Sunday, December 7, 2014

ACCIDENT INVESTIGATION REPORT- BLACK ELK ENERGY OFFSHORE OPERATION – EQUIPMENT FAILURE DUE TO LACK OF MAINTENANCE RESULTING IN FIRE



ACCIDENT INVESTIGATION REPORT- BLACK ELK ENERGY OFFSHORE OPERATION – EQUIPMENT FAILURE DUE TO LACK OF MAINTENANCE RESULTING IN FIRE



INVESTIGATION FINDINGS
On April 18, 2014, a fire occurred at approximately 7:00pm on Black Elk Energy Offshore Operating LLC (BEEOO) Vermillion 369-A (VR369A) facility.  This facility was installed on January 1, 1979 by a previous operator.  At the time of the incident, witnesses heard a platform process alarm and an operator responded to the master panel to identify the cause.  Upon arrival at the panel, the operator identified a Burner Safety Low (BSL) alarm indication, and then proceeded to the heater treater where he noticed a small amount of oil dripping from the fire tube.  At this time, the operator looked through the inspection plate of the fire tube and saw a small fire.  Next, he isolated the manual block valves associated to the supply gas and then realized the fire still had not subsided.  Based on the circumstances the operator utilized the Gaitronics paging system to alert other personnel on the platform of the situation and then activated a nearby Emergency Shut-Down (ESD) station.  The platform Safety Analysis Function Evaluation Chart depicts that the BSL is only required to shut-off gas supply to the heater treater fired component and the line heater burner (such as the main burner and pilot) and indicate an alarm; therefore, oil and gas production momentarily remained online until such time the operator manually shut-in production via the ESD.  Shortly after, the other operators arrived to the scene and together they opened the fire tube inspection plate and applied two short bursts from a handheld fire extinguisher which successfully extinguished the fire.

Subsequent to extinguishing the fire, the operators monitored the area and then assessed the cause of the fire.  The operator's assessment revealed that a pin hole developed in the heater treater fire tube; therefore, produced oil leaked inside the fire tube and sprayed in the vicinity of the main burner which enabled a steady fuel source although the burner fuel gas had been shut off.

On April 21, 2014, the BSEE Lake Charles District conducted an onsite investigation into this incident.  At this time the operator's findings were confirmed with respect to the pin hole at the top of the fire tube.  Additionally, it was noted that there were neither any records nor recollection within BEEOO to support if and/or when prior maintenance/inspection had been performed with regards to the fire tube.  Furthermore, upon document reviews, it appeared a BEEOO in-house Root Cause Analysis (RCA) from December 30, 2013 had identified that due to large quantities of acid being pumped directly to the treater (100 - 150 gallons per week), inspection of the fire tube should be performed; however, this had not taken place prior to the incident.

The following is an account of BSEE's recent inspection findings before the subject incident occurred.  On April 9, 2014, prior to the incident, the BSEE Lake Charles District had begun conducting an inspection of the facility.  During the inspection, inspectors developed concern regarding the integrity of the fire tube inside the Heater Treater NBK-2100.  It was found that the treater was being subjected to batch treating with a high volume of acid multiple times a week. On April 10, 2014, inspectors returned to VR 369A to resume the inspection and continued gathering information associated with the integrity of the heater treater fire tube and batch treating of the vessel.  There was a lack of documentation onboard the facility showing that the fire tube had ever been removed from the vessel and inspected in the past.  At this time, pictures were taken of the vessel and the burner with a request to research any known history of when the last inspection of the fire tube had taken place.  While the inspection remained ongoing, prior to receiving any of the requested inspection documentation from BEEOO, the fire occurred on April 18, 2014.

Batch treating with an acid based de-emulsifier was being carried out as needed, which was typically multiple times a week, to break an emulsion pad created in the treater.  The chemical program and also a lack of sufficient heat were considered possible causes of the emulsion pad.  Approximately 20 gallons of the acid based de- emulsifier (Gyptron TA-21) were being pumped at a rate of 1.33 gallons per minute into the Test Separator (MBD-1200) oil outlet per batch treatment.  The treated oil flows directly into the fire tube section of the Heater Treater which subjected the tube to acid related degradation.   TA-21 was being pumped into the line with a M2 diaphragm pump.  BEEOO has reported multiple pump failures as a result of acid corrosion from the use of TA-21.  The Heater Treater NBK-2100 operates at 135 psi and 125 degrees Fahrenheit.  Throughput is approximately 1300 barrels of oil per day and 50 barrels of water per day.  Daily, the operators monitored pressures, levels, and temperatures associated with the vessel but the information was not formally documented.  The vessel temperature must be maintained below 130 degrees Fahrenheit in order to meet departing pipeline limits set by Shell Pipeline.  The Heater Treater electric grid was also out of service.


LIST THE PROBABLE CAUSE(S) OF ACCIDENT:
The fire tube failure was due to pit corrosion, which was caused/ accelerated due to the liquid surrounding the fire tube having a low potential of hydrogen due to the vessel being subjected to frequent high dosage batch treatments with acid.

LIST THE CONTRIBUTING CAUSE(S) OF ACCIDENT:
BEEOO's failure to inspect the fire tube when possible hazards were first identified.
LIST THE ADDITIONAL INFORMATION:
On December 30, 2013, the BSEE Lake Charles District conducted an inspection on VR 369A.  As a result of this inspection multiple failures were identified and documented with associated incidents of non-compliance (INCs).
·         E-104: High Pressure Vent Scrubber Pump (PBA-2700) failed to operate.
·         E-104: Low Pressure Vent Scrubber Pump (PBA-2800) failed to operate.
·         P-175: The Surface Safety Valves on well A-6 and A-8 failed to close within 45 seconds after activation of the Temperature Safety Element Loop.

Due to the INCs being issued, Black Elk performed a company RCA and an incident investigation which identified exposure to acid as being the cause of the High Pressure and Low Pressure vent scrubber pump failures along with other premature pump failures on the facility.  Additionally, the RCA included a strong recommendation to inspect the Heater Treater's fire tube.
PROPERTY DAMAGED:        Fire Tube
NATURE OF DAMAGE:                   Pin hole in the fire tube(s)
SPECIFY VIOLATIONS DIRECTLY OR INDIRECTLY CONTRIBUTING. NARRATIVE:
G-111
G-111 the Lessee failed to maintain the Heater Treater (NBK-2100) in a safe and workmanlike manner which led to a fire incident on 18-APR-2014.
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Black Elk Energy – 10Q Quartely Report- 8-14-2014
Item 1. Legal Proceedings
West Delta 32 Block Platform Incident. On November 16, 2012, an explosion and fire occurred on our West Delta 32-E platform, located in the Gulf of Mexico approximately 17 miles southeast of Grand Isle, Louisiana (“West Delta 32 Incident”). At the time of the explosion, production on the platform had been shut in while crews of independent contractors performed maintenance and construction on the platform.
Regulatory Investigation and Audit. On November 4, 2013, BSEE issued its investigative report (the “BSEE Panel Report 2013-002”) on the West Delta 32 Incident. The report recommends that contractors Wood Group Production Service Network, Grand Isle Shipyard, and Compass Engineering Consultants, as well as Black Elk Energy be issued the following types of Incidents of Non-Compliance: G-110, G-112, G-116, G-303, G-310, G-311, G-312, and E-100. The report also recommends that contractor Wood Group Production Service Network and Black Elk Energy be issued the additional following types of Incidents of Non-Compliance: G-309 and G-317. The report states that BSEE will issue Incidents of Non-Compliance based upon evidence contained in the report and/or other relevant evidence. No Incidents of Non-Compliance have been issued yet, and Black Elk Energy has and will continue to fully cooperate with BSEE. Black Elk Energy will be carefully reviewing the BSEE Panel Report 2013-002 over the coming weeks.
On October 15, 2013, the Department of Justice, U.S. Attorney’s Office issued a subpoena pertaining to all physical evidence collected and maintained by Black Elk Energy and ABS Consulting as part the investigation of the WD-32 platform incident. . Further, on March 25, 2014, a second subpoena was issued by the U.S. Attorney’s Office requesting records and documents for specific time periods still part of their investigation of the WD-32 incident. We are fully cooperating with all government agencies.
On November 21, 2012, BSEE sent us a letter requiring us to take certain actions and to improve our performance. The letter made reference to, among other things, the explosion and fire that occurred on our West Delta 32-E platform on November 16, 2012. BSEE stated in the letter that if we did not improve our performance, we would be subject to additional enforcement action up to and including possible referral to the Bureau of Ocean Energy Management to revoke our status as an operator on all of our existing facilities. We have undertaken the actions BSEE required of us in the November 21 letter and have been regularly reporting our progress on those required improvements to BSEE. We have submitted a PIP to BSEE that identifies corrective action items to improve safety performance in offshore operations. The primary components of the PIP address:
Independent Third-Party SEMS Audit
Enhanced oversight of work on our operated platforms
Hazard Recognition
Compliance
Reduction of Incidents of Non-Conformance (INCs)
Stop Work Authority

In a meeting held at the BSEE Regional Office on October 30, 2013, BEEOO shared with BSEE representatives that implementation of corrective actions (18 elements and 58 tasks) associated with the Performance Improvement Plan ("PIP") has been 100% completed. Other essential work control processes such as our Project Execution Plans and Contractor Bridging Agreements have been improved to provide better guidelines and procedures for hazard assessment and work controls. Training in Hazard Recognition, National Pollutant Discharge Elimination System ("NPDES"), Job Safety Analysis ("JSA") and Stop Work Authority ("SWA") will be ongoing and has been incorporated into our training matrix.

On May 22, 2014, we received a letter from BSEE expressing that BEOO completed all the items and elements described in our Performance Improvement Plan. The last remaining task list item is to notify the Lake Charles District upon completion of the Vermilion Block 369 A platform blasting and painting operations. We plan to meet this remaining task list. BSEE recognizes that BEOO has made safety enhancements and implemented changes to our oversight processes on our operated platforms. We plan to continue with cultivating a safety environment and effort to mitigate risks in all operations as required by statute and regulation.

Additionally, BSEE will continue to regularly inspect our facilities and conduct compliance follow-up inspections to confirm correction of Noncompliance issued since the beginning of 2014.

On June 5, 2014, BEEOO notified BSEE Lake Charles District of the completion of the last remaining item on the
Performance Improvement Plan, i.e. Vermilion Block 369 platform blasting and painting operations, on June 4, 2014.


Civil Litigation . As of August 14, 2014, several civil lawsuits have been filed as a result of the West Delta 32 Incident. The lawsuits that were filed in Texas have been transferred to the United States District Court for the Eastern District of Louisiana, and all cases have been consolidated for discovery purposes in that Court. The first plaintiff’s case will be tried in either December of 2014 or January of 2015. All civil cases filed as a result of the West Delta 32 Incident are being defended by insurance defense counsel. We believe we have strong defenses and cross-claims and intend to defend ourselves vigorously.

As previously reported, six investors in Black Elk Energy, LLC (“BEE”) filed a purported derivative complaint on behalf of BEE in the Supreme Court of the State of New York, County of New York, against the Company, John Hoffman, Iron Island Technologies Inc., and various entities and individuals associated with the Company’s majority unit owner (the “Platinum Defendants”). The lawsuit seeks unspecified damages allegedly arising from (1) the dilution of BEE’s ownership interest in the Company through various financing transactions with the Platinum Defendants and the issuance of membership units under management and employee incentive programs; and (2) the alleged mismanagement of the Company in connection with certain alleged safety violations and the West Delta 32 Incident. We believe there are strong defenses to the claims asserted in the lawsuit, and the Company intends to defend the case vigorously. On or about September 24, 2013, Plaintiffs filed a motion for a preliminary injunction to restrain a portion of the proceeds of the Company’s proposed sale of certain oil fields in the Gulf of Mexico. The Court denied the motion on November 15, 2013. On or about November 20, 2013, we filed a motion to dismiss the complaint in its entirety, inter alia, on the grounds that (i) the claims fail to state a cause of action; (ii) the claims are refuted by documentary evidence; (iii) plaintiffs, who are not members of the Company, lack standing to assert a claim for mismanagement of the Company; and (iv) certain claims are barred by the statute of limitations. The motion is now fully briefed. Discovery is at an early stage, with the parties beginning to make rolling document productions.
The arbitrations cases involving GIS and Black Elk for unpaid invoices for services and materials provided by GIS (the “Invoice Arbitration”) is scheduled for hearing before a single arbitrator on December 1, 2014.The arbitration case for damages to the West Delta 32 Platform (the “Platform Arbitration”) is scheduled for hearing before a three-arbitrator panel on May 12, 2015. The arbitration proceeding initiated by Black Elk against Compass Engineering & Consultants, LLC for damages arising from the explosion of the WD-32 Platform has been abated pending resolution of Compass’ separate lawsuit filed in the United States District for the Western District of Louisiana seeking a declaration that it was not subjected to arbitration.

On April 16, 2014, Vistar Oil Texas LLC (“Vistar”) filed a petition against Black Elk in Harris County District Court. This suit alleges that Black Elk breached an Acquisition and Participation Agreement and a Joint Operating Agreement between the parties, primarily by failing to provide Vistar with the funds required to bring several wells into operation in Wilson County, Texas. Vistar alleges damages of approximately $6,500,000, certain lease acquisition costs and promissory note payments required to cover liens placed on the wells. Vistar further alleges that Black Elk is in breach by refusing to provide approximately $10,350,000 to Vistar to acquire additional property. This case has just begun discovery. We believe we have strong potential defenses and counterclaims, and intend to defend ourselves vigorously.

Other Regulatory Items. We are party to various other litigation matters arising in the ordinary course of business. We do not believe the outcome of these disputes or legal actions will have a material adverse effect on our financial statements.