Quality Manual Rev. 1.

4
Note: Revision change from 1.3 to 1.4 consists of the API/Q1 8th edition changes

Quality Management System for the Manufacturing of Products for the Petroleum Industry

Controlled copy : _______________ Assigned to: _________________

APPROVAL OF THE QUALITY MANUAL QM-101 Rev. 1.4 President: Brando Ballarini Quality Manager: David Alva Date: 06/11/08 Date: 06/11/08

Quality Policy
DrillMec, Inc. is committed to providing solutions for our customers needs by manufacturing professionally engineered drilling equipment which meet or exceed our customers expectations. DrillMec, Inc. shall ensure that all regulatory requirements are maintained by providing the resources, communication, and an environment whereby a continuous improvement of communication and processes is made possible. DrillMec, Inc. shall continuously monitor and measure the effectiveness and suitability of our quality management system by establishing quality objectives which are consistent with our overall business goals of enhancing our customer relationships and the quality of our products.

_______________________________ Brando Ballerini President

Quality Systems Manual

Table of Contents

Table of Contents Section

Introduction 1.0 Scope 2.0 Reference Documents 3.0 Key Terms and Definitions 4.0 Quality Management System 4.1 General Requirements 4.2 Documentation Requirements 5.0 Management Responsibility 5.1 Management Commitment 5.2 Customer Focus 5.3 Quality Policy 5.4 Planning 5.5 Responsibility, Authority, and Communication 5.6 Management Review 6.0 Resource Management 6.1 Provision of Resources 6.2 Human Resources 6.3 Infrastructure 6.4 Work Environment 7.0 Product Realization 7.1 Planning of Product Realization 7.2 Customer-Related Processes 7.3 Design and Development 7.4 Purchasing 7.5 Production and Service Provision 7.6 Control of Monitoring and Measuring Devices 8.0 Measurement, Analysis, and Improvement 8.1 General 8.2 Monitoring and Measurement 8.3 Control of Nonconforming Product 8.4 Analysis of Data 8.5 Improvement 8.6 Application of Product Monogram and Markings

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1 2 2 2 2

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Introduction This Quality System Manual applies to all products and services provided by the design and manufacturing facility of DrillMec, Inc. located at 18320 Imperial Valley Dr. Houston, Texas 77060. DrillMec, Inc., is a global provider of Drilling and Well Servicing Structures. We strive to provide our products and services at a competitive total cost of ownership to our customers. Our facilities are operated and managed under both domestic and international codes and standards, such as ASME, ASTM, AWS D1.1, API Spec.4F, ISO, etc. These standards and codes are the foundation for the quality management system, which is maintained in full compliance with the API Q1 Specification and ISO 9001:2008.

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Scope 1.1 General. This Quality System Manual (QSM) defines the DrillMec Quality Management System requirements for design, development, and production, of products which comply with the requirements of API Q1 Specification and ISO 9001:2008, as well as product specific standards and codes. It also establishes the foundation for the continual improvement of our business processes. Application. This QSM is applicable to all DrillMec employees, full time and contract that are directly or indirectly involved in the definition and delivery of products and services to our customers.

1.2

2.0

Reference Documents API Q1 Specification (8th Edition) Specification for Quality Programs for the Petroleum and Natural Gas Industry API Spec. 4F Specification for Drilling and Well Servicing Structures ISO 9001:2008 Quality management systems - Requirements ISO 9004:2008 Guidelines for performance improvements

3.0

Key Terms and Definitions 3.1 Control Feature. The organizations documented method to perform an activity under controlled conditions to achieve conformity to specified requirements. Acceptance Criteria. Specified limits of acceptability applied to process or product characteristics. Special Processes. A process where the conformity of the resulting product cannot be readily or economically verified by subsequent monitoring or measurement. Organization. DrillMec, Inc.

3.2

3.3

3.4 4.0

Quality Management System 4.1 General Requirements. The Quality Management System (QMS) shall be documented, implemented and maintained in a manner that facilitates continual improvement, and measurement systems to promote fact based decision processes, which support our organizations business objectives. The following model symbolizes our process-based quality management system.

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Continual Improvement of the Quality Management System

Order Entry

Management Customer Satisfaction Responsibility

Customer

Resource Management & Employee Involvement

Measurement, analysis, and improvement

Customer

Requirements Input

Product Realization

Output

Product

4.1.1 Outsourced Processes and Services 4.1.1.1 In addition to monitoring of internal processes, Drillmec Inc. shall recognize and maintain responsibility for product conformance to specified requirements when processes are outsourced.

4.2

Documentation Requirements. 4.2.1 General The QMS documentation requirements shall comply with the latest approved version of the API Q1 Specification and the ISO 9001:2008 standard. Procedures and control features, when required, shall be established to ensure control of processes. QMS documentation shall be structured in five (5) levels. The five levels in descending order shall be; policies, procedures, control features, forms, and reference materials.

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4.2.2 Quality Manual. The quality manual shall be considered a policy document and shall require the approval of the DrillMec President. The quality manual shall be reviewed annually to ensure continued applicability to our organizations needs and compliance with applicable industry and international standards. 4.2.3 Control of Documents. There shall be a documented procedure defining the documentation structure, format requirements, identification, control, approval, and maintenance requirements of documents used by DrillMec. The procedure shall include; document review, updates, approval, and re-approval requirements, how document changes and revision levels are identified, how we ensure the current revision is available at points of use, the document retention requirements, including legibility and readability, how external documents are identified and distributed, and requirements for obsolete document identification and control.

A Master Document List shall be established that identifies the quality management system documents and their current revision status. All QMS document changes shall be subjected to the same requirements for review and approval as the original document. 4.2.4 Control of Records. There shall be a documented procedure that defines the requirements for quality records identification, collection, storage, protection, maintenance, retrieval, retention, and disposition, including the responsible function for the records collection and maintenance. All documents generated as a result of implementing the requirements of this quality system manual and providing evidence of product conformity shall be considered quality records and retained for a period of not less than five (5) years or the requirements stated in the applicable industry standard, whichever is greater. All quality records shall be subject to internal audits.

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5.0

Management Responsibility Process Interaction Map

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5.1

Management Commitment. The DrillMec President shall have the overall responsibility for the implementation of the QMS. This commitment shall initially be demonstrated by the approval of this manual, the establishment and communication of the DrillMec Quality Policy, and the support of the establishment of measurable quality goals. The goals shall be defined annually based on our management review process, current business needs, customer requirements, and continual improvement initiatives. The Management Representative shall develop, implement, and maintain an annual quality plan that defines how the organization will achieve the quality goals. The Management Representative shall ensure there is an internal communication process regarding the effectiveness of the QMS. Customer Focus. The President of DrillMec shall have the overall responsibility for ensuring that customer requirements are determined and met with the aim of enhancing customer satisfaction by providing the resources necessary to monitor, measure, and improve customer satisfaction. Quality Policy. The President of DrillMec shall establish, approve, and ensure that the quality policy is appropriate to the organization and includes a commitment to the requirements of the QMS and that it provides a framework for the communication, review, and establishment of quality objectives. Planning. The President of DrillMec shall ensure that the quality objectives established are measurable and focused on relevant functions within the organization and that sufficient planning of the QMS is performed to maintain the integrity of the system when changes are made. Responsibility, Authority, and Communication 5.5.1 Responsibility and Authority. The President of DrillMec Inc. shall have the responsibility to ensure that responsibilities and authorities are defined and communicated within the organization.

5.2

5.3

5.4

5.5

5.5.2 Management Representative. The Quality Manager of DrillMec shall be the organizations designated management representative. The Quality Manager shall have the responsibility, authority, and freedom to; ensure the processes required for the implementation of this manual are established, communicated, implemented, and maintained, report to the President regarding the performance of the QMS and any need for improvement,

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5.6

ensure the promotion of awareness of customer requirements throughout the organization, and represent the organization with external parties regarding the QMS.

Management Review. 5.6.1 General Management reviews shall be performed as a minimum annually. The management representative shall maintain an annual schedule for management reviews of the quality management system. 5.6.2 Review Input. The following minimum information shall be reviewed during the management review process and documented minutes, decisions, and actions with resource assignments shall be maintained as quality records; results of audits customer feedback, including the status of customer complaints internal process performance, including nonconformance data corrective and preventive action activity status, both process and product status on actions directed as a result of prior management reviews proposed changes to the quality management system recommendations for improvements current status and changes to product specific standards or codes continued applicability of the quality system manual, goals, and quality policy quality objectives reports and analysis of field nonconformities

5.6.3 Outputs from these reviews shall be documented quality records and shall include decisions relating to the overall QMS effectiveness, product and process improvement requirements relating to customer needs, and resource requirements. 6.0 Resource Management 6.1 Provision of Resources. The President of DrillMec, Inc. or designee shall ensure that all functions identified on the sites organizational chart are adequately staffed and trained to ensure the implementation and continual improvement of the requirements of the QMS. Also, the facility, equipment, infrastructure, and working environment shall be maintained in such a manner as to achieve conformity to both product and quality management system requirements.

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6.2

Human Resources. Human Resources shall ensure that personnel performing work affecting product quality are competent on the basis of education and training, skills and experience. 6.2.1 General. Documented job descriptions for each job assignment shall be developed. There shall be an employee record for each DrillMec employee stating their current level of education, skills, and training in relation to the job requirements at their time of initial employment. Both technical and quality systems training records shall be maintained in the employees file, including records relating to the employees competence to perform their assigned job function(s). Human Resources shall be able to demonstrate how the need and effectiveness of employee training is determined, including ensuring employees are aware of the importance of their work with regard to the organizations business and quality goals and the effectiveness of the quality management system. 6.2.1.1 Drillmec Inc. shall provide on the job training for personnel in any new or modified job affecting product quality, including contract or agency personnel.

6.2.2 Competence, Awareness and Training Human Resources, with the help of the Quality Manager, shall establish control features to ensure employees meet the requirements of their job description. The method and frequency of training shall be defined in the control feature. Functional Managers shall be responsible for the identification and scheduling of technical and on the job training for their employees to ensure they are kept current on quality management system requirements and skills to perform their assigned jobs. Human Resources shall ensure training records of both internal and external training activities are maintained for each employee. Whenever process or equipment certification is required, the HR Director or designee shall maintain a record of each employees certification status with regard to processes and / or task requiring such certifications. 6.3 Infrastructure. The infrastructure of DrillMec shall be monitored, maintained, and shall resources needed to achieve conformity to the product requirements.

provide the

6.4

Work Environment Requirements for the determination of the necessary work environment shall be determined and provided in order to achieve conformity to the product requirements.

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Product Realization 7.1 Planning of Product Realization. Product realization shall be achieved via a planned process with documented performance metrics. When product requirements, including design and development inputs / outputs, are provided from external sources, control features and methods shall be defined to translate the requirements into the product realization process. Throughout the product realization process the product shall be monitored and / or measured, where appropriate, to ensure it conforms to design and customer requirements. A product realization process map shall be documented and maintained that includes the identification of process interactions and necessary actions to achieve the desired results and continual improvement. Quality records of product conformity activities shall be maintained, including the names of person(s) authorizing final release of the product for shipment. Customer-Related Processes 7.2.1 Determination of Requirements. Sales shall establish control features to ensure both the product and customer requirements for delivery and postdelivery activities, regulatory compliance, documentation, intended use by the customer, and any other requirements necessary to the organization are defined and documented on the contract prior to acceptance of the tender. Sales shall identify all issues impacting the organizations ability to produce the product and satisfy the customers needs and review them with the appropriate functions, prior to accepting the tender. There shall be a control feature defined and quality records maintained for the release, revision control, and maintenance of customer sales orders, including internal and customer communications related to sales order changes. 7.2.2 Review of Requirements. Sales shall establish a control feature with metrics for the measurement of customer satisfaction. The metrics and associated data shall be considered quality records.

7.2

7.3

Design and Development 7.3.1 Design and Development Planning. Engineering shall establish control features for the design and development of new products, which includes a documented plan for each new product. This plan shall include, but not be limited to the identification of design stages or phases, review, verification and validation of requirements, and the responsibilities and authority of personnel

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involved in the design process, including the impact to existing products. The documented results of these activities shall be considered quality records. Where appropriate, the design plan shall include methods, definitions, assumptions, and Engineering formulations and calculations. Engineering shall ensure that all functional groups impacted by the design are involved in the process. When the design and development activities are outsourced the supplier must meet the requirements of Section 7.3 of this quality systems manual and documented evidence that the supplier has met these requirements shall be maintained. 7.3.2 Design and Development Inputs. Engineering shall identify, document, and review the product design inputs requirements. Design and development inputs shall include agreed customer requirements, functional and performance requirements, applicable statutory and regulatory requirements, and criteria for final acceptance of the new product design. 7.3.3 Design and Development Outputs. Engineering shall document the output, including verification and validation acceptance requirements for all new product designs and changes to existing designs, including those performed at the request of a customer, regulatory agency, or other approved internal request to ensure input requirements are met. The design plan and outputs shall include input requirements, provide for information transfer to purchasing, production, and service, definition of acceptance criteria, and defined requirements for safe and proper use of the product. These requirements shall be updated, as required as the design and development process progresses. Design reviews shall be conducted and documented at appropriate stages of the process with those functional groups affected by the design. Individuals other than the person(s) who developed the design shall review and approve the design, prior to release.

7.3.4 Design and Development Review. Engineering shall establish a control feature for identifying, documenting, and controlling design changes. New designs and changes to existing designs shall be verified and validated, as appropriate, with regard to its effect on current production processes, constituent parts, and existing products in the field, prior to approval. These activities shall be documented and considered quality records. Changes to design documents shall require the same controls as the original design and development documentation.

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7.3.5 Design and Development Verification Verification of the design and development outputs shall be performed in accordance with planned arrangements to ensure that they meet the design and development input requirements. Records of the results of such verifications and actions shall be maintained by the Engineering Department at Drillmec, Inc. 7.3.6 Design and Development Validation Validation of design and development shall be performed in accordance with planned arrangements to ensure that the resulting product is capable of meeting the requirements for the specified application or intended use, where known. Wherever practical, validation shall be completed prior to delivery or implementation of the product. Records of such validations and necessary actions shall be maintained.

7.3.7 Design and Development Changes Changes to the design and development shall be identified and recorded. The changes shall be reviewed, verified and validated as appropriate, and approved prior to implementation. The review shall include evaluation of the effect of the changes on constituent parts and product already delivered. Design and development changes, including changes to design documents, shall require the same controls as the original design and development documentation. 7.4 Purchasing 7.4.1 Purchasing Process. Control features shall be established for the purchasing process of all products and services that affect compliance with customer requirements. The process shall define the methods and criteria for the selection, evaluation, approval, and re-evaluation of suppliers. Acceptable suppliers shall be recorded on an Approved Suppliers List. Criteria for the selection, evaluation, and re-evaluation of suppliers shall include one or more of the following. Suppliers providing processes which require validation shall comply with the requirements of Section 7.5.2 and QP-21.0 Special Processes. Inspection of suppliers final product by the organization at the suppliers facility, Inspection of suppliers final product by the organization upon delivery, Surveillance of suppliers conformance to the organizations purchasing requirements, or Verification by the organization that the suppliers quality management system conforms to an internationally recognized quality management system standard/technical specification.

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7.4.2 Purchasing Information. Purchasing requirements shall be reviewed for adequacy prior to being communicated to suppliers. Purchasing information communicated to suppliers shall include the following minimum information as applicable; the organizations title or other positive identification, and applicable issues of standards, specifications, drawings, process requirements, and other relevant technical data, including revision levels of each document quality system and / or inspection and test requirements the type, class, grade, or other precise identification material / product markings or identification requirements, if appropriate material or product documentation requirements, if appropriate criteria for qualification of personnel and special processes, if appropriate requirements for the packaging and delivery of products requirements for return of nonconforming material / product corrective action request response requirements by the organization requirements for customer source inspection requirements, if appropriate 7.4.3 Verification of Purchased Product and Supplier Control 7.4.3.1 DrillMec Verification. Quality Assurance shall develop a control feature for the verification of purchased products / materials and supplier control. The process shall include the documentation requirements of any verification activities performed by DrillMec, Inc, including verifications performed at a suppliers premises, or other designated location, and shall include the requirements for the maintenance of records, of such verifications for products deemed to affect the quality of the customers product. The organization shall ensure that suppliers providing finished products to DrillMec shall be controlled through the use of; quality plans, on site source inspection, documentation review, audits by the organization and may be subject to audits by the API. An additional procedure shall be developed which address the control of suppliers providing special processes, as defined by API/Q1 7.5.2. (QP-10.0 Inspection, Measuring and Test Equipment)

7.4.3.2

Customer Verification. Quality Control shall define a control feature for customer verification of product when required at either the organizations or a suppliers premises. These activities shall be documented and considered quality records.

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7.5

Production and Service Provision 7.5.1 Control of Production and Service. The Quality Manager in conjunction with the functional managers shall establish control features that describe the control of production and service activities relating to information requirements and the release, delivery, and post-delivery product requirements. Process controls shall be documented in routings, travelers, checklist, process sheets, or other types of control features and shall include requirements for verifying compliance with quality plans, control features, and reference standards / codes. The process control documents may be in electronic form and shall include, reference work instructions, workmanship requirements, required equipment, and acceptance criteria for process, test, inspections, codes and standards, and customers inspection hold or witness points. Material / product identified as nonconforming at any point in the production process shall be controlled, identified, and segregated, when feasible. 7.5.2 Production and Service Process Validation. Internal or External processes for production and services which require validation shall be documented in a manner such that the use of specified methods or procedures and the criteria for acceptable performance of the equipment and process, including the qualifications of personnel are defined. Control features shall be established to include activities for the qualification and validation of special processes and affected personnel. When criteria are not met, there shall be defined requirements for the re-qualification and/or re-validation of the process, personnel, and/or equipment. Control features shall be defined for the implementation of processes, which includes the identification of performance criteria, records, and approval requirements. (QP-21.0 Special Processes) 7.5.3 Identification and Traceability. If material / product that is required to meet these requirements losses its identification and / or traceability during the product realization process, it shall be considered nonconforming and shall be segregated and identified. Controls shall be in place to ensure the material is not introduced into the production process or released for shipment until the identification, status, and traceability requirements are satisfied. 7.5.3.1 Identification. Control features shall be established for the identification and re-identification as required of material or product, including its status from receipt of materials through all stages of the product realization process, which meets the requirements of the product specifications, and / or customer. Identification of the product status shall include both its current production status and monitoring and measurement requirements.

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7.5.3.2

Traceability. Control features shall be established where appropriate, for the traceability of product and / or materials, including specific product or material markings and records.

7.5.4 Customer Property. Control features shall be established for the control of customer property to clearly identify, process, store, and manage in the same manner as the property of the organization. If customer property is damaged or lost the customer shall be contacted to determine the course of action for the organization.

7.5.5 Preservation of Product. Raw materials and product shall be preserved in a manner that maintains its conformity to its defined requirements throughout the product realization process, including identification, handling, packaging, storage, and delivery. Control features shall be established defining the methods used to preserve product conformity. These control features shall include the process requirements and frequency of inventory audits to detect deterioration. 7.6 Control of Monitoring and Measuring Devices. There shall be a documented procedure for the control of monitoring and measuring devices used by the organization to determine the acceptability of product. This procedure shall define the equipment and process requirements for; calibrating devices to standards traceable to international or national standards, adjusting or re-adjusting devices as required, safeguarding devices from unauthorized adjustments, actions required when devices are found to be out of calibration, ensuring the environmental conditions are suitable for calibrations, test, inspections, and other required measurements, and measures to protect the devices from damage and deterioration. the frequency of calibration required If these devices are calibrated or adjusted by an external supplier of the organization, the supplier shall be qualified to the requirements of this procedure prior to release of the devices to their charge. All measurement devices used for product acceptance shall be clearly identified with a unique identification number. Each device shall have an identified status, location, device type, calibration frequency, check method, and acceptance criteria. These devices shall be safeguarded from adjustments that would invalidate the measurement results, and stored in a manner suitable to prevent deterioration or damage. Records shall be maintained of these activities described in this paragraph.

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8.0

Measurement, Analysis, and Improvement 8.1 8.2 General Monitoring and Measurement 8.2.1 Customer Satisfaction. The Quality Manager in conjunction with the Sales Manager shall establish a control feature that defines how customer satisfaction, including perceptions are monitored, measured, documented, reported, and managed. The results shall be reviewed during management reviews. 8.2.2 Internal Audit. There shall be a documented procedure, which defines the audit process, response times, the audit criteria, the frequency, the review and closure of detected nonconformities, and the records required. At a minimum, the procedure shall; define how previous audit results are used or considered, ensure that areas are audited by persons other than those performing or responsible for performing the activities being audited, ensure that audit results are brought to the attention of personnel responsible for the area being audited, and define requirements for corrective action and verification activities. An annual internal audit schedule shall be established to ensure all the requirements of this quality systems manual are audited annually. 8.2.3 Monitoring and Measurement of Processes. Quality Assurance shall define common performance metrics for the organization to monitor, analyze, report, and determine if the QMS is suitable, effective, and if products conform to customer requirements, for the purpose of providing information to management to identify improvement opportunities. Each functional area within the product realization process shall monitor and where appropriate establish performance metrics and goals for processes used by their area. Metrics and any changes to the processes shall be retained as quality records. 8.2.4 Monitoring and Measurement of Product. Control features shall be established for the monitoring and approval of product characteristics during the product realization process and prior to final release for shipment to the customer. Personnel other than those who performed or directly supervised the production of the materials or products shall perform final acceptance inspection at planned stages of the product realization process, prior to shipment to our customer. Product release shall be documented, including the name of the

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individual authorizing the release and must not occur until it has been verified that all design and customer requirements have been met.

8.3

Control of Nonconforming Product. There shall be a documented procedure that defines how nonconforming product, whether identified internally or returned as a field nonconformity, is identified, documented, reported, controlled, dispositioned, and managed. This procedure shall define the requirements for; the review and repair/rework of nonconforming product to meet requirements, acceptance of the product re-grading of the product for alternative applications, how rejected/scrapped product is processed and controlled, the responsibility for review and disposition of nonconforming product, defining nonconformance records requirements and follow-up actions, and the requirements for nonconformance detected after product is shipped to the customer, including the actions required by the organization.

The evaluation and disposition of nonconforming product shall address its condition in relation to both the defined manufacturing and design acceptance criteria. Nonconforming material or product shall be identified and controlled to prevent use in the product realization process and/or shipment to a customer. The organization shall notify its customers in the event that product which does not conform to design acceptance criteria has been delivered. Records of such cases shall be maintained by Drillmec, Inc. 8.4 Analysis of Data. Control features shall be established for the identification and use of techniques for quality system performance metrics. The metrics shall be used to monitor and measure the organizations process conformance to QMS, customer satisfaction, supplier performance, and product quality requirements. Data shall be analyzed and reported as appropriate to identify areas requiring corrective action and opportunities for continual improvement.

8.5

Improvement 8.5.1 Continual Improvement. Continual improvement activities shall be driven via the monitoring and reporting of functional metrics, management reviews, internal audits, corrective and preventive action results, and / or data analysis. 8.5.2 Corrective Action. There shall be a documented procedure which addresses corrective action, response times, and the effectiveness of any actions taken.

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The procedure shall include; the review of nonconformances and customer complaints, the determination of the nonconformance cause and required actions, records requirements, and establishment of corrective action plans and closure verification methods.

Records shall be maintained of open and closed corrective action activities and reviewed during the management review. 8.5.3 Preventive Action. There shall be a documented procedure for preventive action and its effectiveness. The procedure shall include; how potential nonconformances and their causes are identified the method for evaluating the need for preventive action, how preventive action is determined, reviewed, and planned, and defining records requirements.

8.6

Application of Product Monogram and Markings 8.6.1 API Monogram. Quality Control shall develop a procedure for the application and removal of the API monogram to or from our products. The document shall identify where in our process the monogram will be applied, who is authorized to apply and/or remove the monogram, and the requirements for control of the monogram tag prior to its application and after its removal. The final release of a monogrammed product shall occur only after we have verified that all the requirements of our customer, API Q1, and 4F Specifications have been satisfied. The procedure shall also make reference to or define the required location(s) on the product(s) where the monogram will be applied, the information required on the monogram tag, including our license number and date of manufacture. Quality personnel shall be responsible for the application and removal of the monogram 8.6.2 Customers of Drillmec, Inc. are requested to report to API all problems with API monogrammed product. Non-conformances may be reported using the API Nonconformance Reporting System available at https://ncr.api.prg.

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