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| INSURANCE MARKETPLACE SOLUTIONS |
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Oil and Gas Operations
Even though the price of oil is dancing around well above $100 per barrel these days, our oil and gasoline consumption is unchanged. Although “where there's a will there's a way” may be true, a better maxim may be "where a profit can be made, an entrepreneur is researching a way to do so." As the price per barrel of oil increases, the potential profit from tapping domestic oil and gas reserves also increases. Oil and gas wells are being drilled deeper and farther away from shore. Drilling horizontally instead of vertically is another technique used to extract oil and gas reserves inaccessible by vertical drilling.
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| The Oil and Gas Insurance Marketplace |
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The Oil and Gas Operations marketplace has thousands of players. However, most are very small and the vast majority have no employees. Over 14,000 such businesses are considered small commercial and only 600 are considered middle market or national. Most of the premium for this group comes from middle market and national operations but those 14,000 small businesses generate over $700,000,000 in annual premium.
Oil and Gas Operations
by Size of Segment |
Oil and Gas Operations Premium
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For more information:
MarketStance website: www.marketstance.com
Email: info@marketstance.com |
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Increased oil and gas production comes from either new exploration or from digging a little deeper in an existing field. New exploration is extremely expensive and the chances of success are less than 10%, even with advanced technologies, such as satellite imaging. Using advanced techniques to squeeze more production from a nearly exhausted or shallow well may have a higher rate of success but the cost to do so may be considerably higher. Directional drilling was developed over 20 years ago in an effort to extract more oil and gas from an existing field, particularly in areas where vertical drilling was impractical or impossible. The success of directional drilling resulted in increased use and lower costs. However, new technologies also present new and different loss possibilities. |
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To better understand the coverage concerns, consider this possible scenario:
Field and Stream Oil uses directional drilling to increase its production. It follows all required procedures and protocols and successfully increases production, even beyond what it expected. Family Farm Oil operates an adjacent field and hears about Field and Stream's success. Coincidently, Family Farm notices a significant decrease in production from one of its wells and hires a geologist to investigate the reason why. The geologist believes that Field and Stream's directional drilling has blown out one of the Family Farm walls causing that production to flow into the Field and Stream well. Family Farm sues Field and Stream for loss of an underground resource.
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The oil and gas operations insurance marketplace is alive and very, very well. According to Dave Stein of L. J. Stein & Company, Inc., there are plenty of players entering the business at the present time. His concern is “they have no knowledge of the market and are offering prices that won’t be supported by losses.” David Barclay, vice president of Chubb Energy, also notices this increased capacity in the marketplace. He says that, “competition wise, we are seeing more carriers getting interested in writing this type of business than in the past.”
The oil and gas industry needs standard coverages but unique coverages are also required, according to Marcus Jensvold, president of M. D. Jensvold and Company. One particular need with high loss severity potential is known as control of well. This loss situation is caused by a blow out that results in oil spewing out of control. The best example is from the Texas oilfields. The first major oil find in the United States was accompanied by the first major control of well loss. The well was drilled into the Spindletop field in Beaumont Texas. It erupted and spewed over a million barrels of oil over a nine-day period before it was finally brought until control. If control of well coverage had existed in 1901, it would have covered the expenses to stop the flow and clean up the mess it created.
Safety measures play a major role in the oil and gas industry. As a result of the Spindletop loss, a safety device known as the Christmas Tree was invented. Since gas and oil drillers couldn’t afford such losses, which were uninsurable at the time, the well-control industry started. While keeping the well under control was the highest priority, when a well did go out of control the next priority was bringing it back into control as quickly as possible. By the time the insurance industry started offering this coverage, loss prevention measures were already well established.
Click here for the complete article … |
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This message was sent by The Rough Notes Company, Inc.,
11690 Technology Drive, Carmel, Indiana, 46032
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