In this age of specialization, the pipeline industry takes a back seat to no one. One company that has applied its talents to everything from pipeline system integrity to environmental and water resources to projects/transactions to litigation support and much more is Houston-based G2 Partners. Perhaps their most unique capability is providing turnkey solutions for what they term “environmentally distressed real estate.”
Vance Fairchild, G2 Partners’ President and Managing Principal, has come a long way since his childhood in San Antonio where the importance of education was constantly emphasized by his parents. A summer job landscaping in the Hill Country may have helped increase that incentive as his days were spent digging holes with a jackhammer in the rocks with a crew of convicts. There was some consolation to that job, however: “We got off early on Wednesdays so that the crew could meet with their parole officers.”
Fairchild began his career as an environmental engineer for Tenneco Gas, working on permitting and constructing pipeline and compressor station projects, including field construction inspections and environmental compliance audits of compressor stations and construction spreads. He then worked in environmental remediation, cleaning up PCBs at compressor stations and mercury at meter stations as well as providing overall support for pipeline facilities compliance.
He later worked on the financial and rate recovery aspects of environmental affairs, including FERC and customer rate case negotiations, CGL insurance recovery, and other third-party tort and other settlement resolutions. His last Tenneco assignments focused on divestments, setting up data rooms for prospective buyers and explaining environmental conditions and planned mitigation.
Fairchild then moved to the services industry, working for a small environmental consulting company. El Paso Corp., which had just bought Tenneco, was his first client. After two years he launched another consulting business that primarily focused on mergers & acquisitions (M&A), and related due diligence, asset valuations, and risk management activities including environmental liability buyouts and brownfields cleanup/redevelopment.
The M&A consultancy was purchased by a large public company where Fairchild and his team continued helping pipeline and other energy clients with large liability buyouts, contaminated property acquisitions, cleanup, and redevelopment. After the real estate crash and financial difficulties at major insurance companies, Fairchild and partners again went out on their own, forming G2 Partners, LLC. Their strategy would center on the broad array of risk management challenges faced by the energy industry.
They would still be owners of brownfields sites and maintain an active consulting practice in the environmental and M&A areas, but every successful company needs to evolve with the times. Today G2 also is involved with pipeline data and USDOT records compliance, pipeline systems integrity, and providing other strategic risk management solutions for the pipeline industry.
A unique aspect is that G2 owns brownfields sites and rural wetlands and stream mitigation sites, which they entitle and sell as “turnkey” credits to mitigate ecological impacts from their pipeline and facilities construction projects. This is where our interview with Fairchild picks up.
P&GJ: What does “environmentally distressed asset business” mean and why has it drawn your interest?
Fairchild: We help clients mitigate risks associated with ongoing operations and with discontinued properties that have environmental impacts from historic operations. These can include real risks from soil, sediment, or groundwater impacts, as well as perceived risks that impact future use opportunities. Older facilities may be impacted by hazardous and solid waste, asbestos, lead, naturally occurring radioactive material (NORM), and a variety of other contaminants. These contaminants can be a barrier to optimal operations or to the re-entitlement for the highest and best use of the real estate. We help clients quantify these risks, and in some cases, monetize and perpetually transfer all pre-existing environmental liabilities as part of a transaction.
For more than two decades, the principals in our company have been involved in complex transactions that manage the impacts from prior operations. We’ve bought impaired real estate from clients, and have transferred millions of dollars of liabilities including some where no physical property changed ownership, just the pre-existing liabilities. Many of our historic and current clients in this space are pipeline companies.
P&GJ: What are some of the more challenging projects that you’ve been involved with?
Fairchild: 1) Customer and FERC rate recovery for a regulated interstate pipeline company.
2) Purchase, remediate, and ecologically redevelop 140- acre Superfund site in New Jersey bought from a major transmission pipeline company.
3) Purchase and ecologically develop rural land to create wetlands mitigation in a key pipeline corridor that links new shale supply with Gulf Coast petrochemical demand. The development enhances the environment, provides valuable habitat creation and critical bottom-land hardwoods and stream conservation, and is cost-effective and timely mitigation for our pipeline customers to obtain critical construction permits.
4) Assume and mitigate pre-existing environmental cleanup liabilities at three large fuel terminals in the Midwest.
5) Led the creation of a Health, Safety, and Environmental (HS&E) division for an international oil and gas company as part of their efforts to develop LNG facilities across the U.S.
P&GJ: How have you seen the pipeline industry change in your 20 years regarding its position on environmental issues?
Fairchild: Companies vary widely on how they address legacy issues and emerging risks. For example, some companies have proactively initiated pipeline data improvement and related risk management projects while others have not. Proactive initiatives are based on operating philosophies that include aggressively mitigating significant risks and reducing the likelihood of high consequence events. These initiatives depend on the ability to quantify the ROIs associated with improvement work. Companies that have not been proactive seem to be waiting for prescriptive regulations to drive improvement projects.
The energy trade associations have devoted significant effort to enhancing capabilities in the areas of risk mitigation and asset integrity management. These groups have consistently focused over the years on safe operations with minimal impact to the environment. They continually upgrade guidance manuals, best practices and sponsor collaborative programs that emphasize and improve safety/environmental protection. Accidents do occasionally occur but most studies show their frequency has steadily decreased.
From my perspective, having worked in the pipeline transmission and environmental business for more than 20 years, most companies subscribe to the philosophy that good safety and environmental management is a key performance metric for well-run operations.
P&GJ: How much do environmental issues add to the cost of a typical pipeline project?
Fairchild: Environmental issues can add significant costs and introduce schedule delays to pipeline projects (Keystone XL is a prime example), and in some cases these expenses and/or schedule delays can be material to the success or failure of a project. With new shale production, we believe there will be several innovative uses and rationalization of existing infrastructure to move hydrocarbons from different production sources to new markets, domestically and abroad. We also think competing demands for available water supplies, water conservation, water treatment, and aquifer degradation will become increasingly critical issues for the sustainability of shale production.
P&GJ: What are some of the most important environmental challenges that pipeline companies face today, perhaps some they are not even aware of?
Fairchild: Most operators largely understand the environmental challenges they face. Some key issues are:
• Optimizing pipeline corridors and routing. New pipelines and routes will be required to support changing domestic production and markets, necessitating impact mitigation solutions that support cost-effective and timely regulatory concurrence and permitting. Two example environmental mitigation challenges that are frequently encountered are:
1) Mitigating wetland, stream crossing, and other sensitive species habitat disturbances that impact linear infrastructure projects. Sometimes wetland mitigation can be done on site, but increasingly, the fastest and most cost-effective solution will be to use already established and approved wetland banks to mitigate unavoidable impacts. This approach is also typically a superior environmental and habitat answer in that mitigation banking solutions entail creating, enhancing, and/or conserving much larger contiguous land tracts that provide significantly greater ecological value.
2) Designing stream crossing techniques that avoid the potential for damage and leaks under flooding events at a cost that does not adversely impact project feasibility.
• Working to ensure that rapidly constructed facilities in shale production regions are completed with minimal risk of accidents, spills, leaks, ruptures, contamination, etc. This is especially important during the early development period when local and state agency regulations are actively evolving and public emotion is a key issue. Good science and engineering are the best tools industry has to support successful outcomes.
• Upgrading older pipelines and related systems components. This will require sophisticated application of risk-based tools to balance the costs and benefits of addressing the challenges of our aging infrastructure.
• As more M&A transactions occur, the challenges of identifying, mutually agreeing on, and remediating liabilities will require creative goal alignment to promote efficient resolution and deal closings.
P&GJ: What are some of the technological developments that may help the industry mitigate risk and improve the efficiency of their operations?
Fairchild: A significant technological advancement is the integration of geographic information systems (GIS) with current pipeline integrity software. Both technologies have been evolving for many years, yet only recently have they achieved the level of maturity that allows them to be key tools for operators use to mitigate risks and optimize operations.
At many pipeline companies, GIS is the essential tool to understand operational risks and prioritize capital improvements and maintenance projects. Senior executives realize the benefits GIS delivers regarding optimizing systems and making critical business decisions and effectively communicating with internal and external stakeholders. A well-designed and managed GIS, loaded with clean data and supported by a records governance process that ensures future data is clean, provides companies with visual frameworks to conceptualize, understand, and prioritize actions to improve pipeline safety and operational reliability.
There are also technical developments in the area of gathering, tracking, and integrating new pipeline construction data and records information into GIS. Improvements include pipe material logistics tools (bar code and scan), electronic data collection software, and user-intuitive Web technology to aid personnel (project managers, environmental, and inspection teams) in tracking deliverables throughout the project construction lifecycle. Properly implemented, this technology can support ad-hoc construction regulatory audits. The ultimate goal is to ensure standardized, complete, and accurate data and records deliverables prior to burying pipe and before third-party engineering vendors move off site.
A goal of integrity management programs is to help decision makers understand, prioritize, and mitigate risks and make the pipeline safe, environmentally secure, and operationally reliable. Advanced pigging technology and processes can work with GIS and integrity programs to identify critical data and records missing from the company’s facility database system. G2 supports clients by developing processes that leverage pigging information as a mechanism to continuously improve pipeline centerline accuracy for safety applications such as One Call, HCA, and Class Determination.
A large problem for many operators is the daunting task of assembling and processing the massive amount of data required to build an integrated pipeline integrity program in combination with their GIS. Pipeline integrity software is available to help industry integrate, measure, and display data efficiently and logically. When executed properly, the combined GIS and integrity software provides measurable improvements to pipeline safety and provides quantifiable ROI that increases operational efficiency and company profitability.
P&GJ: Do you think the industry is too tightly regulated today?
Fairchild: G2’s clients realize that safety and environmental regulation is necessary and that the regulatory framework in many ways reflects industries’ own objectives regarding building and operating safe and environmentally protective facilities. There are, however, elements of regulations that need to be re-evaluated and streamlined to allow industry to continue to drive domestic energy production growth and support energy security. At times, the public’s perception of the overall exceptional safety record of pipeline transportation is missed, and the relative risks have been exaggerated and even misrepresented through social media and other means. This, at times, drives the legislative process and regulatory response overcompensates.
Areas where improvements could help include:
1) Streamlining land-use regulations to allow facility sites and pipeline routes to be selected and approved in a timely manner. This is critical when multiple agencies are involved. Making the country more energy-independent obviously requires that industry be able to build and maintain critical infrastructure in a timely fashion under predictable business conditions.
2) Agencies should ensure that mandated deadlines are reasonable for industry to create compliance programs, and that deadlines do not unnecessarily impact operational efficiency. For example, there are approximately 500,000 miles of collection, transmission, and distribution liquid and gas pipelines and gathering lines, and 2.1 million miles of gas distribution and service lines in the U.S., with construction of many lines dating back several decades. Pipeline operators and gas utilities need to be given a sensible amount of time to verify that all records for these lines are complete and accurate, and to perform risk-based assessments to determine locations where improvements are required.
3) The rapidly expanding deep shale oil and gas activities call for additional scientifically based regulations that will provide predictable and reasonable standards that are protective of public health. Government and public concern is driving promulgation of significant new regulations and in some cases this is proceeding without adequate engineering or scientific basis. Our hope is that good science will prevail and be used to identify and quantify the relative risks of production, and provide the basis for an effective regulatory structure that is protective and supports increased production.