Post on 27-May-2020
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 1
Underground Resources and Equipment Coverage
Underground EquipmentUnderground EquipmentYou mean it’s more than just casing?You mean it’s more than just casing?
Not quite
everything yet
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 2
That was worth how
much?
OUTLINEISO only endorsement
CG 2262 - Provides Underground Resources and Equipment Coverage and CG2257 - Excludes Coverage
Underground Resources and Equipment - Property Damage Only
Aggregate Limit
Exclusion j. Damage To Property - amended
Section I - Coverage A - amended
Duties In The Event Of Occurrence
Definitions - added
WARNING ISO FORM
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 3
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 4
Accidents and ClaimsAccidents and Claims
Initial claim notification & discussion with the account
• The oil and gas industry has developed its own nomenclature
• The industry has unique disciplines and expertise. It is a unique and specialized field
12 Copyright 2009
•Unique Terms• Work over rig – used rework and existing well
• Casing – steel pipe used to prevent cave in, prevent fluid from moving, or to improve efficiency
• Tubing‐ relatively small pipe run into a well to serve as conduit to surface oil and gas
• Fishing‐procedure for recovering lost or stuck equipment in a well
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 5
13 Copyright 2009
•Unique Terms
• Drill collar‐heavy steel tube placed between the drill pipe and bit
• Drill string‐ string of drill pipe with attached tool joints that transmit fluids and power to the drill collars and bits
• Company man – employee of the operating company who represents their interest at the drilling location
Insurance TermsInsurance Terms
Insuring agreement Exclusions/Definitions
Limits of Liability Depositions or Statements
Duty to Defend Four corners rule as to determining duties which may
be owed. Anti-indemnity laws
Experts
• Identify a person following an accident who can provide information as to the well site activities prior to the event
• Enlist assistance from insured’s representative to identify potential expert retention benefits or expertise, along with counsel
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 6
Experts
•On site witnesses/employees can be the persons most knowledgeable
•Trial testimony example
Records
Records
• Work sheets
• Job Safety analysis records
• Contracts between the parties may outline who is responsible for the differing processes and who is in control
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 7
Records
• Daily work activity sheets
• Seismic charts
Damage Costs
• Cost to drill a new well ($1,000,000 to $3,000,000)
• Wyoming as high as $8,000,000 to $22,000,000
• Mitigation costs –several hundred thousands of dollars and upward depending on the value of the site
Example• A site with three production lines moving
lateral from the main well hole was undergoing work-over to increase production. The pipe became lodged in one of the lateral lines. They were unable to fish these tools from the line
• It was decided to plug this line with cement, and then drill out a separate lateral line from the existing line and circumvent the tools remaining in the existing line
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 8
• A concrete mix was ordered to specifications sent down hole into the through the lateral line nearest the surfaced.
• The concrete was to plug 491’ through the lateral line
• Unfortunately the mix quickset, hardened farther back up line than desired, and plugged the main well hole
• The main hole was blocked, equipment lost , and plaintiff argued the well site was lost
Damages Sought
• Loss of production
• Approximately $1,500,000 in cost of attempting to fish equipment and pipe, and attempts to drill
• Approximately $2,000,000 claimed for the cost of a new well
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 9
Agreement Reached
• The two opposing experts reached different conclusions in their tests, and found the responsibility fell to the other party
• Our insured proved to be the person most knowledgeable about the concrete mix, specs., and pour
• After an open informal discussion between the two principle parties an agreement could be reached and the matter concluded
• Process designed to stimulate well production by fracturing the formation and opening new flow channels in the surrounding rock
Example 2: Formation Fracturing
Example 2: Formation Fracturing
A company was hired to frac a well to increase flow of the reservoir in the North Texas Shale
The layer below the shale at this point was relatively thin, and the frac had to be carefully executed
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 10
Example 2: Formation Fracturing
Unfortunately the frac process allegedly broke the relatively thin underlying layer and the production strata lost pressure and could no longer surface and produce
Example 2: Formation FracturingDamages Claimed
Cost to drill the well
Exploration costs
Contractual indemnity issues and defense costs
Loss of a potential strata of resource
ConclusionOur policyholder’s are professional’s in their industry and can be the best source of information relative to an event
Terminology needs to be discussed and clearly understood
Investigations should occur as promptly as possible with a discussion of potential experts
Energy Symposium 8/12/2010
Underground Resources & Equipment Michelle Dennis, Kenneth Kovar & Tom McDonald 11
ConclusionContractual and business relationships of the parties involved should be reviewed in conjunction with any applicable indemnity or anti-indemnity laws in your jurisdiction
These losses can be catastrophic, costly, and result in loss of well production or increased drilling cost