comes out of the ground natural containing hydrocarbons and gases. Hundreds

of Hydrocarbons gets separated by a long process through distillation, high temperature boilers,

hydrocarbon cracking and gas liquefying. Crude oil gets pumped by boosters or high pressure

pumps. Then, the produced Oil goes directly into a refining process based on the customer’s

specifications. There are various customers demand where some of them require gasoline only,

jet fuel or other petrochemicals that are used as raw materials for manufacturing and further

production. One example is SABIC (Saudi Basic Industrial Company) where they are specialized

in gas liquefying, Naptha further processing, gas production for cooking and residential

consumption (20) (25).

The refining processes consist of applying heat on the crude oil using boilers with

multilevel temperatures. The boiled oil is transformed into distillation columns and catalytic

refining and cracking where it pass through a chemical processing then distributed into different

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Alanazi, H.S.

petroleum products. These products are then separated into different tanks. Each tank has

pumping station to separate the quantity into barrels to be sold and shipped using different

manifolds, control valves and pump boosters to control the flow of the transformation (20).

There are many kinds of crude oil. Heavy black oil, medium, light crude oil and extra

light semi clear colored oil. Heavy black crude oil contains a mixture of heavy chemicals,

Sulfuric Acid gas and other hydrocarbons. Other types of crude oil are light crude oil with more

gas contained in. Also, most of the crude oil mixture contains sulfuric acids in a state of solid or

gases that are corrosive to other materials. Therefore, most of the pipeline construction designs,

oil or gas tanks are protected from leakage and any external effect into the inner tanks. These

days, they are facing corrosion through pipelines and areas surrounded by the refineries and oil

tanks areas (20).

Storage & Transportation

Gas and crude oil are different in composite structure and materials that exist in the oil

once it’s produced. Therefore, designers took into consideration for a safety and better pressure ,

temperature and flammable air maintaining to the difference between the gas and oil storage. Oil

storage tanks are usually in a cylindrical shape and they consist of control system instrument in

order control the prevention of extraction or contradiction of the tank in loading or uploading

processes due to over or under pressurizing Hydrogen or Sulfuric Acid corrosion. On the other

hand, liquefied natural gas tanks are usually in a spherical shape to better store the gas on its

liquid or gaseous matter. Thus, this is applied in the transportation of oil and gas at shipping and

uploading stages to the oil and gas tankers.

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Alanazi, H.S.

Figure 19: Gasoline Vacuum Truck

Crude oil, gas and petroleum products are a sophisticated process. It involves

understanding and applying API standards, quality, safety inspections, delivery time and other

factors that affect the economics and net revenues of the supplier and consumer. Thus, all the

tankers and ships are provided with full protection of corrosive materials and any other exterior

influence to the gas or oil tankers. All of these tankers and storage tanks have to be inspected

daily in order to be protected again fire disasters.

Figure 20: Offshore Well Distribution Lines (26)

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Figure 21: Liquefied Natural Gas Spherical Shape Tanks (27)

Figure 22: Oil Tanks Farm (28)

Pipelines:

Pipelines vary in sizes and the oil composite from area to area based on the quantity of oil

and gas going to be pumped. When installing pipelines routes, engineers identify the shortest

distances from the production area to the end user to facilitate an ease flow in shorter time and

distance. Pipelines could be buried under ground, under the sea for loading and for distribution.

Therefore, ISO and API have certain standards to follow when designing and installing the

pipelines to prevent any fire, corrosion or leak issues (29).

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There is different type of tankers, onshore and offshore. There are also special floating oil

tanks offshore where they have a capacity of holding more than one million barrels. This is a

new way of storing oil in order to ship it to the ocean tankers. Oil Ocean Tankers are designed

with new systems where every ship has an average of fifteen oil tanks separated from each other

inside the ship. This new intelligent design is implemented recently in case of any fire in any of

the tank, it doesn’t affect the other tanks and therefore the loss of oil value is minimized (29).

Marketing

Marketing is the wholesale distribution of final petroleum products to variable business

needs ranging from government, public customers, private consumers and other businesses

worldwide. The oil and gas business is controlled by monetary economics and political

conditions. Other factors are also oil spills, rig exploitation rates, oil and gas contracts. Usually

crude oil and gas products get transported to suppliers that provide the most granted and high

value. Thus, the closest customer is the most profitable to the supplier because it would provide

the lowest transportation cost and high returns. The rate of the product flow is also affected by

the demand of the products, refining and quality specifications. As we can see in the gasoline

prices in the U.S. fluctuate up and down due to weather, natural disasters in oil rigs or other

factors mentioned before. Gasoline and Kerosene service stations handle the volume of the

wholesale processes and oil industries distribute oil products directly to manufacturing, marine

services, power plants, aerospace industries, automobiles and other related petroleum products

consumers (29)(30).

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Figure 23: OPEC Downstream Capacity: Existing & Projected (31)

Figure 24: Three Years Oil Production for OPEC Countries (32)

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Figure 25: Gasoline Pump Annual Pump Average Price 1919 – 2011 (33)

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Quality & Six Sigma Applications

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Quality in oil industries is a vital part. It is not only in engineering and manufacturing

processes. It’s also embedded through leadership, management, decision making, planning and

shipping processes. Under quality goes standards, lean sigma and six sigma phases(34).

Lean Six Sigma & Process Phases

Six Sigma is a quality issue solving strategy that is applied to improve the quality of a

process or project outcome by reducing and getting rid of the causes of defects. The

methodology uses multiple tools and techniques to achieve its goal of errors removal. In other

words, Six Sigma consists of five major phases, which are abbreviated as DMAIC. The phases

are: Define Measure, Analyze, Improve, and Control (34).

Six Sigma Process Phases

Define phase, the project studied is summarized and presented. This process consists of

creating a project charter, stating a specific problem, Voice Of the Customers VOC, milestones

and schedule, and the Supplier, Inputs, Process, Outputs, Customers SIPOC diagram. Thus, this

phase results on a comprehensible and a constrained problem definition (34).

The second phase is Measure. First, rank a list of priorities according to the most to the

least relative to the problem. Then, a measurement test is conducted by testing data for various

trials. After running the trials, the quality engineer collects the resulted data and start

transforming these data using software tools, such as Excel or Minitab, into understandable

information and charts, which are Pareto charts, Control charts, and Gage-Run charts (34).

Third is the Analyze phase where the results from the measure phase are analyzed to

determine the problem. The first step is to identify the factor that requires improvements and are

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Critical to Quality for the ongoing process. The results from the studies done in the Define and

Measure phases are going to be deployed. Also, additional tools as, “5 why” analysis, fishbone

diagram or cause-effect diagram (Ishikawa), Failure Modes and Effect Analysis (FMEA), and

scatter plots are applied to clearly identify the problem. To indentify the major contributing root

causes of various number of defects in a process, a Pareto chart can be used to simply discover

the major contributing sources of defects (34).

Figure 26: Fishbone ( Ishikawa) Diagram (35)

Improvement phase is the solutions found from the previous studies are implemented.

All the solutions are found using the outputs of the analysis studies on the process that needs

improvements. These solutions are forecasted to improve the process and get rid of any

variances. The main improvements done on a process are incident free reports, minimizing

process time, profit increase, increase in returns and cost reduction. Tools used in the

improvements phase are kaizen, root cause analysis, 5S’s analysis, and setup reduction.

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The fifth phase is Control. This phase focuses on maintaining the improvements from the

previous phase. As the improvements has been applied successfully, the quality engineers work

on controlling the quality standard of the process by continually applying scheduled follow up

and inspections with benchmarking the reading and outputs. A systematic approach used by the

majority of businesses applying the quality control of their processes is Plan-Do-Check-Act

where it plans the modifications, tests the adjustments, reviews and analyzes the outcomes, and

applies the adjustments (34)

Industries are dependable on major objectives. Production stability, revenue

maximization, high quality output, and cost reduction are the main goals that any business tries

to achieve. To reach these goals, organizations apply different techniques and strategies such as

financial analysis, business expansion, and quality improvements. For quality improvements,

companies adapt different tools. These tools are available within quality management (34).

Quality Management

Quality management is defined as the exercising of quality assurance, quality control, and

quality improvement to achieve the quality standard required by a business. Quality assurance is

the process of observing production performance to have a satisfactory result for the customers

and business. Quality control is the tools and processes of maintaining the quality standards and

levels of the production. Inspection of materials and test of products go under quality control. It

also includes product reliability analysis, team spirit, safety and integrity. As quality

improvement is the process or techniques used to improve the quality level of the production

supported by the Quality control and assurance standards (36).

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Quality Control Continues Reservoir Modeling

Chevron geoscientists maintain detailed, 3-D geocellular models of active reservoirs.

Using sophisticated data quality control and reduction, advanced earth modeling, and project

surveillance data from thousands of field measurements, they assess saturations, energy, flow

capacity and zone connectivity throughout the reservoir with high confidence based on these

models. This provides a basis for applying proprietary skills in Heat Management (37).

The International Organization of Standardization (ISO)

For quality management to be applied, different institutes has constructed a

variety of quality benchmarks applicable to the work environment. These quality scales have

been constructed based on research and studies done within the industries and corporations. The

most well known organization is the International Organization of Standardization ISO. The ISO

has established different standards, guides, and technical information that assist businesses to

sustain and improve their quality standards.

Because of the major significance of quality management in any industry, industrial

organizations started to adapt different systematic approaches to monitor, maintain, and improve

the quality level of their products and services. A main method used within the majority of

businesses is Total Quality Management TQM. The International Organization of

Standardization ISO defined TQM as “a management approach for an organization, centered on

quality, based on the participation of all its members and aiming at long-term success through

customer satisfaction, and benefits to all members of the organization and to society”(36).

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American Petroleum Institute Standards (API)

API is well established organization that is used worldwide in the oil industries and oil

related projects such as oil and gas pipelines and pump stations. Every API is followed by two to

three digits correspond a certain standard which is mostly relative to quality, safety in design,

specification, cost and other related standardized items as illustrated in this figure: APIXXX.

Applications of Lean Sigma Real Life Projects

Electrical Pump Failure

This is one of SAUDI ARAMCO (Arabian American Company) lean six sigma project.

They used six sigma applications with the help of green belt project leader, production engineers,

mechanical engineer and foremen. This Electrical Submersible pump consists of transformers

with LV, HV, ventilation box, electrical cables, sealing system and motor control. The project

objective was to determine the root causes of the electrical system failure and make

recommendation for improvements for a minimum of three years life. This involves

implementation of process improvement and maintains a good quality control of the process.

Also, the electrical system cost the company a three million dollars averaging less than three

years of life (38).

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Figure 27: Histogram of Electrical System Run Life / year (38)

SIPOC is a supplier, input, process, and output and customers breakdown details of the electrical

failure issue with pumps.

Figure 28: SIPOC

Supplier Input Process Output Customers

Power

Distribution

Dept

Electrical

Design pump

for required

Rate

Ele

ctri

cal

Subm

ersi

ble

Pum

p t

o d

eliv

er o

il

Pro

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ion

- P

roduct

ion

Dep

t.

- O

utp

ut

mea

sure

=

elec

tric

al s

ubm

ersi

ble

pum

ps

def

ect

( ru

n-l

ife)

Production

Engineer Oil

Install

Alkhorayf

Cable

Control

Technicians Maintain

Field Services Operators Replace defect pump

Workover Well

Completion

Evaluate

Performance

Reservoir

Management

Reservoir

Characterization

Centerlift Co.

Pumps/Seals

Specification

Motors

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Figure 29: Electrical Failure Cause & Effect Diagram (38)

A cause and effect diagram indicates the problems with their causes. Brainstorming many

relative causes to the problem with their causes are efficient way to lead the highest contributing

causes to the effect (38).

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Figure 30: Line Plot of Number of Failures vs. Number of Feeder Trips (38)

Figure 31: Pareto Chart of Root Causes of The Electric Failure (38)

A Pareto chart plot is a very good way to do a root cause analysis study. As seen on the

chart above, it clearly identifies the highest cause numbered 5 then 4 as these are root causes.

Therefore, sand, scale, downthrust and seal are mostly likely to be the root causes of the problem

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and engineers have to work mainly on these causes to improve. Then, it’s easy to identify and

classify the problems in the order of their frequency and priority as seen in Failures Mode &

Effects Analysis table shown below (38).

Figure 32: FMEA Failure Analysis (38)

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Application of Lean Sigma in the Refining Process

A Six sigma concept is an effective methodology used in the oil refining process because

of the significance of it to monetary terms, revenues, costs, and production. Depending on the

nature of oil, viscosity or composite, crude oil may contain some solids that require expensive

refining such as sour crude oil where it contains water H2O molecules. This type of oil needs

treatment and a process called Water Treatment Plant to separate or reduce the water from oil

and use it somewhere else. The production of water of a single Water Treatment Facilities Plant

is about three to six million barrels a day. When the problem gets defined, six sigma

improvement teams start to analyze the procedure for treatment function. The main issues that

required improvements were the oil skimming procedure, the pump reliability chemical

treatment, and the distribution of the fluids into parallel tanks to improve the system

performance. This is one of the problems that most of the large oil producing companies are

facing and engineers are investigating resolving this issue (39).

Quality tools displayed a high progress in different businesses. The applications of Six

Sigma helped organizations minimize costs, breakdowns and profitability increase for many

different processes. Nowadays, more than hundred organizations worldwide are applying the

methodology on their production or services systems. For the crude oil and petrochemical

industries, Six Sigma is applied in all of the processes of the production and manufacturing

systems. Before organizations apply the methodology, they identify their processes that need

improvements as an analysis for requirements to the business (39).

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What Does It Mean To Operate Under A Loss Minimization Philosophy In An Oil Industry?

Establish an approach that analyzes a well’s performance frequently, even continuously,

prior to complete failure.

Reach with urgency to moderate drops in production at the most economic point.

Define the well maintenance program as a system for minimizing lost production.

Use well maintenance and data quality metrics to standardize , benchmark and improve

performance.

Raise base production/ reduce decline to new standards.

Loss Minimization – Cost of Poor Quality

Well Testing Example:

Lean Sigma principles are applied to well gauging in most of the large companies

specifically at Chevron. For example, in a test station, chevron analyzes the process capability

for last gauges specification, where it has a certain percentile of crude oil:

PCI = Cpk = Spec / 3 σ

Also, a graphical analysis can be drawn for an Oil Rate Barrel of Oil Per Day for a three

months study versus number of days about hundred days. Then, conduct a study for any system

failure and optimum production loss. At the end of the study period, an analyst could find out an

oil margin work over cost payout time, decline rate and well success work rate (38).

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Recommendations & Conclusion

Oil production is an indirect source of our daily life. Oil and gas operations are emission

dangerous gases into the air. The Gas Emission Organizations are working for a gas emission

free environment at the end of 2012. Oil industries and other manufacturing organizations should

look for alternatives to save the environment such as: solar energy, wind mills and other gas free

generation sources.

Supply chain in the oil industries consists of extracting the oil from the ground, processing

and providing services to that oil till it gets transported to the end user or customer. Thus, this

process is called upstream and downstream. Upstream and downstream oil industries employ

almost the same principles of processes with a slightly variations in production capacity,

financial costs and revenues. Upstream business includes the exploration, drilling, production,

projects and purchasing of heavy essential equipment for drilling of oil onshore and offshore.

Downstream business is the process flow of upstream where crude oil gets transported to

downstream. Crude oil gets distributed to refineries or directly to consumers. When it goes to

refineries, they treat and process the oil to be separated from water and will get petrochemical

products as daily production such as gasoline, kerosene, residential and other chemicals that are

used as basic industrial manufacturing. Quality plays a major role in cost reduction and

identifying problems within oil productions and ensures safety and oil operations. Lean sigma is

applied to refinery processes, training, management, safety, production, transportation and other

problems occurring within the upstream and downstream.

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Figures & Tables

Figure 1: Supply Chain Flow Diagram

Figure 2: 3-D Seismic Simulation

Figure 3: Drilling Process

Figure 4: Kern River Production Development

Figure 5: Onshore & offshore Rig Parts

Figure 6: Interconnection of Many Oil & Gas Platforms

Figure 7: Drilling Bits

Figure 8: Derrick

Figure 9: Four States Charts Impacted by the Oil Spill

Figure 10: Weekly Statistics of BP Oil Spill Frequency of Claims

Figure 11: New Containment System by Chevron

Figure 12: Blowout Preventer Inner System Parts

Figure 13: Blind Shear Ram

Figure 14: Blowout Preventer, Rig & Blind Shear Ram

Figure 15: Oil & Gas Downstream Flow Process

Figure 16: Refining Process – a

Figure 17: Refining Process – b

Figure 18: Refining Process – c

Figure 19: Gasoline Vacuum Truck

Figure 20: Offshore Well Distribution Lines

Figure 21: Liquefied Natural Gas Spherical Shape Tanks

Figure 22: Oil Tanks Farm

Figure 23: OPEC Downstream Capacity: Existing & Projected

Figure 24: Three Years Oil Production for OPEC Countries

Figure 25: Gasoline Pump Annual Pump Average Price 1919 – 2011

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Figure 26: Fishbone ( Ishikawa) Diagram

Figure 27: Histogram of Electrical System Run Life / year

Figure 28: SIPOC

Figure 29: Electrical Failure Cause & Effect Diagram

Figure 30: Line Plot of Number of Failures vs. Number of Feeder Trips

Figure 31: Pareto Chart of Root Causes of The Electric Failure

Figure 32: FMEA Failure Analysis

Table: Four Years Cost Estimation of The Oil Spill Impacts