Underground Resources and Equipment Coverage · Underground Resources & Equipment Michelle Dennis,...

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



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



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



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



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



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



• 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



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


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




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



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

Underground Resources and Equipment Coverage · Underground Resources & Equipment Michelle Dennis,...

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