In the years leading up to ExxonMobil's Pegasus pipeline rupture in Arkansas, the company delayed a crucial inspection, put off urgent repairs, masked pipeline threats with skewed risk data and overlooked its own evidence that the oil pipeline was prone to seam failures, according to federal pipeline regulators.

The assertions are laid out in a bluntly worded notice sent to Exxon and released last week by the Pipeline and Hazardous Materials Safety Administration (PHMSA, pronounced fimm-sa). The preliminary citations, which came with a proposed $2.66 million fine for Exxon, grew out of the agency's investigation into the March 29 Pegasus seam failure that sent an estimated 210,000 gallons of crude into a Mayflower, Ark. neighborhood.

"From my perspective, this is a pretty important notice," said Richard Kuprewicz, a pipeline safety consultant who serves on the PHMSA safety standards advisory committee for oil pipelines. "They've used some fairly strong words ... and they don't choose their words casually."

In the 12-page Notice of Probable Violation and Proposed Compliance Order, regulators said Exxon was "selectively using" risk assessment results for the Pegasus and relying on artificially lowered risk scores to determine if any pipeline segments need extra inspections or special spill-prevention measures. That caused Exxon to underestimate the vulnerability of the pipe that passed through Mayflower and several waterways, PHMSA said.

The agency also ordered Exxon to overhaul many aspects of its integrity management plan, the company's blueprint for keeping the Pegasus safe. Those changes should ensure that decisions affecting final risk scores "are not manipulated," that integrity management processes "are not circumvented," and that "conflicting budget goals" don't affect pipeline integrity priorities, PHMSA said.

PHMSA spokesman Damon Hill said the use of such explicit prohibitions constituted "normal language," for the type of notice Exxon received. The agency's use of words like "manipulated" and "circumvented," he added, "is not implying that those things were done."

Others aren't so sure.

"It sounds like PHMSA is saying 'we don't think you were intellectually honest about this,'" said a pipeline failure analyst who did not want to be identified because of ongoing work with oil companies. "I would read this as PHMSA basically accusing them of gaming their own risk assessment process."

Exxon is still reviewing PHMSA's notice. In a statement, the company said it was "disappointed" with the agency's action, adding that it appeared that the agency "made some fundamental errors" in its analysis. Exxon has 30 days to pay the proposed fine or challenge PHMSA's findings.

"Usually, PHMSA does its homework," Kuprewicz said. "But in fairness to the company, the process hasn't been completed. There could be new information uncovered where PHMSA didn't get something right, or didn't get a critical piece of information."

Industry Knew Pipe Was Defective



Most of the Pegasus pipeline, which stretches 858 miles from Illinois to the Texas Gulf Coast, was built in 1947 and 1948 using pipe made by Youngstown Sheet & Tube Co. In 2006, Exxon reversed the pipeline's flow so it could carry diluted tar-like Canadian crude to refiners in Texas. The 65-year-old pipeline, which has been closed since the spill, can carry more than 90,000 barrels per day of diluted bitumen, or dilbit, extracted from Alberta's oil sands.

The Youngstown pipe segments on the Pegasus were made using an inferior manufacturing process that employs low-frequency electric resistance welds (ERW). The industry has known for decades that pipe made that way can harbor hook cracks and other defects that can cause lengthwise seam welds to fail.

Tests following the Mayflower spill determined that at least one of the known types of manufacturing flaws set the stage for the rupture. But regulators have not said what caused one or more previously dormant defects to grow into a 22-foot-long gash along the pipe's lengthwise seam.

Exxon said it is cooperating with PHMSA on all aspects of the ongoing investigation. Under a Corrective Action Order from PHMSA, Exxon must submit a remediation work plan that would include already-approved supplemental testing and analysis of the Pegasus to help identify all the contributing factors in the spill. Exxon must also prove that the pipeline can be safely operated. The deadline for the Pegasus remediation and verification plan was recently extended to Jan. 6.

The oil giant is facing a handful of lawsuits brought by state and federal environmental agencies, and residents harmed by the spill. In addition, a water district has threatened to sue to get the Pegasus moved out of a watershed linked to the drinking water for 400,000 customers in and around Little Rock.

So far, Exxon has purchased 20 homes in the neighborhood contaminated by Pegasus oil, and it has demolished three of them. To date, the company has paid out $70.5 million on spill-related expenses, according to Exxon spokesman Aaron Stryk.

Ignored Seam Problems, 'Masked' Threats



The most surprising of the proposed violations cited by PHMSA was that Exxon's risk assessment program for the Pegasus didn't include the most obvious and most dangerous threat to the pipeline—the manufacturing defects that can cause cracking and seam weld failures.

Under federal regulations, pipeline operators must create and carry out an integrity management program that is built around all the risks that apply to each specific pipeline. To do that, companies must consider things like the physical characteristics of the pipe (including relevant manufacturing information), operating conditions, leak history, soil and other environmental factors, failures during tests, the products being transported, and proximity to populated or environmentally sensitive areas.

Pipeline companies must then decide which factors pose the greatest risks to the pipe, and make adjustments to everything they do—from managing operating pressures to carrying out maintenance, inspection and repair programs—to either minimize or eliminate those risks.

In the case of the Pegasus, the seam weld threat was inherent in the pipe itself. What's more, Exxon's own records show that the pipeline suffered one seam failure while it carried crude oil and about a dozen others during pressure testing over the years.

Armed with that information, Exxon had "more than adequate information for the pipe to be considered susceptible to seam failure," the agency said. Even so, Exxon did not include that predisposition as a risk factor for the Pegasus when it completed risk assessments, set priorities for inspections or devised maintenance and risk mitigation strategies for the pipeline, according to PHMSA.

"Not acknowledging manufacturing seam threats—for a company as large as Exxon, that's just embarrassing," said Kuprewicz, who was hired to help the Arkansas water district with its case. If Exxon had given sufficient weight to that risk, the company might have changed the timing and the type of inspections and tests it conducted on the Pegasus, Kuprewicz and others have said.

In August, Exxon spokesman Stryk said the company "established a system for determining seam-failure susceptibility and for initial and subsequent seam integrity assessments." He said Exxon's system was reviewed by PHMSA and is "consistent with all applicable pipeline regulations."

PHMSA also cited Exxon for:

► Failing to reassess the seam failure risk on the Patoka to Corsicana segment of the Pegasus within five years of confirming that threat. That segment of the Pegasus suffered the most seam failures during hydrostatic tests in 1991 and 2006, but Exxon did not reassess that stretch of pipe for seam threats until February 2013, after the five-year deadline and a few weeks before that segment broke open in Mayflower.

► Failing to take prompt action when it was notified of pipeline conditions that were classified as needing immediate repair. An inspection company told Exxon about two sites requiring immediate attention on August 9, 2010. Exxon, however, didn't formally discover one of those threats until 19 days later and the other until several months later. The "discovery" date typically starts the clock on regulatory deadlines for making repairs, so the later dates delayed the fixes.

► On four occasions, failing to declare discovery of pipeline threats needing action within the 180-day deadline despite having been notified of them within that window.

► Failing to follow its procedures "by selectively using results" from its threat assessment process in 2011, which caused Exxon to downplay the risk of an oil release into the Lake Maumelle watershed and other areas along a pipeline segment subject to manufacturing defects. The company then failed to appropriately elevate the threat.

► Failing to reassess risk scores after it changed the way the pipeline risks were assigned. Exxon combined four pipeline segments that used to have separate risk scores, to create two segments, effectively averaging the risks and lowering the overall scores. The move had a negative impact by "masking higher threat intermediate segments (such as the Lake Maumelle Watershed and Mayflower populated areas) with the dilution of risk scores."

The pipeline failure analyst noted that some PHMSA regulations rely on professional judgment calls, and can be open to interpretion. Taking or not taking actions outlined by PHMSA "doesn't necessarily mean that somebody was trying to do the wrong thing," he said.

The analyst and Kuprewicz said the Pegasus case may boil down to PHMSA and Exxon lawyers arguing over the meaning of various words in the regulations. A host of other cases have unfolded in similar fashion.

"But if you step back, this isn't that complicated," Kuprewicz said. "As an operator, your job is to keep the pipeline from failing."

This story is part of a joint investigative project by InsideClimate News and the Arkansas Times. Funding for the project comes from readers who donated to an ioby.org crowdfunding campaign that raised nearly $27,000 and from the Fund for Investigative Journalism.