latest trends in oil/gas claims
TRANSCRIPT
Latest Trends in Oil/Gas Claims
Stephanie R. Tippit, Esq. – Senior CounselRodney J. Winkler, M.B.A. – Vice President
John M. Griffin, Ph.D., P.E. – Principal ConsultantTimothy D. Christ, M.B.A. – Vice President
Agenda• Traditional COW vs. Fracking COW• CO2 Injection and Old P&A Wells Causing New Problems• Pollution Claims and Interaction between GL and COW policies• “Additional Insured” Claims• Liability Claims causing Relationship Problems between Operator and Service
Companies• Final Remarks
• Operational Differences• How policies have traditionally responded• Available Casing Repair Endorsement• Court Rulings• New Texas Railroad Commission Rule
Traditional COW vs. Fracking COW
Traditional COW vs. Fracking COW• Operational Differences• In a traditional blowout, typically all
damage done to the well is a direct result from the uncontrolled flow
Traditional COW vs. Fracking COW• Operational Differences – Timeline of Frack Blowout
SpudTotal Depth
Completion Starts
Multi- StageFrac
Casing Failure
COW
Casing Repair
Well Restored
• How policies have traditionally responded• In a traditional blowout, most any operations carried out to restore the well
are covered under Section IB as the damages are directly related to the uncontrolled flow
• For a frac blowout, repair of the casing is typically not covered as it is not damage caused by the uncontrolled flow
Traditional COW vs. Fracking COW
• Available Casing Repair Endorsement• Endorsements are now widely available and generally read:
“Restoration / redrilling expense is hereby extended to include the cost of repair or replacement of casing damaged during fracking operations but only when such damage directly results in a well control claim recoverable under the Control of Well section”
Traditional COW vs. Fracking COW
• Court Rulings, industry commentators/experts, purpose and history of policy :• Section IB for restoration/redrill is triggered
by perils named in the policy.• Typically: Section IA unintended,
uncontrolled flow, crater and perils named by endorsement.
• Casing failure is not an identified peril.
Traditional COW vs. Fracking COW
• New TRRC Rule for frac treated wells (effective Jan. 1, 2014)*Traditional COW vs. Fracking COW
* Excerpt of the TRRC summary of amendments available at: http://www.rrc.state.tx.us/oil-gas/compliance-enforcement/rule-13-geologic-formation-info/summary-of-amendments-to-swr-13/. See full text of rule for actual wording and additional amendments. http://texreg.sos.state.tx.us/public/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=16&pt=1&ch=3&rl=13.
CO2 Fields and Old P&A Wells Causing New Problems
• What is CO2 or Tertiary Recovery?• Recent Problems From Plugged & Abandoned Wells• How Does a Plugged & Abandoned Well Become a Conduit of Flow?• How do policies respond to these types of events?
CO2 Fields and Old P&A Wells Causing New Problems• What is CO2 or Tertiary Recovery?
• Problems Caused by Plugged & Abandoned Wells
CO2 Fields and Old P&A Wells Causing New Problems
• How Does a Plugged & Abandoned Well Become a Conduit of Flow?
CO2 Fields and Old P&A Wells Causing New Problems
“I think we will see a trend where we are going to see barriers with multiple layers,” --Bart Joppe Long-term cement failures
Cite Ms. Wreden, CSI who says fluctuating pressures and temperatures cause casing to expand and contract which eventually can crack or damage cement (Am O&G Reporter, Dec. 2014, p119)
Short-term cement failuresGas migration after cementing and before cement sets
Cement designDesign for stresses anticipated over “life of well”With permeability and shrinkage considered
CSI’s R&DStressed cement repeatedly with a load applied then removed, to detect deformation“A durable cement will recover its shape and not show signs of damage under loading, while a weaker cement or a cement that has been loaded many times will fatigue , like a paper clip that has been bent back and forth until it breaks.”
Cement as a Barrier
Portland Cement Plus, Polymeric AdditiveCement Permeability
Knowing the rock around the spot to be plugged can be critical. A paper analyzing the quality of cementing in 53 offshore wells (SPE 170667) done by two Schlumberger cement experts found that of the variables thought to contribute to better quality, the most telling was the characteristics of the rock next to the cement. The best is nearly impermeable rock, such as shale. A Canadian joint industry project done by the research organization C-FER looked at cement jobs in wells used to produce heavy oil using steam-assisted gravity drainage, and found that “geology rules” on the ultimate quality of the cement sheaf in sections above the production zone, said Cam Matthews, director of C-FER
Rock aside Cement Sheath
It uses heavy drilling mud in between cement plugs. In California, the company has received approval from regulators to seal wells used for heavy oil production with compressed bentonite rather than cement.“The benefit is that cement can crack and break down as the earth moves, a common California occurrence,” “The compressed bentonite actually continues to expand over time and creates a good seal. The downside is we have to pour it from the surface...”
--Don Stelling, president of Chevron Environmental Management Company.
Compressed Bentonite
• How do policies respond to these types of events?• What if the P&A Well is the culprit well but is not scheduled for coverage?• Could take months of operations and lots of money to re-enter several wells
before identifying the culprit well. Are those costs covered?
CO2 Fields and Old P&A Wells Causing New Problems
Pollution from a Blowout and the Interaction Between the COW and GL Policies• Typical Pollution Scenario Due to a
Blowout• Recent 5th Circuit Ruling
Pollution from a Blowout and the Interaction Between the COW and GL Policies• Typical Pollution Scenario Due to a
Blowout• Pollution effects “Well Pad” and
Surrounding Land• Often times a split between the COW
and GL policy is reached and usually hinges on what is on the pad versus surrounding land
Pollution from a Blowout and the Interaction Between the COW and GL Policies
CGL CGL C CGL
Mineral lease
Well site
Neighbor
Insured argued: Court ruled:
Pollution
• Recent 5th Circuit Ruling
Pollution from a Blowout and the Interaction Between the COW and GL Policies
“Additional Insured” Claims“[A]dditional insureds are automatically
added” “where required by written contract.”
BP is Additional Insured if Transocean is “obligated … to provide[BP] insurance” in an
“Insured Contract” “under which [Transocean] assumes the tort liability of [BP].”
Transocean shall name BP as “additional insured[ ]…for liabilities assumed by [Transocean] under the terms of this Contract.” Those liabilities did not include subsea
pollution.
Policy:
Drilling Contract:
Court Ruled:Drilling contract is “Insured Contract” for assumed risks,
but not subsea pollution. Therefore, BP is additional insured for assumed risks, but not subsea pollution.
Liability Claims Causing Relationship Problems between Service Contractors and Operators
• Various Case Studies• Trend is that contractor does not want to fight the operator
Client had 36 stages in N. Dakota to individually frac1. Deepest zone is fracked, in cracks created by high pressure, oil company pumps
sand in gel to hold fractures open indefinitely 2. Plug is placed above this deepest zone and fracked repeated for next
shallowest zone
Insured submitted claims for two incidents1. Wireline severed and fell when frac valve closed and cut wireline2. Wireline severed and fell when wellhead valves at surface opened without first
equalizing pressure
Occurrences No. 1 (Sept 22) and No. 2 (Nov 3) claims submitted was difference between cumulative well cost when incident occurred vs. when fish retrieved from
the well to resume operations CLAIM 1 SEPT 22-OCT 4
CLAIM 2 NOV 3-NOV 22
$1,100,873 $593,079 $ 507,794
$3,426,145$3,026,009 $400,136
This reduction was possible by1. Breaking down each charge into categories
A. Costs due to fishing jobB. Cost incurred during normal operations
2. Distinguishing between calendar days vs. working daysA. Rental invoices are tied to calendar daysB. Services are tied to working days
Incident No. 1 Incident No. 2
Initial Claim $507,794 $400,136
LWG adjusted to $322,721 $215,174
Savings to insured $185,073 $184,962
Total savings $370,035
Final Remarks
Close valve on wireline
Operator closes valve on wireline
Their claim included a kill fluid credit of $38,800.00
However, actual invoiced credits were $77,487.12. So, we corrected their initial claim from $664,270 to $586,782.88
Also, accounting records indicated that 300 barrels of both the 16# and 17.8# kill fluid were invoiced to the client. However, the daily reports only showed 200 barrels of each being used.
Correcting the Adjusted Operator costs to reflect only 200 barrels$586,782.88($60,641.73) 16.0# fluid ($92,978.45) 17.8# fluid
$433,164.70 New Adjusted Operator Costs
$433,164.70 New Adjusted Operator Costs
($121,283.45) 16# mud(4,880.00) fluid spacer($14,393.50) one day of rig time($1,300) consultant day rate
$291,699.75 Expert opinion on appropriate value of claim due to insured’s employee error
Original claimed amount - $625,470.00
Abandonment Case Study
Contractor agreed to plug the well for $47,980.
Commenced operations in September and finished same month.
In December, Texas Railroad Commission (TRRC) inspects well and identifies pressure in the well at the surface.
Operator is called back out to correct P&A work.
Other Contractors are called to assist, and well is finally plugged for a total incurred cost of $982,344.
Our insured is notified of their alleged liability due to “damage to the wellbore” of some dropped tubing into the casing.
The saying is “If you don’t get rid of pressure when you start deep, you won’t get rid of it later on.”
Plugs are set at bottom and crews work up the hole in succession
Our expert opinion is that the insured’s act of dropping the tubing down the hole did not damage the wellbore in any significant manner.
Furthermore, the insured’s act of dropping the tubing down the hole is not the cause of the surface pressure nor did it compromise the plug & abandonment work that was performed in September.
The insured’s act of dropping the tubing down the hole did result in some delays and additional costs that otherwise would not have been incurred during the second, and ultimately, successful attempt to plug the well.
The second attempt to plug the well was primarily successful due to the new deep plug that was set at 9912’, not the original 2250’ as noted in the Contractor’s P&A plan for the September work.
