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?

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.
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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!
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Blowout!

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.

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

WEEKS THREE & FOUR: Expenses after the Blowout An environmental remediation contractor is hired to clean up Farmer Browns 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 Costs of Control Fighting the Fire

Seepage & Pollution

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 Restoration Redrill

$350k

Policy Limit
$3MM Each Occurrence Retention: $100,000 (For 100% Interest) CCC Limit $500,000
$500k Costs of Control Fighting the Fire

Seepage & Pollution

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 wont - $450,000.

$450k $1.8m Restoration Redrill Care, Custody & Control

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

CCC 3rd Party Equipment on Site

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What Insured Paid Versus What Insured Got Paid:

COST: Premium Paid for this Well: Retention born by Insured: Total Costs: RECOVERY: Costs of Well Control: $ 500,000 $ 350,000 $ 1,800,000 $ 2,650,000 $ $ 450,000 (50,000) 11 $ 5,000

$ 100,000 $ 105,000

Seepage and Pollution / Clean-up and Containment:

Sidetrack, Restoration, Redrilling Expenses:

Care, Custody, & Control (CCC):

Less CCC Deductible: TOTAL RECOVERY:

[Policy Limit was $3,000,000 excess of the Retention] [CCC Limit was $500,000]

$ 3,050,000

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
Day 10-15 Day 16-45

Well out of control above ground.

Fishing under pressure from the well. Rig Released, more fishing with snubbing unit.

Day 46-48
Day 49-77

Operations suspended due to hurricane.

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
Day 61-73 Day 74-79 Day 80-88 Day 89-93

Drill to 7197.
Circulate well flow, open hole squeeze to counter lost circulation, no further progress drilling. Run 7 5/8 int. casing to 6668, cement, nipple up B.O.Ps, change out drill pipe, normal operations. Drill out of int. casing lose full returns, squeeze cement and kick off plug @ 6775, all abnormal operations. Circulate gas cut mud, drill to 7873, non routine drilling.

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Scenario 2 Non-Typical Claim

Day 94-96 Run 5 int. liner casing and cement same, varies from original well plan but required for hole stability and pressure integrity. Drill out of liner casing, shoe test failed, squeeze cement liner casing seat.

Day 97

Day 98
Day 133

Reinitiated drilling & encountered problems with liner hanger seal assembly.
Finally remedied & drilled to original loss depth 19 weeks after original loss date.

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RECOVERY:
Costs of Well Control: Seepage and Pollution / Clean-up and Containment: Sidetrack, Restoration, Redrilling Expenses: $ 8,139,000 $ -0-

$ 4,443,000 $ 12,582,000 [Policy Limit $15,000,000 excess of Retention] [CCC Limit was $1,000,000]

Care, Custody, & Control (CCC): TOTAL RECOVERY:

750,000

$ 13,332,000

[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 Day 2-26 Day 26-40 Day 41-52 Day 52-94 Day 95-289 Well out of control above ground. Well was at 20,406 depth. Extensive well control effort. Move rig off location, a side track of the original well. Rig up snubbing unit on another barge.

Snubbing operation.
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 months after original loss. This Redrill cost $21,700,00. While redrilling below the 1st redrill depth, the redrill well lost control. Second occurrence. Second loss depth reached. Overall, the Redrill involved 2 sidetracks.

Day 477

Day 586

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RECOVERY:
1st Costs of Well Control: Seepage and Pollution / Clean-up and Containment: Sidetrack, Restoration, Redrilling Expenses:
1st OEE Claim:

$ 72,500,000 $ $ $ $ $ $ -021,700,000 94,200,000 22,685,000 1,900,000 23,585,000 [Policy Limit $75,000,000 excess of Retention. Contained in 1st layer]
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[Policy Limit $75,000,000 excess of Retention]

2nd Cost of Control / Redrill : Care, Custody, & Control (CCC): TOTAL RECOVERY:

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.

- Murphys Law Oilman = Optimist Underwriter = Pessimist Hopes for the best Expects the worst

Plan, Design, Plan Some More

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