CREG - Circular 49 de 2022

Expert Report: Pipeline System Useful Life and

Valuations; Contract 2015-190

Product 1 Base Cost of 50 Kilometers of 4-Inch; Multi-Diameter/Length Escalation Costs; Terrain Variables and Impacts on Construction Costs: Discussion on Pipeline System Valuations

Prepared for: International Construction Consulting, LLC

8086 South Yale Avenue Suite 290 Tulsa, Oklahoma, USA 74136 www.oil-gas-consulting.com Comisión de Regulación de Energía y Gas (CREG) Report 1502015-CREG-ICC-001Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report: Pipeline System Useful Life and Valuations; Contract 2015-190

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Report 1502015-CREG-ICC-001 1 of 112 October 2015

Table of Contents Change Log .................................................................................................................................... 5! Disclaimer ....................................................................................................................................... 6! Executive Summary ..................................................................................................................... 10! 1.0!Pipeline Useful Life ............................................................................................................. 13! 1.1.!Introduction ..................................................................................................................... 13! 1.2.!Regulations and Codes .................................................................................................. 20! 1.2.1.!Regulatory Jurisdictions ............................................................................................. 20! 1.2.1.1.!United States ........................................................................................................... 20! 1.2.1.2.!Colombia ................................................................................................................. 20! 1.2.1.3.!Other Locations ....................................................................................................... 20! 1.2.2.!Codes ......................................................................................................................... 21! 1.2.2.1.!ASME Code B31.4 .................................................................................................. 21! 1.2.2.2.!ASME Code B31.8 .................................................................................................. 21!

1.2.2.3.!API 1160 .................................................................................................................. 22! 1.2.2.4.!Producing Field Flow and Gathering Lines ............................................................. 22! 1.2.2.5.!Producing Field Facilities ........................................................................................ 23! 1.2.2.6.!Pipeline Stations and Terminals .............................................................................. 23! 1.3.!Design, Engineering, and Procurement ....................................................................... 23! 1.3.1.!Pipeline Design .......................................................................................................... 23! 1.3.1.1.!Pipe Selection ......................................................................................................... 24! 1.3.1.2.!Pipe Stress and Wall Thickness Calculations ......................................................... 24! 1.3.1.3.!Wall Thickness Calculations .................................................................................... 25! 1.3.2.!Coating Selection ....................................................................................................... 26! 1.3.3.!Cathodic Protection .................................................................................................... 28! 1.3.3.1.!Sacrificial Anode System ......................................................................................... 28! 1.3.3.2.!Limitations of Galvanic Anode System .................................................................... 28! 1.3.3.3.!Impressed Current System ...................................................................................... 29! 1.3.3.4.!Advantages of ICCP System ................................................................................... 29! 1.3.4.!Route Selection .......................................................................................................... 29! 1.3.5.!Line Pipe Shipping ..................................................................................................... 30! 1.4.!Construction ................................................................................................................... 31! 1.4.1.!Pipe Bending .............................................................................................................. 32! 1.4.2.!Welding and NDT ....................................................................................................... 32! 1.4.2.1.!Regulations and Codes ........................................................................................... 33! 1.4.2.2.!Welding Procedure Qualifications ........................................................................... 33! 1.4.2.3.!Welding Procedure Specification ............................................................................ 34!

1.4.2.4.!Weld Inspection ....................................................................................................... 34! 1.4.2.5.!Qualification of Welding Inspectors ......................................................................... 35! 1.4.2.6.!Qualification of NDE Personnel ............................................................................... 35! 1.4.2.7.!Radiographic Inspection .......................................................................................... 35! 1.4.2.8.!Radiographic Procedure .......................................................................................... 35! 1.4.2.9.!Ultrasonic Testing .................................................................................................... 36!Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report: Pipeline System Useful Life and Valuations; Contract 2015-190

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Report 1502015-CREG-ICC-001 2 of 112 October 2015 1.4.3.!Joint Coating .............................................................................................................. 36! 1.4.3.1.!Holiday Detection for All Coatings ........................................................................... 36! 1.4.3.2.!Field Inspection of FBE Coated Field Joints ........................................................... 37! 1.4.3.3.!Field Inspection of Heat Shrink Sleeves .................................................................. 38! 1.4.4.!Lower-In and Backfill .................................................................................................. 39! 1.4.4.1.!Backfilling ................................................................................................................ 39! 1.4.5.!Hydrostatic Testing ..................................................................................................... 40! 1.4.5.1.!Procedure ................................................................................................................ 40! 1.4.5.2.!Preliminary Testing .................................................................................................. 40! 1.4.5.3.!Records ................................................................................................................... 40! 1.4.5.4.!Completion Scraper Run ......................................................................................... 40! 1.4.5.5.!Gaging Plates .......................................................................................................... 41!

1.4.5.6.!Completion Hydrotesting ......................................................................................... 41! 1.4.5.7.!Code Requirements ................................................................................................ 41! 1.4.5.8.!Test Procedure and Program .................................................................................. 42! 1.4.6.!Water Crossings and Marsh Lands ............................................................................ 43! 1.4.7.!Seismic Crossings ...................................................................................................... 45! 1.4.8.!Extreme Terrain .......................................................................................................... 47! 1.4.9.!Connections ............................................................................................................... 47! 1.4.10.!Block Valves ............................................................................................................. 48! 1.5.!Operations and Maintenance ........................................................................................ 48! 1.5.1.!Pipeline Integrity Management Regulations and Standards ...................................... 48! 1.5.2.!Spill Contingency Plan ............................................................................................... 49! 1.5.3.!Minimizing the Potential for Damage to the Pipeline .................................................. 50! 1.5.4.!Managing Risk, In-Service Inspection and Testing .................................................... 50! 1.5.5.!Risk Assessment ........................................................................................................ 51! 1.5.5.1.!Identifying Risk ........................................................................................................ 51! 1.5.5.2.!Risk Assessment Overview ..................................................................................... 51! 1.5.6.!Electronic Inspection Pigs .......................................................................................... 52! 1.5.6.1.!Inspection Methods ................................................................................................. 52! 1.5.6.2.!Line Design May Preclude Pigging ......................................................................... 53! 1.5.6.3.!Maintenance Pigging ............................................................................................... 54! 1.5.6.4.!Data Developed by Smart Pigging .......................................................................... 56! 1.5.6.5.!Corrosion Coupons ................................................................................................. 56! 1.5.7.!Hydrostatic Testing ..................................................................................................... 56! 1.5.8.!Monitoring of Cathodic Protection and Pipe Coating .................................................. 57!

1.5.9.!Leak Detection by Physical Methods ......................................................................... 57! 1.5.10.!Pipeline Repairs ....................................................................................................... 58! 1.5.11.!Maintenance Program in Areas of Unstable Soils or Seismic Activity ...................... 58! 1.6.!Asset Retirement ............................................................................................................ 59! 1.6.1.!International Regulations and Guidelines ................................................................... 60! 1.6.2.!Pipeline no longer in use ............................................................................................ 60! 1.6.3.!Abandon ..................................................................................................................... 60! 1.6.4.!Abandoned in Place ................................................................................................... 60! 1.6.5.!Abandoned by Removal ............................................................................................. 61! 1.6.6.!Temporary Abandonment ........................................................................................... 61!Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report: Pipeline System Useful Life and Valuations; Contract 2015-190

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Report 1502015-CREG-ICC-001 3 of 112 October 2015 1.6.7.!Decision Method – Abandon or Temporary Abandonment ........................................ 61! 1.6.7.1.!Isolation from the Process System .......................................................................... 62! 1.6.8.!Ongoing Integrity Management Procedures ............................................................... 62! 1.6.9.!Recommissioning of Temporarily Abandoned Pipelines ............................................ 62! 2.0!Pipeline System Valuations – Basis of Estimate ............................................................. 63! 2.1.!Estimate Overview and Requirements ......................................................................... 63! 2.2.!Assumptions, Exclusions, and Clarifications for 4” Base Case ................................ 64! 2.2.1.!Assumptions ............................................................................................................... 64! 2.2.2.!Exclusions .................................................................................................................. 64!

2.3.!Cost Basis ....................................................................................................................... 64! 2.3.1.!Currency ..................................................................................................................... 65! 2.3.2.!Capital and Expense .................................................................................................. 65! 2.3.3.!Tendering Costs ......................................................................................................... 65! 2.3.4.!Permanent Material/Service Quotes and Contractor Bid Pricing ............................... 65! 2.3.5.!Shared Costs .............................................................................................................. 65! 2.3.6.!OPEX ......................................................................................................................... 65! 2.3.7.!Socioeconomic ........................................................................................................... 65! 2.4.!Project Execution Strategy ............................................................................................ 66! 2.5.!Contracting Basis ........................................................................................................... 66! 2.6.!Procurement Basis ......................................................................................................... 67! 2.7.!Execution Basis .............................................................................................................. 67! 2.8.!Quality Assurance and Quality Control ........................................................................ 68! 2.9.!Turnover, Commissioning, and Start-Up Basis ........................................................... 68! 2.10.!Work Breakdown Structure (WBS) ............................................................................. 69! 2.11.!Scope of Work .............................................................................................................. 69! 2.11.1.!Facilities and Resources .......................................................................................... 69! 2.11.2.!Management ............................................................................................................ 70! 2.12.!WBS Level 3, Standard WBS Utilized ......................................................................... 70! 2.13.!Engineering, Procurement, Project and Construction Management ....................... 71! 2.14.!Transportation .............................................................................................................. 72! 2.15.!Permanent Materials (including freight, handling, contingency) ............................. 72! 2.15.1.!Pipe for Special Crossings and Locations ................................................................ 73! 2.16.!Pipeline Construction & Installation ........................................................................... 73! 2.17.!Communications and Control ..................................................................................... 74!

2.18.!Cathodic Protection ..................................................................................................... 74! 2.19.!Pipeline Markers ........................................................................................................... 75! 2.20.!Main Line Valve Spacing .............................................................................................. 75! 2.21.!Land Costs (ROW, Laydown, Pipe Yards) .................................................................. 75! 2.22.!Additional Funds Used During Construction (AFUDC) ............................................ 75! 2.23.!Hookup, Commissioning, & Startup ........................................................................... 75! 3.0!Cost Adders per Terrain Gradation Changes .................................................................. 76! Appendix A–Pipeline Useful Life Model-Generic ...................................................................... 77! Appendix B–Base Costs for Pipeline Systems ....................................................................... 101! Appendix C–Cost Impacts for Terrain Gradation Factors ..................................................... 106!Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report: Pipeline System Useful Life and Valuations; Contract 2015-190

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Report 1502015-CREG-ICC-001 4 of 112 October 2015 Appendix D–Table and Graph of Cost Impacts for Terrain Gradation Factors ................... 111!Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report: Pipeline System Useful Life and Valuations; Contract 2015-190

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Report 1502015-CREG-ICC-001 5 of 112 October 2015 Change Log

REV SECTION CHANGE DESCRIPTION A 1.1 Clarified how the variables are used. A 1.1 Included an overview of liquid pipelines constructed in the US with a high level breakdown of age A 1.1 Included an overview of gas pipelines constructed in the US with a high level breakdown of age A Appendix A-1 Removed and included in Product 3 A Appendix A-2 Removed and included in Product 3Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report:

level breakdown of age A Appendix A-1 Removed and included in Product 3 A Appendix A-2 Removed and included in Product 3Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report: Pipeline System Useful Life and Valuations; Contract 2015-190

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Report 1502015-CREG-ICC-001 6 of 112 October 2015 Disclaimer

This Report has been prepared by Greg Lamberson of International Construction Consulting, LLC (ICC) with all reasonable skill, customary care, and diligence within the terms of the agreement with Comisión de Regulación de Energía y Gas (CREG) and for the sole use of Comisión de Regulación de Energía y Gas (CREG).

While reasonable care has been taken in the preparation of this Report, no warranty, express or implied is made in relation to the contents of this Report. Therefore, ICC assumes no liability for any loss resulting from errors, omissions, or misrepresentation made by others. The use of this Report by unauthorized third parties without written authorization from ICC should be at their own risk, and ICC should accept no duty of care to any such third party.

The figures, tables, recommendations, opinions, statements, information, findings contained in this Report are based both on data available to the public as well as confidential/proprietary sources. Confidential/proprietary data may be used in the preparation of this Report and if so, will be referenced generally but not disclosed specifically.

The figures, tables, recommendations, opinions, statements, information, findings contained in this Report are based on circumstances and facts as they existed at the time ICC performed the work. Any changes in such circumstances and facts upon which this Report is based may adversely affect any figures, tables, recommendations, opinions, statements, information, findings contained in this Report.

Where field investigations have been carried out, these have been restricted to a level of detail required to achieve the stated objectives of the work referred to in the Agreement.

adversely affect any figures, tables, recommendations, opinions, statements, information, findings contained in this Report.

Where field investigations have been carried out, these have been restricted to a level of detail required to achieve the stated objectives of the work referred to in the Agreement.

The Author is an independent contractor with no ownership, partnership, nor relations hip (apart from this contract) with Comisión de Regulación de Energía y Gas (CREG).Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report: Pipeline System Useful Life and Valuations; Contract 2015-190

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Report 1502015-CREG-ICC-001 7 of 112 October 2015 Expert Qualifications

Greg Lamberson of International Construction Consulting, LLC is experienced in all phases of business, project, and construction management for upstream & midstream oil, gas, products, and energy-related projects. He is accomplished at working within complex, integrated work environments with multi-discipline and multi-cultural staffs to ISO, US, and various foreign standards, practices, procedures, and specifications in a variety of geopolitical climates on small, large, and mega-projects. Mr. Lamberson’s background includes over 35 years experience on both domestic and international assignments, in the management, engineering, design, planning, cons truction, and start up & commissioning of upstream & midstream oil, gas, and energy related facilities, LNG plants, pipelines, coal-bed methane (CBM) extraction, fuel storage and distribution systems, including onshore, near-shore and offshore marine facilities and structures; economic analysis and strategic planning and execution of energy projects in North, Central, and South America, the Caribbean, the Middle East, Central Asia, China, Russia, the Far East, and Africa. Mr. Lamberson is currently consulting for multi-national oil and gas companies in the upstream & midstream energy sector on a domestic and international basis. Areas of expertise include both technical (engineering and construction) and commercial (contracts, finance packages, etc.)

Mr. Lamberson is currently consulting for multi-national oil and gas companies in the upstream & midstream energy sector on a domestic and international basis. Areas of expertise include both technical (engineering and construction) and commercial (contracts, finance packages, etc.) aspects gained while working with integrated multi-national oil and gas companies, partnerships and joint ventures as a solution integrator and key source of expertise. His skills and credentials include extensive construction and engineering experience; developing contracting strategies, project & construction management, contract negotiations, independent project assessments (including risk assessments; constructability reviews, construction readiness reviews, operations readiness reviews), partner and subco ntractor selections, security, field development planning, project execution development and troubleshooting, feasibility studies, conceptual and detailed cost estimates, tender preparation and evaluations, and risk management.

Mr. Lamberson’s education includes a BS, Industrial Engineering and Technology, East Central University, Oklahoma, USA, 1983; and an MBA, Robert Kennedy College, Switzerland, focus on international business, 2005.

Mr. Lamberson has authored numerous articles, publications, and manuals including:

• “Staffing Strategies for Major Capital Projects”, World Pipelines, June 2010 issue

• “Managing Transitions on Major Capital Projects”, Asian Power, 2009.

• “Developing Optimum Contracting Strategies for Major International Projects”, World Pipelines, March 2009 issue

• “Project Management – Common Pitfalls & How to Avoid Them”, Energy Today magazine, a quarterly magazine covering the North American energy market, Spring 2009 issue.Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report: Pipeline System Useful Life and Valuations; Contract 2015-190

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Report 1502015-CREG-ICC-001 8 of 112 October 2015

• “Fundamentals of Gas Pipeline Metering Stations”, Pipeline & Gas Journal, co-written with

Mr. Saeid Mokhatab, January 2009 issue.

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Report 1502015-CREG-ICC-001 8 of 112 October 2015

• “Fundamentals of Gas Pipeline Metering Stations”, Pipeline & Gas Journal, co-written with

Mr. Saeid Mokhatab, January 2009 issue.

• “Managing Change – Manage Change on Major Projects”, World Pipelines, November 2008 issue

• “Managing Execution Risks in Oil and Gas Processing Industry’ EPC Projects”, co-written with Mr. Saeid Mokhatab. To be published in a future issue of Hydrocarbon Processing, awaiting publications details.

• “Basic Guide to Pipeline Compressor Stations”, Pipeline & Gas Journal, co-written with Mr.

Saeid Mokhatab and Mr. Sidney Pereira dos Santos, June 2008.

• “Pipeline Systems - Control and Integrity Management”, Journal of Pipeline Engineering, co-written with Mr. Saeid Mokhatab and Mr. Sidney Pereira dos Santos, December 2007,

Vol. 6, No. 4 edition.

• “Project Execution Risk: A Key Consideration for Upstream Energy Project Management”, World Oil, September 2007 issue; co-written with Mr. Saeid Mokhatab and Mr. D. Wood.

• “A Constructive Approach - Constructability’s Role in Upstream Project Execution”, World Pipelines, June 2007 issue

• Recognized contributor to Dr. Aurangzeb Khan, Assistant Professor, Dept. of Management Sciences, COMSATS Institute of Information Technology, Islamabad, Pakistan in providing material for the development of Project Management courses for post graduate students, 2006.

• “Managing Execution Risk in Upstream Projects”, World Pipelines, December issue, 2006

• Corporate Constructability Program. 2005, Developed and implemented a complete Constructability Program for a major international EPC contractor. Program is comprehensive covering all aspects of upstream EPC projects, including project -specific

• “Managing Execution Risk in Upstream Projects”, World Pipelines, December issue, 2006

• Corporate Constructability Program. 2005, Developed and implemented a complete Constructability Program for a major international EPC contractor. Program is comprehensive covering all aspects of upstream EPC projects, including project -specific Constructability Plan template, checklists, charters, sample agendas, program maintenance & feedback mechanisms, dispute resolution, etc.

• International Project Management System (IPMS), 2004, proprietary system for internal use as a guide for managing complex energy projects worldwide, from initial project assessments and feasibility studies to hook up, commissioning, and turn over. IPMS utilizes a phased approach that defines minimum deliverables required at specific phases along the project timeline. System also includes a prescriptive review process for passing into the next phase of project planning and execution.Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report: Pipeline System Useful Life and Valuations; Contract 2015-190

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Report 1502015-CREG-ICC-001 9 of 112 October 2015 • Construction Managers Handbook (CMH), 2003, propri etary for internal use, provides guidance for the overall Construction Management aspects of the formation, organization, establishment, and management of project site work. The CMH guides the Construction Manager through the major segments of a construct ion project including mobilization, managing interfaces, transitions, construction implementation, and demobilization.

• "Typical Hydrotest Water Intake and Discharge Mitigation Measure's", March 2002, published in ExxonMobil Global Share library system as an authoritative reference.

• "Guidelines for Preparing a Construction Execution Plan", February 2002, published in ExxonMobil Global Share library system as an authoritative reference.

• “Pipeline Construction”, Project Management Network Magazine, January 2002 (credited contributor to Ken Silverstein – author)

• "Guidelines for Preparing a Construction Execution Plan", February 2002, published in ExxonMobil Global Share library system as an authoritative reference.

• “Pipeline Construction”, Project Management Network Magazine, January 2002 (credited contributor to Ken Silverstein – author)

• “Keys to Successful Execution of International Projects”, Project Management Institute, Troubled Projects, Fall 2001, Volume 1, Issue 3Comisión de Regulación de Energía y Gas (CREG) Greg Lamberson

Expert Report: Pipeline System Useful Life and Valuations; Contract 2015-190

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Report 1502015-CREG-ICC-001 10 of 112 October 2015 Executive Summary Greg Lamberson of International Construction Consulting, LLC was awarded the contract under the Terms of Reference to produce this expert report outlining the variables and components that influence the useful life of a pipeline system and a normative quantification of how those variables impact the overall pipeline system from a useful life standpoint. Additionally, CREG requested a cost estimate be developed for a generic liquids pipeline system of 4.500” and pipeline systems be