New Insurance Role in Oil and Gas

Over the past few months Pascal Ray, an insurance industry well control specialist has kindly educated me on The Control of Well Underwriting Process, which as a purely frontline operational person was highly enlightening.

As we all know, the oil and gas industry since the time the first commercial well was drilled by Edward Drake in Pennsylvania in 1859 – almost 170 years ago has been a REACTIVE industry.

By that, I mean there has always been a reluctance to spend money at the expense of profit if the companies think they can get away with it. We have historically been RISK takers and money is only spent after an incident has occurred and that is usually by the insurance companies.

I would like to share my perception of Well Control Risk and some of the mitigations I can recommend to transform this great industry for the remainder of it’s life to PROACTIVE and in the process, save both the oil and gas companies and the insurance companies money - but most importantly, change the general public’s perception and acceptance of our business.

I truly believe that with the help of like-minded experts such as myself, Pascal, Dwight Bulloch and Hawkins "Hawk" Dunlap, the insurance industry can drive this transformation and make the Oil and Gas Industry great again while maintaining a smooth transition to a carbon neutral world.

After studying some current insurance application forms for energy related projects, particularly Drilling, Control of Well and Plug and Abandonments, I can see the focus is on longevity of the company and whether the company and its associated contractor companies have had a claim in the past.

There are tick box questions on;

·?????what operation is to take place,

·?????type of well and design features,

·?????offset history,

·?????local naturally occurring hazards such as sour gas and H2S

·?????and what contractors will be involved.

There does not appear to be any in depth questions on:

·?????personnel involved and proof of competency for the position in the organization they hold,

·?????mandatory requirements for key positions,

·?????personnel training development programs,

·?????asset integrity

·?????planned maintenance systems and control,

·?????whether maintenance and mandatory inspections are up to date, both internal and external.

·?????well control equipment and well control readiness,

·?????and what provisions and mitigations are in place to prevent any incident escalating to a major event.

I started in the drilling industry in the North Sea in 1980 and have loved every minute of it, however I want change.

I have seen many oil and gas associated disasters since I started in this industry:

·?????1980 – Alexander Kielland sinking off Norway – 123 dead

·?????1982 – Ocean Ranger sinking off Newfoundland – 84 dead

·?????1988 – Piper Alpha explosion off UK – 167 dead

·?????2001 – Petrobras P-36 off Brazil – 11 dead

·?????2003 – Chongqing China H2S blowout – village destroyed, 233 dead and 9000 injured

·?????2009 – West Atlas Blowout off Western Australia

·?????2010 – Deepwater Horizon in Gulf of Mexico – 11 dead

AND - closer to home for me living in Santa Monica

. 2015 - SoCalGas's Aliso Canyon gas storage blowout in California with over 100,000 tonnes of hydrocarbon gas released to the atmosphere. Over 6500 families were affected by that and evacuated from their homes.

In 1988 I was working on Piper Alpha with Bawden Drilling one week before it blew up, my friend was rig manager of the West Atlas rig that burned down in Australia and I knew some of the people associated the Deepwater Horizon so this is personal to me.

From the Piper Alpha enquiry, the UK made many changes to improve offshore drilling and production and over the following years put many regulations into practice. Were they enough?

I don’t think so.

The US did not take any of these recommendations onboard at the time that I can recall, so what happened to lessons learned and knowledge transfer

22 years later, Deepwater Horizon had a major blowout resulting in 11 dead and the worst oil spill in US history.

The resulting investigation led to the formation of the independent Bureau of Safety and Environmental Enforcement responsible for regulatory control in the Gulf of Mexico – something Lord Cullen’s Report recommended after Piper Alpha

All but two of the disasters I mentioned are offshore related and happened on drilling and production operations. This is because I have spent my working life offshore apart from a small period when I worked on land wells in the South of England.

It is worth pointing out that many of the recent US well incidents have happened onshore and most on previously plugged and abandoned wells. As I said earlier, the first production oil well was drilled almost 170 years ago and there have been millions of wells drilled in the US since then. There are currently over 1.1 million producing wells. Many, or should I say most of the old abandoned wells do not meet today’s two barrier abandonment policy that is generally accepted worldwide. It is no wonder they leak. So, I think it is fair to say that we have a major problem on our hands. Asset integrity is a major issue.

I’d like to refer to a friend of mine’s speech he made recently. His name is Steve Rae and he is a Piper Alpha survivor.

Since Piper and especially during the last 10 years, Steve has given numerous talks and aired his views on Piper and safety. Through them all, he has maintained a consistent message on what he believes were the contributary effects that led up to events on Piper, the loss of 167 lives, and what is required to develop and sustain a positive safety culture in companies and at work sites. He refers to them as his six “C’s”

·?????Commitment

·?????Change Management

·?????Control of Work

·?????Competence

·?????Complacency

·?????Communication

History of the disasters I mentioned and many more have shown us that we don’t learn from these. We just wait for them to repeat.

This needs to stop.

Governments guide regulations and governments are run by politicians who are funded by large corporations and corporate leaders. Many oil companies are involved and regulations that mean these oil companies having to spend money they would not normally have to spend are often frowned upon and watered down to meet some form of compromise. This happens worldwide, some countries worse than others.

In the Gulf of Mexico, the new oil and gas rule was introduced by the Obama administration in 2016. Some of these rules were hurting the operators of the smaller platforms in the Gulf of Mexico so the Trump administration had some changes made to compromise that hurt and examples of regulation manipulation will be found worldwide, not just in oil and gas.

This is the reason I turned to the insurance industry and I have been collaborating with Pascal for a long time now. The insurance industry are the ones who can influence the necessary changes that are needed to make the oil and gas industry proactive.

The insurance industry can influence what the oil companies and the drilling contractors do by reflecting what is required when allocating insurance, however it primarily important that insurance professionals are trained to recognize the real risks to energy projects.

·?????That is an easy fix.

Lastly, if I was underwriting Control of Well Insurance, I would be looking at the following 3 of Steve Ray’s six c’s:

·?????Competence – standardized training and development programs that provide physical evidence that personnel in whatever position they are in understand what is required and can complete the tasks with minimal supervision. Human factors are still the main cause of major events.

·?????Change Management – the introduction of new technology designed to supplement human decision making. Smart technology and remote monitoring. There are many new products on the market to make improvements.

·?????Control of Work – compulsory introduction of independent Well Control Assurance companies to review plans, train personnel and be present during critical phases of the well to provide firsthand advice and assistance at the occurrence of any incident. (not the big multinational companies who have a conflict of interest)

Effective training is key to all my recommendations.

As you may have noticed, my three recommendations all begin with the letter “C” and they can all be summed up by another “C” word which we all need to make this work:

CARE