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Chevron’s Operational Excellence Management System

on April 20, 2022

       Chevron is a transnational energy corporation with offices and projects all over the world.  The company takes great pride in conducting business according to its core values.  The company’s vision and mission statement, Business Conduct and Ethics code, and Operational Excellence Management System overview can be easily found on the company website and elsewhere on the Internet.

       The Chevron Way encompasses the company’s vision and mission statement.  Chevron’s vision is “to be the global energy company most admired for its people, partnerships, and performance” (Chevron, 2018; MBA Tutorials, 2020).  This vision reflects its core values “to conduct business in a socially responsible and ethical manner.  We respect the law, support universal human rights, protect the environment, and benefit the communities where we work” (Chevron, 2020; MBA Tutorials, 2020).

       In accordance with the Chevron Way, the company strives to safely and efficiently supply energy products to its customers all over the world; hire the best-qualified people; become the best-qualified and highest-performing organization for its partners; and earn the respect and admiration of all of its stakeholders (MBA Tutorials, 2020).

       Chevron’s Business Conduct and Ethics Code outlines for employees the values and high standards of the company.  As Chairman and Chief Executive Officer Mike Wirth writes, “The Chevron Way is our touchstone for getting results the right way and establishes high standards for how we operate around the world” (Chevron, 2020).  The code emphasizes the company’s commitment to comply with the laws, regulations, and customs of every country in which it operates.  Violations can range from human rights to health and safety matters to bribery and fraud.  Consequently, the company encourages all employees to speak up about alleged violations of the code.  Since the company has a non-retaliation policy, employees who speak up in good faith are protected from retaliation by supervisors and peers (Chevron, 2020).

       In the United States, Chevron and other energy companies are regulated by the U.S. Department of Transportation (DOT).  In 1994, DOT established the Pipeline and Hazardous Materials Safety Administration (PHMSA) to regulate the United States’ 2.6 million miles of oil and gas pipelines.  As of 2018, oil provided 40 percent of U.S. energy, and natural gas provided 25 percent (U.S. Department of Transportation, 2020).

       Pipelines are considered a transportation system because they transport oil and gas to residential, commercial, and industrial customers.  Transporting energy products through pipelines is considered the safest means of transport.  PHMSA regulates all types of pipelines: gathering lines, transmission pipelines, and distribution lines.  The agency is responsible for “regulating the safety of design, construction, testing, operation, maintenance, and emergency response of U.S. oil and natural gas pipeline facilities” (U.S. Department of Transportation, 2020).  Protecting human lives and the environment from pipeline safety hazards are the main focus of PHMSA (U.S. Department of Transportation, 2020).       

       Integrity Management is a program instituted by PHMSA that requires pipeline operators to analyze and understand the environment and population in the area where the pipeline exists. Operators must be able to foresee the consequences of a pipeline failure to the local environment and community.  This proactive approach to pipeline safety and emergency management helps operators to prioritize inspections and scheduled maintenance and keeps them well-prepared in the event of a pipeline failure (U.S. Department of Transportation, 2020).

       In addition to PHMSA, other federal agencies involved in pipeline safety and security are the Department of Homeland Security (DHS), Transportation Security Administration (TSA), Department of Energy (DOE), and the Federal Energy Regulatory Commission (FERC).  State and local governments as well as industry experts also contribute to regulatory controls and standards.  Individual states must meet minimum federal safety regulations but can create stricter rules (U.S. Department of Transportation, 2020). 

       PHMSA’s Office of Pipeline Safety performs “field inspections of pipeline facilities and construction projects; inspections of operator management systems, procedures, and processes; and incident investigation” (U.S. Department of transportation, 2020).  When violations or safety hazards are found, the agency can force an operator to take corrective action (U.S. Department of Transportation, 2020).

       Operators of gas distribution systems must participate in the Gas Distribution Integrity Management Program (DIMP) which requires them to develop and put into practice a comprehensive integrity management program tailored to their individual distribution systems.  The purpose is to enhance safety by identifying risks, ranking them by severity, and implementing safety precautions to manage and eliminate those risks (U.S. Department of transportation, 2018).

       Chevron has developed a comprehensive Operational Excellence Management System which reflects its core values as a company.  Mike Wirth, Chairman of the Board and CEO, takes personal responsibility for the company’s performance.  His primary concern, when it comes to safety, is “to eliminate high-consequence personal and process safety events.  This means no fatalities or serious injuries and no fires, spills or explosions that can affect people or communities” (Chevron, 2018).

       Wirth’s focus is on three important areas: 1) understanding the safety risks involved in managing oil and gas operations; 2) identifying the safety measures needed to mitigate the risks; 3) implementing, maintaining, and improving those necessary safety measures (Chevron, 2018).

       The goals of Chevron’s Operational Excellence Management System are to protect “people and the environment” (Chevron, 2018), fulfill its mission “to be the global energy company most admired for its people, partnerships, and performance” (Chevron, 2018), and successfully manage “workforce safety and health, process safety, reliability and integrity, environment, efficiency, security, and stakeholders” (Chevron, 2018).

       To implement and maintain such a system requires the cooperation of all members of management and the workforce.  Everyone in the company must be accountable for their actions and the actions of others.  Everyone must be responsible for fostering a culture of safety and performance excellence (Chevron, 2018).

       Company accountability begins with its compliance with all health, environmental, and safety laws and regulations. Next, the company must comply with its own internal policies and procedures.  At the same time, company personnel must continually assess the company’s risk management program and make improvements as needed.  Assurance measures must be taken to ensure that safety precautions are kept in place to mitigate all identified risks.  The competency of the workforce must be kept up-to-date to ensure that quality management requirements are met.  The company must provide educational opportunities to keep the workforce informed of new policies, practices, and procedures.  The company must incorporate advanced technology into its operations to reduce the risk of human error.  Communication systems must be effective and reliable in order to convey information about potential chemical and biological safety hazards.  Contractors hired by the company must be in compliance with Chevron’s Business Conduct and Ethics Code and Operational Excellence Management System to maintain consistency and high-performance standards across the company.  There must be a competent system in place to report and investigate accidents; evaluate causes; implement new safety procedures; and communicate findings with management and the workforce.  Finally, an emergency management team must be prepared to respond at any time to a serious crisis that could harm property and human lives (Chevron, 2018).

       The reliability and integrity of wells, pipelines, and other facilities must be managed effectively to prevent safety hazards and operational losses.  Equipment must be inspected and maintained on a routine basis (Chevron, 2018).

       Chevron maintains a goal “to do business in environmentally responsible ways” (Chevron, 2018).  The company seeks to prevent all spills and accidental releases of gas and oil; to reduce air, water, and ground pollution; to conserve national resources and reduce greenhouse gases; to manage waste, especially waste produced by contractors; to dismantle company assets that are no longer used and restore the natural environment to its original pristine state.  The company keeps the public informed of its environmental management policies on its website (Chevron, 2018).

       Efficient use of energy and resources in order to drive down costs is an important part of Chevron’s Operational Excellence Management System.  Maintaining a secure physical and cyber environment prevents unnecessary and unwanted intrusions and safety hazards.  Engaging all stakeholders, including outside contractors, in the safety and performance goals of the company ensures that everyone connected with the company is on board (Chevron, 2018).

       The Operational Excellence Management System at Chevron depends on strong leaders and committed workers who are willing to work together as a team to implement, maintain, and improve the safeguards which mitigate risk.  “Typical safeguards include facility designs, mechanical devices, engineered systems, protective equipment, and execution of procedures” (Chevron, 2018).  Once risks are identified, personnel work together to eliminate them; create new policies and procedures to manage them; and provide personal protective equipment to protect workers from them (Chevron, 2018).

       Personnel are also expected to follow a code of conduct that was designed to reinforce safety and mitigate risk.  The two key tenets of this code are: “Do it safely or not at all” and “There is always time to do it right” (Chevron, 2018).  If all employees operate on a daily basis within the fundamental safety provisions of the Operational Excellence Management System, safety hazards should be minimized or avoided altogether (Chevron, 2018).

       Chevron’s website provides an excellent overview for the general public of its history, operations, financial status, environmental and safety management, ongoing projects, and vision for the future.  What it does not address are the real situations that come up and threaten the financial standing of the company and the Operational Excellence Management System it has put in place.

       The jewel in Chevron’s crown is the Gorgon Project, located off the coast of Western Australia.  Gorgon is one of the largest liquefied natural gas (LNG) projects in the world, with the capacity to produce 15.6 million tonnes of LNG per year.  The processing facilities are located on a one percent section of Barrow Island, a Class A Nature Reserve.  Chevron has invested an enormous amount of time and resources into preserving the integrity of its pipelines, processing facilities, and the environmental standards of Barrow Island.  The company has set out to prove that an oil and gas company can successfully operate while respecting and preserving the local environment (Chevron Australia, 2020).  

       From its very beginning in 2009, the Gorgon Project has been plagued by failures, safety hazards, engineering challenges, and excessive costs.  Originally, the project was supposed to cost $US37 billion, and the first LNG was projected to be produced in 2014.  By the time the first load of LNG was produced and shipped off to Asia in 2016, the final cost came in at $US54 billion (Boiling Cold, 2020).

       In 2009, there was a strong worldwide demand for LNG.  In early 2016, the price of petroleum products had fallen, and there was an excessive supply of LNG on the market.  Chevron was under pressure to complete Gorgon and produce its first load of LNG.  In order to meet Chevron Chief Executive John Watson’s deadline, “untreated feed gas traveled from the Jansz-Io gas field wellheads, 1350 [meters] below sea level off the edge of the continental shelf, to Barrow island, 130 [kilometers] away” (Boiling Cold, 2020).  Once the gas was treated and ready for cooling, “the feed gas ran through [a propane cooler] on a separate circuit” (Boiling Cold, 2020).  The propane gas in the cooler circulated “back to the compressor through a knockout drum” (Boiling Cold, 2020).  Nearly three weeks later, the fourth knockout drum failed, damaging the compressor.  Production was halted for three months (Boiling Cold, 2020).

       Chevron released a statement more than a week later that the failure would only require routine repairs, and all equipment and materials were available at the facilities.  In reality, the propane compressor was flown to Perth for repairs.  Three months after the failure, Chevron had not reported it to the Department of Mines and Petroleum (DMP), the safety regulator for the Barrow Island LNG plant (Boiling Cold, 2020).

       In August 2016, Chevron finally met with DMP officials to discuss the incident.  Chevron provided an analysis of what led up to the incident.  The most serious violation was the failure of workers to follow the company’s safety code and stop the cooling process when the propane compressor began to vibrate excessively (Boiling Cold, 2020).

       Another significant issue was the failure by engineers and operating technicians to evaluate and identify possible safety hazards with the plant’s start-up operation and then take measures to make changes to the design or procedures to mitigate risks (Boiling Cold, 2020).

       Other violations included workers with inadequate knowledge to start up the plant, fuzzy management responsibilities, and insufficient technical resources to deal with a problem (Boiling Cold, 2020).

       Chevron took corrective measures to fix the problems and satisfy the requirements set forth by the DMP, then issued a public statement to assure the public that they had taken action to ensure the safety of all people working at the plant (Boiling Cold, 2020).

       Part of Chevron’s environmental agreement with Western Australia was “to capture and store underground 40 percent of the [Gorgon] plant’s emissions through a sophisticated process known as geosequestration or carbon capture and storage” (Australian Broadcasting Corporation, 2018).  Chevron proudly brags about its CO2 injection project on its website.  But the reality shows something different.

       Chevron promised that between 5.5 and 8 million tonnes of CO2 would be injected into its underwater carbon storage project in the first two years of production on Barrow Island.  But seal failures and problems with corrosion delayed the CO2 injection project, leaving the Federal Government of Australia $AU60 million dollars poorer. As a result, all the gains in lower CO2 emissions made by the widespread use of solar power were wiped out.  A spokesperson for Chevron stated, “Our focus is on the safe commissioning and start-up of the carbon dioxide injection project and achieving a high percentage of injection over the 40-year life of the Gorgon project” (Australian Broadcasting Corporation, 2018).

       Chevron’s CO2 injection project was approved by Premier Colin Barnett on September 14, 2009. “The Barrow Island Act was the first legislation regulating carbon dioxide storage (geosequestration) in the world” (Department of Mines, Industry Regulation and Safety, 2019).  The project started injecting CO2 into the Dupuy Formation, a geological layer located more than two kilometers beneath Barrow Island, in August 2019.  Since then, the Department of Mines, Industry Regulation and Safety has been monitoring the project, making sure that Chevron stays in compliance with the Barrow Island Act and its Pipeline License (Department of Mines, Industry Regulation and Safety, 2019).

       When Chevron’s carbon dioxide system successfully started up in August 2019, Chevron Australia issued a press release reassuring the Australian public that it would continue to monitor all safety issues and fulfill its promise to reduce the Gorgon plant’s greenhouse gas emissions by 40 percent over the 40-year life of the project (Chevron Australia, 2019).

       When the coronavirus spread around the world early in 2020, the slumping oil and gas industry was hit with more problems.  The economic lockdowns put in place to stop the spread of the virus kept people at home, causing a backlog in equipment and parts orders, and a slowdown in preventative maintenance and repairs on wells, transmission pipelines, refineries, and gas distribution systems (Reuters, 2020).

       In order to cut costs, companies like Chevron and ExxonMobil began laying off workers, putting off maintenance and repair projects, and delaying start-up projects.  This put established wells, pipelines, refineries, and gas distribution systems at risk for future failure and safety hazards (Reuters, 2020).

       In July 2020, it was reported by the Australian media that routine maintenance at Barrow Island had uncovered thousands of cracks in eight propane kettles that had been sitting in storage for several years.  These kettles had been scheduled to be installed on LNG Train 2.  It has been speculated that the cracks were caused by water penetrating the thermal insulation surrounding the vessels.  The insulation was installed by overseas construction firms and then shipped to Australia (Boiling Cold, 2020).

       While repairing the cracks in the eight propane kettles, workers at Chevron discovered defective welds in those same kettles.  Executive Vice-President Jay Johnson told investment analysts that the defects occurred during the manufacturing process and not because they were poorly designed.  He claimed that repairs would be sufficient to make the vessels safe (Boiling Cold, 2020).

       Safety measures were put in place to mitigate risks in LNG Trains 1 and 3, but Chevron refused to reveal what those safety measures were or how workers would be safe while repairing LNG Train 2 (Boiling Cold, 2020).

       The company suffered a $US8.3 billion loss in the second quarter of 2020 due to problems at the Gorgon Project.  And it refused to explain how the 16 propane-filled kettles still operating were safe without being inspected for cracks and weld defects (Boiling Cold, 2020).

       In September, Chevron reported that it had given incorrect instructions to welders repairing the eight propane kettles on LNG Train 2.  Authorized personnel had neglected to inform welders that a post-weld heat treatment needed to be done, subjecting the weld to more cracking and failure (Boiling Cold, 2020).

       More delays in repairs have cost Chevron and its partners more than $AU500 million.  The continued problems at Gorgon have worried union leaders and workers alike.  The Department of Mines, Industry Regulation and Safety “gave Chevron permission to continue operating [LNG] Trains 1 and 3 under a plan where Train 1 would close for inspection of its kettles in early October and Train 3 would shut down in early January [2021]” (Boiling Cold, 2020).

       The company error occurred simultaneously with the final phase of its plan to lay off 20 to 30 percent of its Australian workforce due to losses incurred from COVID-19 lockdowns, a slumping oil and gas industry, and the expensive problems at Gorgon Project.  If repairs need to be done on Trains 1 and 3, the company will incur even more losses.  In order to recover some of its losses, Chevron plans to sell between $US5 billion and $US10 billion worth of assets (Boiling Cold, 2020).

       Publicly, Chevron does what it needs to do to keep a shining reputation, but the reality is a much different story.  Chevron’s lofty goals for itself magnify every mistake that it makes, from environmental violations to engineering and operational errors to investment losses.  Although  basically a sound company and a worthy employer, Chevron is in a tough position due to stricter environmental standards, COVID-19 restrictions, a slumping industry, and forces lined up against the use of fossil fuels.


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       Retrieved from https://www.boilingcold.com.au/chevron-to-redo-its-botched-gorgon-weld-


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       Retrieved from https://www.boilingcold.com.au/chevron-to-restart-gorgon-lng-train-after-


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Dawn Pisturino

Thomas Edison State University

December 16, 2020; April 20, 2022

Copyright 2020-2022 Dawn Pisturino. All Rights Reserved.

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