Safety & Environmental Management System Issue Date: 03/16/2015 Version 3.1 SECTION 8 – ASSURANCE OF QUALITY AND MECHANICAL INTEGRITY OF CRITICAL EQUIPMENT OCS Rig Operations Reviewed By Reviewed By Reviewed By Reviewed By Reviewed By Reviewed By Reviewed By Reviewed By GOM Operations Manager Shelf and Gulf Coast Rig Projects Manager Director of Deepwater Drilling and Completions Director of Corporate HSER GOM HSE Manager GOM Production Engineering Manager GOM Engineering and Construction Manager Major Projects Manager Steve Bodden Craig Brazan Craig Castille Gene Cella Patrick Eiland Michelle Hebert Greg Hernandez Chris Whitney Stone Energy Corporation Stone Energy Corporation Stone Energy Corporation Stone Energy Corporation Stone Energy Corporation Stone Energy Corporation Stone Energy Corporation Stone Energy Corporation Approved By Senior Vice President GOM Operations Keith Seilhan Stone Energy Corporation Version Number: Version Number: Version Number: Version Number: 1.0 2.0 3.0 3.1 Issue Date: Issue Date: Issue Date: Issue Date: 11/15/2011 05/01/2013 05/05/2014 03/16/2015 Commitment Stone Energy Corporation is committed to the Health and Safety of its employees, contractors, and the communities where it operates. We will operate under sound environmental practices and will conduct our operations in compliance with all applicable laws, regulations, and standards. Management Expectations All employees and contractors are individually responsible / accountable for self, coworkers, and community when it comes to safety. All personnel, by actions and example, will strive to ensure a safe work place for employees and contractors. All personnel will respect the communities and areas we work in through compliance and environmental awareness. Page 1 of 9 Safety and Environmental Management System Section 8 – Assurance of Quality and Mechanical Integrity of Critical Equipment OCS Rig Operations Issue Date: 03/16/2015 Version: 3.1 Contents 8. ASSURANCE OF QUALITY AND MECHANICAL INTEGRITY OF CRITICAL EQUIPMENT 3 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 Page 2 of 9 GENERAL .......................................................................................................................... 3 PROCUREMENT .................................................................................................................. 3 8.2.1 PROCUREMENT STRATEGY AND PROCESS................................................................ 3 8.2.2 PROCUREMENT OF CRITICAL EQUIPMENT ................................................................. 4 FABRICATION ..................................................................................................................... 4 INSTALLATION .................................................................................................................... 4 MAINTENANCE ................................................................................................................... 5 TESTING AND INSPECTION................................................................................................... 5 ASSESSMENT OF QUALITY ASSURANCE .............................................................................. 6 8.7.1 PROVIDER REQUIREMENTS...................................................................................... 7 8.7.2 PROVIDER EVALUATION AND APPROVAL ................................................................... 7 8.7.3 PROVIDER AUDITS .................................................................................................. 7 8.7.4 METRICS AND SUMMARIES ...................................................................................... 8 8.7.5 NON-COMPLIANCE .................................................................................................. 8 8.7.6 DISPOSAL OF NON-COMPLIANT MATERIAL ................................................................ 8 POLICY REVIEW ................................................................................................................. 8 8.8.1 BIENNIAL REVIEW ................................................................................................... 8 8.8.2 INCIDENT INVESTIGATION ........................................................................................ 9 Safety and Environmental Management System Section 8 – Assurance of Quality and Mechanical Integrity of Critical Equipment OCS Rig Operations 8. ASSURANCE EQUIPMENT 8.1 GENERAL OF QUALITY AND MECHANICAL Issue Date: 03/16/2015 Version: 3.1 INTEGRITY OF CRITICAL Stone Energy’s management requires procedures to be in place and implemented to assure critical equipment is identified for any facility, well or project. All facilities, wells and delivery systems will be designed, fabricated, installed, tested, inspected, monitored, and maintained in a manner consistent with appropriate service requirements, manufacturer’s recommendations, or industry standards. The overall Stone Energy quality assurance strategy requires conformance to specifications and the establishment of the requirements at the beginning of a project so they become part of the overall project execution plan and maintenance program. The quality assurance strategy will carry over into operating, maintenance, and Management of Change (MOC) procedures. Human factors should be considered, particularly regarding equipment accessibility for operation, maintenance and testing. Stone Energy requires Contractors to have programs in place to address their own critical equipment. The objective of this policy is to: 8.2 Provide a standard for Quality Assurance (QA) and Quality Control (QC) evaluation of critical equipment and services. Reduce operations related non-productive time (NPT). Establish continual improvements through review and corrective actions of nonconformances. PROCUREMENT Stone Energy requires a wide variety of materials and services for use under diverse circumstances and across a wide array of geographical locations. This diversity requires the use of a wide range of procurement strategies and methods. 8.2.1 PROCUREMENT STRATEGY AND PROCESS Employees who are assigned to specific projects are responsible for determining the appropriate purchasing methodology and strategy associated with specific situations, products and/or services. Focus should be on consistent application of the following procurement strategies. Only approved vendors are used to perform services on Stone Energy locations. At minimum, approved vendors have met Stone Energy insurance requirements and have agreed to Stone Energy terms and conditions. Competitive bidding is the most accepted and commonly used purchasing method when the exposure (project risk or financial exposure) is large enough to warrant the time and effort required to competitively bid. Only acceptable bidders are solicited in a bid package. Depending on the situation, this process is conducted in various manners to accommodate varying situations. Page 3 of 9 Safety and Environmental Management System Section 8 – Assurance of Quality and Mechanical Integrity of Critical Equipment OCS Rig Operations Issue Date: 03/16/2015 Version: 3.1 There are situations in which negotiations are the preferred purchasing method. These may include situations where projects are highly confidential, where work scope changes are likely, where used equipment is involved, or where materials or labor are in short supply. Published price buying may be used whenever the potential benefits of competitive bidding or negotiating are insufficient to justify the expense of such method. This method is commonly used for small quantity purchases of miscellaneous stock items or when delivery needs do not allow time for use of other purchasing methods. Strategic alliances may be formed in order to align one or more companies to reduce the total cost of acquisition or use of goods and services which are considered to be strategic to Stone Energy. 8.2.2 PROCUREMENT OF CRITICAL EQUIPMENT The Stone Energy process for determining critical equipment is defined in Critical Equipment Definitions, Service Levels and Quality Matrices Reference (an Excel document, hereinafter referred to as Critical Equipment QM Reference) located in the SharePoint SEMS library. Equipment designated as critical is based on safety and environmental exposure factors. The procurement of such items will ensure there is proper documentation related to manufacturing standards, material of construction, as well as inspection and testing before use on a well project. Documentation will be retained by Stone Energy or it’s providers as long as the equipment is in service for producing wells or temporarily abandoned wells and, as required by regulations, for permanently abandoned wells. The QA / QC processes detailed in the following standards apply to the following types of materials, products, tools, and equipment: 8.3 Stone Energy Quality Assurance and Mechanical Integrity for Rental/Contractor Equipment and Tools: This document provides guidelines, QA procedures and selection criteria for service provider, contractor and rental tool equipment - (Click Here For Link). Stone Energy Quality Assurance and Mechanical Integrity for Tangible Well Equipment: This document provides guidelines, procedures and selection criteria for saleable and tangible manufactured items installed in the well - (Click Here For Link). FABRICATION During the fabrication phase, Stone Energy assures that materials and construction are in accordance with the design specifications. Stone Energy, or its designee (vendor, contractor, supplier), shall perform acceptance inspection for all new equipment in order to establish adherence to design specifications. When appropriate in a Request for Quotation (RFQ) package, project or equipment-specific requirements for critical equipment shall be provided by the Engineering group. Documentation of acceptance inspection and testing will be available and retained as long as the equipment is in service. 8.4 INSTALLATION Critical equipment installed on a Contractor’s facility, such as a MODU, will be done in accordance with the Contractor’s policy, procedures, and oversight. Page 4 of 9 Safety and Environmental Management System Section 8 – Assurance of Quality and Mechanical Integrity of Critical Equipment OCS Rig Operations Issue Date: 03/16/2015 Version: 3.1 Critical equipment installed on a Stone Energy operated facility will be assessed by Stone Energy and will meet current design standards and site-specific requirements for safe and environmentally sound performance. Stone Energy’s Engineering and Construction group, along with the Production Operations Group, may be requested to provide technical expertise associated with design, inspection or correction of deficiencies on existing or new-build facilities. The installation of critical equipment in a well will be performed according to the approved well specific requirements, all applicable regulations and Stone Energy’s Safe Operating Procedures (SSOP). During the well construction or maintenance process, the Stone Energy Well Site Leader will ensure critical equipment is installed according to the plans and procedures developed by Stone and it’s service providers. The procedures address requirements for pressure testing and barrier validation. Any discrepancy, defect or deficiency identified at the well-site will be corrected or remedied before continuing work. Stone Energy has implemented Stop Work Authority (SWA) and MOC policies which are applied as needed. Any significant deviation from the well plan or SOP will require an MOC review. After a well is completed, a pre-startup review per Stone Energy’s SEMS Section 9 (Pre-Startup Review) will be conducted. From that point forward, Stone Energy’s Production Operations Group will be responsible for the mechanical integrity of the well. 8.5 MAINTENANCE Stone Energy’s primary contractors such as MODU owners, third-party contractors, and service providers, are required to maintain their critical equipment in accordance with their internal maintenance plans including the equipment manufacturer’s recommendations. Stone Energy will perform audits to assure its contractors are compliant with their quality plans. Contractors are required to submit an MOC request for deviations from the required maintenance plan on critical equipment that may affect the well operations or related safety systems. During the well construction process, well integrity will be verified through periodic pressure testing and / or logging operations. 8.6 TESTING AND INSPECTION Stone Energy has developed policies and guidelines for quality assurance on materials and equipment used in the well construction process. Stone Energy inspection and testing requirements are based on: Page 5 of 9 Equipment criticality rating as defined in Critical Equipment Definitions, Service Levels and Quality Matrices Reference located in the SharePoint SEMS library. Level of risk associated with the well as referenced in Stone Energy’s SEMS Operations - Section 3 (Hazard Analysis). o Operating conditions o Complexity and location of the work Rig Safety and Environmental Management System Section 8 – Assurance of Quality and Mechanical Integrity of Critical Equipment OCS Rig Operations Issue Date: 03/16/2015 Version: 3.1 In addition to the well specific procedures, Stone Energy, in conjunction with its suppliers, has developed Quality Matrices (QMs) located in the SharePoint SEMS library. The QMs provide the following types of information: Basic requirements Inspection type Acceptance criteria Reference to inspection codes and standards Critical equipment deficiencies are addressed directly via remanufacture or repair processes which result in acceptance of the material or equipment after the component in question has been inspected and accepted to QM requirements as noted above. The MOC process is applied for variations from these QM guidelines. Audit requirements are as stated in Section 8.7.3. The following quality assurance policies apply for various pieces of equipment: 8.7 Tangible Tubular Quality Assurance (Stone Quality Assurance Levels (QAL), QMs and associated Standard Inspections) Wellhead and Tree Quality Assurance (API PSL/RSL Guidelines) Well Design & Assessment Criteria (Stone Service Level Matrices) Down-hole Drilling, Completion & Well Service Tool Quality Assurance (TH Hill DS-1 Service Levels – Category 1 through 5, as applicable) Rig and Service Equipment Inspection (Contractor/Vendor internal Quality Plans) ASSESSMENT OF QUALITY ASSURANCE Stone Energy has written policies regarding evaluation of quality assurance for Contractor critical equipment which may be addressed in Bridging Documents and / or Bridging Agreements and audits. It is Stone Energy’s expectation that all contractors design, procure, fabricate, maintain and test their equipment in accordance with industry standards, manufacturer recommendations and their own internal procedures. Stone Energy will ensure that its critical equipment used in well construction and servicing is designed, procured, fabricated, maintained and tested in accordance with one or more of the following: Regulatory requirements Industry standards Manufacturer recommendations Internal procedures Inspection and testing of critical equipment should be performed by qualified personnel before utilization during well operations. The level of detail required for the inspection, testing and verification are determined by the service levels defined by Stone Energy. Page 6 of 9 Safety and Environmental Management System Section 8 – Assurance of Quality and Mechanical Integrity of Critical Equipment OCS Rig Operations 8.7.1 Issue Date: 03/16/2015 Version: 3.1 PROVIDER REQUIREMENTS Providers and contractors shall have the following system components (or the equivalent or comparable system components) in place within their organizations: Quality Plans (QPs): The provider or manufacturer shall have QPs, or equivalent documentation, that detail the necessary quality assurance and quality control required during the manufacturing, supply, procurement, inspection, assembly, testing, and other steps required to produce or deliver a material, product, tool, or component. The QPs shall set forth specific practices and procedures aimed at translating the organization’s quality plan into operational results, or conformance to a standard within a specified timeframe. Inspection and Test Plans (ITPs): The provider or manufacturer shall have ITPs, or equivalent documentation, with specific requirements and procedures for inspection and testing of components and assemblies. ITPs may be an integral part of a QP or work as a stand-alone document. ITPs are usually considered applicable when a provider supplies a tool or component that they do not manufacture. Standard Operating Procedures (SOP): The provider or manufacturer’s QPs or ITPs shall reference SOP, as appropriate, which specify the objectives, scope, resources and roles, as well as detailed steps for accomplishing the desired results. Service and Maintenance Personnel Qualification: The provider will furnish, or make available, the qualifications of personnel who will be participating in the operations to meet the minimum requirements set forth by Stone Energy. Minimum training requirements for Stone Energy and Contractor service and maintenance personnel can be found in Section 7 – Training. Qualifications will be provided for each unique product and service provided for the operations. 8.7.2 PROVIDER EVALUATION AND APPROVAL QPs, ITPs, SOPs, and PMs (or comparable / equivalent documents) shall be accessible at the provider’s facility and / or at the field location. Stone Energy may request these documents be submitted to the operations group for approval, to assign QA witness and monitor points, or in order to add other specific requirements as deemed necessary. 8.7.3 PROVIDER AUDITS Stone Energy may perform management system or process audits as well as facility audits of providers, suppliers and contractors to verify compliance to this standard. The basis for the audit is to: Page 7 of 9 Validate the minimum requirements for providing a product or service. Verify conformance to an established quality management system. Confirm that sufficient provider and / or industry standard quality processes are in place for manufacturing, inspection, and testing of equipment. Obtain a general understanding of the quality culture of the organization. Identify gaps or areas for improvement. Safety and Environmental Management System Section 8 – Assurance of Quality and Mechanical Integrity of Critical Equipment OCS Rig Operations Issue Date: 03/16/2015 Version: 3.1 Prior to performing an audit, the designated auditor will meet with the Stone Energy Drilling and Completions (D&C) engineer or D&C operations team to determine the specific points of interest which need to be evaluated. A report of the findings will be presented to the D&C engineer or D&C operations team including recommendations for corrective actions. The D&C engineer, or his designee, shall ensure that a copy of the report is issued to the equipment provider and the Stone Energy D&C operations team. 8.7.4 METRICS AND SUMMARIES Quality assurance program activity summaries including findings on significant conditions or incidents, along with reports on acceptance and rejection rates will be available for review, and should include, but not be limited to, the following types of information; 8.7.5 Number of facility or vendor audits including tracking of open / closed action items. Total number of tools inspected by location with pass / fail percentages. Total number of non-compliance reports (NCRs) for rejected or repaired items, procedure discrepancies, and fit-for-purpose resolutions. If required, access to approved provider QPs, SOPs, ITPs and PMs (or their equivalent internal documents). NON-COMPLIANCE Any issues of non-compliance will be summarized in a Non-Compliance Report (NCR), or equivalent document. Stop Work Authority (SWA) may be exercised, if necessary, to stop the work until the compliance issue is resolved. The NCR process should be completed by the provider, supplier or contractor who has operational control. This is to include the generation of the NCR as well as documenting, issuing, and completing corrective actions. If necessary, NCRs may be issued and tracked by Stone Energy QA Auditors and QA Oversight Technicians. Stone Energy will recognize all provider, supplier and contractor NCRs or equivalent documents. 8.7.6 DISPOSAL OF NON-COMPLIANT MATERIAL The disposition of non-compliant materials will be handled under the direction of applicable Stone operations management and with guidance, as needed, from Stone Energy QA Auditors. The material can be reworked, scrapped, or “Use As Is.” If the “rework” or “Use As Is” decision may affect the working rating of the material, an MOC must be provided and evaluated. 8.8 POLICY REVIEW This standard shall be reviewed on a biennial schedule by Stone Energy starting at a minimum of one year from the approval date. 8.8.1 BIENNIAL REVIEW Feedback regarding the efficiency of this standard shall be solicited from the D&C operations team, the Stone Energy QA group, and the QA oversight providers. Comments, suggestions, corrections, additions or deletions shall be considered during the biennial review. A summary of the biennial review and any changes to the SOP shall be reviewed and approved by the respective Stone Energy operations team. Page 8 of 9 Safety and Environmental Management System Section 8 – Assurance of Quality and Mechanical Integrity of Critical Equipment OCS Rig Operations 8.8.2 Issue Date: 03/16/2015 Version: 3.1 INCIDENT INVESTIGATION The review and corrective action process shall be used to investigate incidents per Stone Energy’s SEMS Section 11 (Investigation of Incidents). The findings from this incident review process may require a revision to the existing documents or the creation of new documents. These revised or new documents, with updated requirements will address the specific quality process improvements or corrective actions which may help to prevent reoccurrence of the incident(s). Page 9 of 9