Transcript Control of Well Limits: How Much is Enough?

Control of Well Limits
How Much is Enough?
Presented by:
Special Thanks to:
and
G.S. Bryan & Associates, Inc.
COST OF CONTROL
How does it work?
1
Overview of Well Control Policy and
Main Policy Sections
 What and who does the policy cover?
 Unregulated forms; they all vary slightly – but generally
the same
 Sections
– Well out of Control
– S&P
– Redrill
– Sub limit for Care, Custody, & Control, 3rd Party
Equipment on Well site, including rig legal liability,
sound location.
2
What Affects Losses?
As product prices rise, then it is incentive to drill.
So Operators drill more wells,
So they can sell more product,
So they can make more money,
So they can hire more rigs,
So they can drill more wells,
Which requires still more rigs,
Which “thins out” crews, and
Wears out rigs…………
All of which leads to more losses – And they are more costly than ever!
3
Blowout!
4
Scenario 1 – “Typical” Claim:
Exploratory Well #1
TVD: 10,000 Feet
AFE: $1,000,000 Dry Hole Cost
100% Working Interest Insured by Operator Client (Insured)
Rate: $0.50 pfd = $5,000 Premium
Policy Limit
$3MM Each Occurrence
(For 100% Interest)
CCC Limit $500,000
$100,000 Retention
Insured will pay costs related to
Well Control.
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WEEKS ONE and TWO:
Expenses after the Blowout
A Snubbing crew arrives, then after three days, operator hires a
Well Control Contractor. Total bills already $500,000 in the first two
weeks.
Policy Limit
$3MM Each Occurrence
Retention: $100,000
(For 100% Interest)
CCC Limit $500,000
$500k
Costs of Control
Fighting the Fire
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WEEKS THREE & FOUR:
Expenses after the Blowout
An environmental remediation contractor is hired to
clean up Farmer Brown’s cattle tanks, fishing creek, and
Hog pens. The invoice totals $350,000.
$350k
Policy Limit
$3MM Each Occurrence
Retention: $100,000
(For 100% Interest)
CCC Limit $500,000
$500k
Seepage &
Pollution
Costs of Control
Fighting the Fire
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WEEKS FIVE through TEN:
Expenses after the Blowout
Well is under control. TX RRC leaves the operator alone, but the joint
venture partners want the operator to replace the well to get whatever
blew it out in the first place. After fishing and sidetracking for ten days
the operator gives up, skids the rig over and starts over –another
$1,800,000 to reach T.D.
$1.8m
$350k
Policy Limit
$3MM Each Occurrence
Retention: $100,000
(For 100% Interest)
CCC Limit $500,000
$500k
Restoration
Redrill
Seepage &
Pollution
Costs of Control
Fighting the Fire
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WEEK ELEVEN:
Expenses after the Blowout
Well achieves TD. Rental tool companies and various vendors to
the original well ask the operator to pay for their equipment that
was never recovered.
“CCC” endorsement pays because the CGL won’t - $450,000.
$450k
$1.8m
Policy Limit
$3MM Each Occurrence
Retention: $100,000
(For 100% Interest)
CCC Limit $500,000
$500k
Costs of Control
Fighting the Fire
$350k
Seepage &
Pollution
Restoration
Redrill
Care, Custody
& Control
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CCC – 3rd Party Equipment on Site
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What Insured Paid Versus What Insured Got Paid:
COST:
Premium Paid for this Well:
$
5,000
Retention born by Insured:
$ 100,000
Total Costs:
$ 105,000
RECOVERY:
Costs of Well Control:
$ 500,000
Seepage and Pollution /
Clean-up and Containment:
$ 350,000
Sidetrack, Restoration,
Redrilling Expenses:
$ 1,800,000
$ 2,650,000
Care, Custody, &
Control (CCC):
$
450,000
Less CCC Deductible:
$
(50,000)
TOTAL RECOVERY:
$ 3,050,000
[Policy Limit was $3,000,000
excess of the Retention]
[CCC Limit was $500,000]
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Scenario 2 – “Non-Typical” Claim:
Well #2
TVD: 8,000 Feet
TMD: 8,911 Feet
AFE: $1,850,000 Dry Hole Cost
100% Working Interest Insured by Operator
Policy Limit
$15MM Each Occurrence
(For 100% Interest)
CCC Limit $1,000,000
$250,000 Retention
$100,000 in respect of CCC.
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Scenario 2 – “Non-Typical” Claim
Day 1-5
Well out of control below ground.
Day 5-9
Well out of control above ground.
Day 10-15
Fishing under pressure from the well.
Day 16-45
Rig Released, more fishing with snubbing unit.
Day 46-48
Operations suspended due to hurricane.
Day 49-77
Cement plugging, well pressure required multiple
attempts. Well pressure required full plug and
abandonment without salvaging original well bore.
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Scenario 2 – “Non-Typical” Claim
Day 50-57
Spud Redrill Well, Set Surface Casing @ 2719’.
Day 58-60
Drill to 7197’.
Day 61-73
Circulate well flow, open hole squeeze to counter lost
circulation, no further progress drilling.
Day 74-79
Run 7 5/8’ int. casing to 6668’, cement, nipple up B.O.P’s,
change out drill pipe, normal operations.
Day 80-88
Drill out of int. casing lose full returns, squeeze cement
and kick off plug @ 6775’, all abnormal operations.
Day 89-93
Circulate gas cut mud, drill to 7873’, non routine drilling.
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Scenario 2 – “Non-Typical” Claim
Day 94-96
Run 5 ½’ int. liner casing and cement same, varies from
original well plan but required for hole stability and
pressure integrity.
Day 97
Drill out of liner casing, shoe test failed, squeeze cement
liner casing seat.
Day 98
Reinitiated drilling & encountered problems with liner
hanger seal assembly.
Day 133
Finally remedied & drilled to original loss depth
19 weeks after original loss date.
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RECOVERY:
Costs of Well Control:
$ 8,139,000
Seepage and Pollution /
Clean-up and Containment:
$
Sidetrack, Restoration,
Redrilling Expenses:
$ 4,443,000
-0-
$ 12,582,000
Care, Custody, &
Control (CCC):
$
TOTAL RECOVERY:
$ 13,332,000
750,000
[Policy Limit $15,000,000
excess of Retention]
[CCC Limit was $1,000,000]
[Original AFE was $1,850,000]
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Scenario 3 – “Non-Typical” Claim:
Well #3
TVD: 21,000 Feet
TMD: 21,900 Feet
AFE: $28,740,000 Dry Hole Cost
100% Working Interest Insured by Operator
Policy Limit
$75MM Each Occurrence
(For 100% Interest)
CCC Limit $1,000,000
$750,000 Retention
$100,000 in respect of CCC.
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Scenario 3 – “Non-Typical” Claim
Day 1
Well out of control above ground.
Well was at 20,406’ depth.
Day 2-26
Extensive well control effort.
Day 26-40
Move rig off location, a side track of the original well.
Day 41-52
Rig up snubbing unit on another barge.
Day 52-94
Snubbing operation.
Day 95-289
Fishing operations.
At this point, $72,500,000 had been expended in Control of Well costs.
The Insured approached Underwriters to reinstate the policy limits
prior to the redrill.
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Scenario 3 – “Non-Typical” Claim
Day 290-430
Redrill to original loss depth.
Redrill began 9 ½ months after original loss.
This Redrill cost $21,700,00.
Day 477
While redrilling below the 1st redrill depth, the
redrill well lost control. Second occurrence.
Day 586
Second loss depth reached. Overall,
the Redrill involved 2 sidetracks.
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RECOVERY:
1st Costs of Well Control:
$ 72,500,000
Seepage and Pollution /
Clean-up and Containment:
$
-0-
Sidetrack, Restoration,
Redrilling Expenses:
$
21,700,000
1st OEE Claim:
$
94,200,000
2nd Cost of Control / Redrill :
$
22,685,000
Care, Custody, &
Control (CCC):
$
1,900,000
TOTAL RECOVERY:
$
[Policy Limit $75,000,000
excess of Retention]
23,585,000 [Policy Limit $75,000,000
excess of Retention.
Contained in 1st layer]
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Limits – How Much???
 What is an “AFE” and how is it
used to establish a Well Control
Limit?
 Other considerations for
determining a limit.
– Location
– Well Pressure
– Depth
– Offset Well Data
 Intangibles
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“Anything that can go wrong,
will go wrong.”
- Murphy’s Law
Oilman = Optimist
Underwriter = Pessimist
Hopes for the best
Expects the worst
Plan, Design, Plan Some More
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