As politicians in Washington, D.C., squabbled over offshore drilling and tax breaks for Big Oil, Hurricane Ike came roaring through the Gulf Coast at 110 miles per hour, leaving 6 million people without power.
The blow from hurricanes Ike and Gustav shut down almost all oil and natural gas production in the Gulf of Mexico for about two weeks in September, completely waterlogging several of the region’s drilling and refinery construction projects and putting minor snags in others. Fourteen Texas refineries and three Louisiana refineries were affected by the storms. In addition, 10 oil and gas platforms reportedly were destroyed, with the collective damage spiking gas prices up by 40 cents a gallon in some regions.
Chevron, Marathon, Valero Energy and others reported production restarts would take place gradually this fall, following damage assessments and the return of power and fresh water.
With the nation’s attention turned to domestic oil supply and the demand for more refining capacity, contractors working in the oil and gas industry are taking center stage to provide expertise on installing new drilling technology, increasing industrial production to meet consumer demands, and keeping local employees safe and well-trained.
It’s prime time for industrial contractors as they enter the winter shutdown/turnaround project season and get ready to perform post-storm reconstruction.
“We will be extremely busy between now and April,” says Mike Uremovich, chairman and CEO of STARCON International, Inc., Manhattan, Ill.
The industrial and mechanical construction company, which performs oil industry projects from California to New Jersey, and south to Aruba, Trinidad and the Gulf Coast, immediately contacted its Houston-area clients following Hurricane Ike to offer its services.
“We are waiting to hear back from our oil clients to know how we can support them,” Uremovich says. “First, they are dealing with three to four feet of water, debris, lack of power, alligators, snakes and everything else.”
This winter, STARCON will ramp up its usual full-time staff of 1,000 employees to nearly 2,500 employees. Contractors like STARCON need all hands on deck for peak shutdown/turnaround season, when oil companies shut down their refineries to perform upgrades, cleaning or repairs and bring production back online all in a matter of a few weeks. (The oil companies usually don’t perform turnarounds during the summer because consumer demand is too high to shut down production.)
In addition to turnaround projects, STARCON will continue progress on two ultra-low sulfur diesel (ULSD) retrograde and expansion projects to comply with 2007 emissions requirements, including a project for Marathon in Canton, Ohio. The company also has eight long-term maintenance contracts around the country.
In terms of new construction, however, Uremovich notes that not all refiners are boasting record high profit margins, and the volatile oil market is affecting the number of projects entering the pipeline. For example, Sunoco and Valero, which currently are buying crude oil on the open market, have cancelled or deferred projects because of market instability.
“The companies that are getting the oil out of the ground are making money, but some of the refiners are struggling right now,” Uremovich says. “Because profits are slow at the refineries, they are looking to cut costs. Open shop contractors thus become very attractive for them for multitalented and efficient project execution.”
Mega-Manpower
One project undaunted by weather woes and market instability is Marathon’s $3.2 billion Garyville Major Expansion (GME), one of the largest private sector projects in the country. With the efforts of open shop contracting firms, GME will almost double the Garyville, La., refinery’s capacity of 256,000 barrels of crude oil per calendar day to 436,000 barrels per day.
As one of the most energy-efficient refineries in the country, GME will provide the equivalent of 7.5 million gallons of clean transportation fuels each day.
Fluor Corporation of Irving, Texas, is the program director overseeing the work of several Baton Rouge construction firms. Cajun Constructors, Inc. and James Construction Group performed the civil and concrete piling work, while Turner Industries Group, LLC and Performance Contractors are taking charge of the mechanical components. Industrial Specialty Contractors and Excel Contractors are performing the electrical and instrumentation work.
Performance Contractors, which has been working with Marathon for nearly 17 years, is managing 900 of the whopping 4,200 employees on the jobsite. Its crews currently are erecting structural steel and pipe spools, and setting rotating and fixed equipment in five new areas of the refinery.
“The uniqueness of this jobsite is the sheer size of the project,” says Kevin Courville, Performance Contractor’s project executive. “Getting thousands of people safely in and out of the facility, who are driving to work from a 60-mile area, becomes a major logistical challenge.”
This challenge was especially evident with the approach of Hurricane Gustav. Crews boomed down all cranes, dismantled lunch tent facilities, and secured all tools and other potential hazards to comply with Marathon’s detailed hurricane preparedness plan.
With this phased approach to protect the safety of people and property, Performance was able to return the majority of personnel to the jobsite within a week after the storm, even with limited communications and at least 80 percent of employees still without power at their homes. The job is still on target for on-time completion.
Aside from emergency preparedness, managing this massive quantity of manpower requires experienced leadership because the industrial work is so specialized and the stakes are so high. Performance matches new hires and helpers with seasoned mentors to fill any workforce gaps.
“We have learned over the years that placing the right people in key leadership roles is paramount to project success,” Courville says. “We put much emphasis on retaining qualified managers and craftsmen on each of our projects, especially megaprojects such as this one. Having long-term leaders creates a cohesive and consistent direction for the project team from start to finish.”
Marathon’s Garyville refinery is an Occupational Safety and Health Administration Voluntary Protection Star site, with daily safety awareness training and weekly job-wide safety toolbox meetings.
Safety Investment Pays for Itself
At all refinery and ULSD retrograde projects, safety is always a top jobsite focus.
“The biggest thing the owner looks at is safety,” Uremovich says. “We just completed 7 million manhours of work without a lost-time accident. That opens a lot of doors to us and gets us a lot of business.”
The best approach is proactive: examining the leading indicators of accidents before they happen. Rather than simply reacting to accidents, contractors using behavior-based safety programs encourage employees to make observations of near-misses, such as tools dropped from scaffolding or inadequate personal protective equipment.
Cajun Constructors, Inc., LaPorte, Texas, which focuses on the refining and energy construction sectors, used creative incentives to keep employees engaged in its jobsite safety program at the Motiva HTU-5 ULSD project in Port Arthur, Texas.
Jacobs Field Services North America, Inc. selected Cajun Constructors as the lump sum civil contractor to build equipment foundations, columns and support pedestals at the refinery.
In October 2006, Cajun brought its first crew to navigate the “bathtub” worksite—a pit filled with preliminary pilings and excess water resulting from heavy rainfall. Just five weeks later, Cajun needed to have formwork, rebar and a foundation in place to support the subsequent delivery of the reactor.
Self-performing 93 percent of the work, Cajun also built footers and pipe rack columns, backfilled the site, and installed catch basins and manholes—all while sequencing work with the underground piping subcontractor. Finally, crews completed peripheral foundations and paving operations on the south and north sides of the refinery.
Aside from providing Motiva with a high-quality end product, Cajun’s foremost concern was providing local employees with a safe worksite. The project had a peak workforce of 164 field personnel, with a third hired from the Houston area.
“The most rewarding part of this job was putting hundreds of people on the jobsite without having anybody get hurt,” says Tim Ricketts, Cajun’s vice president of Houston operations.
Thanks to its behavior-based observation and incentive program, Cajun built the foundation and paving for Motiva’s $10.3 million, 45,000 barrel-per-day ULSD plant with zero lost-time accidents and zero injuries.
Employees were rewarded for positive safety behavior with prizes ranging from hats and T-shirts to big-ticket items like four wheelers, a boat and a pickup truck—displayed onsite to create excitement about the program.
“It was expensive, but worthwhile,” Ricketts says. “Your safety program must be tailored to engage personnel to the greatest degree possible. Our incentive program was such that our employees were going home to talk about the giveaway contest with their families. That’s when you know it’s effective.”
Employees made more than 10,000 hazard observations during the course of the Motiva project.
“One of the basic principles of an employer-employee relationship is providing them a safe place to work. If you set up an environment that does that, you get better productivity, and employees are happier on the job. With these benefits, the safety program paid for itself,” Ricketts says.
Even with about two weeks of rainout days and a scope of work growth of 17 percent, the project team overcame schedule and delivery problems to complete the job by mid-March.
With this project under its belt, Cajun Constructors is currently performing another similar contract for Motiva in the Gulf Coast.
Preparing for the Alternative
Considering recent congressional action pushing to allow offshore drilling as close as 50 miles from the coastline, as well as pressure to boost output at U.S. refineries, STARCON, Performance Contractors and Cajun Constructors, along with their construction colleagues, will have their plates full for the near future.
In August, energy companies placed $487 million in winning bids for the right to drill in 1.8 million acres of federal waters in the western Gulf of Mexico.
In addition, projects are coming online to boost capacity for transporting and refining heavy crude, which can be found in Canada’s oil sands and in shale fields in Texas, Oklahoma, the Dakotas and the Rocky Mountain region.
Long-term construction volume, however, depends on several factors, including the incoming administration’s energy policies and the refineries’ fiscal health in an ever-fluctuating oil market. Materials price volatility and labor shortages will play a role as well.
“No one ever predicted this spike in [oil] prices,” Uremovich says. “Imagine if you were talking about your steel prices fluctuating that rapidly—it would be hard to predict what your profit margins would be.”
STARCON will keep its feet planted firmly in the industrial oil construction marketplace until its major projects are complete in 2011.
“STARCON has been focused on the oil industry for the past 25 years, but we’re starting to look at diversification in terms of wind power and nuclear energy,” Uremovich says.
The Nuclear Regulatory Commission has approved the future development of 18 nuclear plants in the United States, offering another multibillion dollar option to industrial contractors looking for new business opportunities.
While the need for oil is inevitable, and is the bread and butter of several large industrial contracting firms, contractors will need to adapt their skill sets to burgeoning energy alternatives.