American Oil and Gas Reporter - December 2015 - 79

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SpecialReport: Insurance Update
erate in the event of fire or blowout during drilling/completing and production
phases at a multiwell site. Installing remote
shut-off valves on producing wells can
mitigate the possibility of an incident
spreading to neighboring wells.
The risk at poorly designed sites is considerably higher because of the "domino
effect" that can exist during a blowout scenario. It is important to keep the incident
from cascading to adjacent wells. Managing the domino effect from one well to another in close proximity is essential to mitigating risk in any multiwell incident.
Significant property damage can occur
on poorly managed multiwell pad operations with improper site design and maintenance. That is because multiwell pads
generally have a higher concentration of
assets than traditional single-well sites during both drilling and completion. The accumulation of equipment such as frac
tanks, trucks, pumps and equipment can
resemble a crowded city and be worth tens
of millions of dollars. Even a small incident on these sites can spread easily to other assets and quickly escalate to a largescale event.
In addition, if equipment is not maintained well and inspected regularly, the
likelihood of an incident occurring increases the potential for damage to the multiwell pad and nearby equipment. This
means it is even more critical to inspect
piping, valves and any other equipment in
use at a multiwell pad operation.
Contractors and operators should institute rigorous inspection programs with
written record keeping to note inspection
frequency, and comprehensive equipment
maintenance to help avoid breakdowns and
potentially dangerous situations. Access to
spare or replacement parts for key machinery is recommended also to limit possible
business interruptions.
Site coordination is a critical component of any multiwell pad installation. The
operator should have a detailed written
plan explaining the execution of the site.
Coordinating all facets of well construction and completion is critical to a successful project.
The responsibility for effective communication is in the hands of the operator.
Every contractor on site should be well
aware of the stage of construction the job
is in and its responsibilities. Safety on a
multiwell pad requires that all groups communicate and know the hazards of work
occurring next to them or nearby, and coordinate accordingly. A lack of adequate

communication can lead to significant loss,
including damage to equipment and potential loss of life.
Finally, one of the most important safety items is the multiwell pad site's emergency response plan. This is especially true
if many smaller contractors are involved.
The plan ensures that each contractor does
not react independently, which could create additional confusion and increase the
danger to themselves and others. Without
centralized oversight of contractors, the potential for a communication breakdown is
even greater.
Insurers are responding by getting involved in the early stages of planning to
help identify potential problems at the outset and provide solutions in the event of
an incident. With the shifts to the production process and hydraulic fracturing over
the past decade, and the increasing value
of on-site equipment, insurers are working closely with operators and contractors
to review their exposures for property, liability and contract liabilities against existing coverages and limits to help ensure
they have the proper coverages in place.

By necessity, oil and gas companies
are focused on improving the efficiencies
and cost structures of all aspects of their
operations. As operators set their 2016
capital budgets, how can they better tailor insurance programs to meet the particular needs of their planned activities?
BOQUIST: When forced to make the
tough calls, such as deciding where to cut
costs and figuring out how to make sound
business decisions, it helps to have access
to as much good advice as possible.
Working with a skilled insurance agent and
carrier that specializes in the oil and gas
industry-and understands how changing
cycles affect business operations-can
greatly support a company's efforts to
maintain strong operations in the face of
financial challenges. After all, the more informed a company is, the better decisions
it will make.
Be selective about partners; no company operates entirely on its own. Managers
can help direct their companies toward
partnerships that add value through specialized services. For example, look for an
insurance partner that provides training for
employees, access to advice, and inhouse expertise on how to help an oil and
gas operation run as effectively and efficiently as possible. Most importantly,

know who you are doing business with.
Despite the financial pressures, owners and operators have an opportunity to
take advantage of the "lull" in activity to
make investments in the future by:
* Keeping the best workers in the
midst of potential layoffs, building employee confidence and loyalty by sending
them to training, and positioning a company's workforce to be safe and productive;
* Adopting a mind-set of working not
just quickly, but also safely, as the smartest
way to control costs and improve profits;
and
* Seeking insurers that will partner
with them by providing expertise, incentives and services that help them run
tight operations.
Managing risk is a key underpinning
for financial success and sustainability. By
taking steps to access training, audit safety and prepare for emergencies, an oil and
gas operation has the best chance to not
only survive, but thrive in the future.

State of the Market

MATT WATERS
Liberty Mutual Insurance

Q: Insurers continue to respond to the

needs of evolving drilling and completion
practices, technology innovations, and the
broader business climate. How would you
characterize the state of the oil and gas insurance market? How it is being impacted by the downturn in upstream activity?
Are there new insurance products or policy changes of particular importance to independent oil and gas companies?

WATERS: I would characterize the oil
and gas insurance market as soft, and
would draw a parallel to what is going on
in the oil and gas market itself. Both industries are dealing with oversupply-insurance with capacity, and oil and gas with
hydrocarbons.
For oil and gas producers, this has led
to job cuts, reduced hours worked and lowered revenues, all of which-combined with
insurance capacity-has lowered insurance premiums. It is interesting to note,
however, that insurers are keeping roughly the same level of risk, but with reduced
premiums, since output has remained

DECEMBER 2015 79

American Oil and Gas Reporter - December 2015

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