IRMI Energy Risk & Insurance Conference - FINAL

Latest Trends in
Oil & Gas Claims
Andrew Kadin, Marsh
Michael Nelson, Lloyd Warwick
John Griffin, Envista Forensics
Tim Christ, LeadFire Forensics
#IRMI2017

#IRMI2017
• Upstream
• Saltwater Tanks & Lightning Claims
• Additional Case Studies
• Plug & Abandonment issues
• Midstream
• Downstream
• Insurance Changes
• Case Law Updates
• On the Horizon
Latest Trends

#IRMI2017
Upstream Energy Losses – 2000 - 2016

#IRMI2017
• Total of known losses (excess of USD
1m) – USD 1,800,000,000
• Approx. 22 known Losses reported to
be in excess of USD 10m
• Largest loss – USD 1,100,000,000 –
FPSO Turret - Ghana
• Known losses in excess of 10m
represented USD 1,600,000,000 of the
total reported
• Known losses under 10m but in excess
of 1m represented the reaming USD
150,000,000
Upstream Energy Losses - 2016

#IRMI2017
No. of losses by location
2015
Location No.
North America 15
Asia 6
Africa 5
South America 3
Oceania 2
Europe 1
Total 32
2016
Location No.
Asia 9
North America 6
Africa 5
South America 1
Oceania 1
Total 22
2015
Location Value (USD)
North America 1,641,532,360
Asia 194,610,000
Africa 131,755,794
South America 602,500,000
Oceania 50,000,000
Europe 10,000,000
Total 2,630,398,154
2016
Location Value (USD)
Africa 1,156,000,000
Asia 259,240,465
North America 90,610,000
South America 10,300,000
Oceania 10,000,000
Total 1,526,150,465
Value of losses by location
Upstream Energy Losses in excess of USD 10M – 2015 – 2016 Comparisons

#IRMI2017
• Between 2015 and 2016: 5 Losses (10m<)
involving FPSO / FSO worth a combined total of
USD 1.6 billion
• Number of losses increasing in the last 10 years
• Claims arise from:
• Mooring chain failures
• Turret failure / damage
• Riser failure / damage
• Damage to FPSO / FSO can also result in physical
damage to subsea facilities, and will often incur
significant LOPI.
Upstream Energy Losses – Trends – FPSO / FSO

#IRMI2017
• Increase of shale gas drilling in recent years has resulted in a number of claims
• Higher costs and technical difficulties associated with shale gas drilling have increased
both the amount of claims and value of those claims
• Claims can arise from:
• Ruptured drill pipe
• Loss of well bore integrity
• Increased difficulty of controlling the well
• Fracking COW incidents can result in significant claims due to the higher costs of
associated equipment
• Typical Care, Custody, and Control sub-limits can be insufficient due to the increased
quantity and cost of equipment required
Upstream Energy Losses – Shale Gas / Fracking

#IRMI2017
• Shale oil is generally produced with salt water.
• Fiberglass tanks are being utilized for storage.
• Corrosiveness of salt water eats away at steel tanks
• Less expensive
• Fiberglass more resistant to electricity
• API Research Report 545A--Verification of lightning protection
requirements for above ground hydrocarbon storage tanks
• Metal components need to be grounded
• Lightning protection over (above) height of tanks
Saltwater Tanks & Lightning Claims

#IRMI2017
• Claims are occurring even with lightning protection.
• Flowing salt water generates static electricity in fiberglass tanks
• When lightning storms are in the vicinity, this creates are stronger attraction
for the lightning than normal.
• Hydrocarbon Vapor on top of the salt water in the tanks provides fuel for
fire/explosion.
• More fiberglass tanks/more saltwater being produced
• More claims being generated

#IRMI2017
• Consequences?
• Cost for clean-up and repair/replacement of the facility
• More claims affect rates
• EPA could fine the operator
• Solutions?
• Better grounding system/Active grounding system
• Switching to coated steel tanks
• Other lightning protection/Better lightning protection

#IRMI2017
Louisiana Loss of Well Control on land

#IRMI2017
Charred work boot
and hard hat

#IRMI2017
Louisiana Loss of Well Control
Vacuum truck

#IRMI2017
Sand bridge
a) Initially focused on improper well control
b) Received additional depositions
c) Received post incident daily reports
d) Focus changed to “sand bridge”

#IRMI2017
Gas buster

#IRMI2017
Pipe line feeding fluid
and gas to gas buster

#IRMI2017
Gas vented to atmosphere
Mud back to
Pits (without gas)
Flow from well
(with gas)
Louisiana Loss of
Well Control

#IRMI2017
Improperly plugged wells

#IRMI2017
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.

#IRMI2017
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

#IRMI2017
Day 1 – Land rig takes gas kick in
normal operations while drilling
Gas in water well

#IRMI2017
Day 3– nearby water well sees gas to
surface while trying to get water zone to
flow.
Gas in water well

#IRMI2017
2.3 Sources of Stray Gas
Stray gas found in a water well or in a home may originate from various sources. The primary source
is pre-existing, shallow deposits of natural gas, which is described in section 2.2.1. Other sources
include:
• Underground activities unrelated to shale gas production (e.g., coal
mining, landfills),
• Leaks from abandoned, recently drilled, or operating gas wells, or
• Leaks from natural gas pipelines or natural gas storage fields or
caverns.
In any investigation of stray gas, it is important to evaluate and identify the actual source of the
methane so the appropriate remedial actions can be taken.
Gas in water well

#IRMI2017
Presentations illustrated the technical complexities
involved in some stray gas investigations and the
importance of:
• thorough assessments of site geology,
• the need to evaluate the full range of potential
methane sources, and
• the value of using compositional gas analysis to
complement isotopic analyses.
Gas in water well

#IRMI2017
Incidents of alleged stray gas often require evaluation
of multiple potential sources.
The source of stray gas may be the result of a
• natural condition or
• due to a variety of anthropogenic activities, or a
• combination of both.
Incidents can manifest as non-threatening or as a
significant threat to public safety.
Gas in water well

#IRMI2017
Stable Isotope Analysis and Interpretation
Many of the presenters showed data that used stable
isotopes (or isotopic analysis) to help characterize and
distinguish methane from different sources through
“fingerprinting”. The next few sections provide a brief
introduction to the subject.
When the isotopic signatures of different samples
are plotted on a graph, their relative positions,
when used in conjunction with other analytical
methods, may help investigators or researchers to
differentiate gas that originated from different
sources (K. Revesz).
Gas in water well

Midstream
• Pipelines in the ground are 40, 50, 60 years old.
• Internal Corrosion/External Corrosion
• Loss of ground-cover—Hit by farmers, contractors, others
• Gas Compressor stations
• Storage Reservoirs

#IRMI2017
Downstream Energy Losses – 2000 - 2016

#IRMI2017
• Total of known losses (excess of USD
1m) – USD 1,200,000,000
• Approx. 16 known Losses reported to
be in excess of USD 10m
• Largest loss – USD 480,000,000 –
Pemex Petrochemical plant Mexico
• Known losses in excess of 10m
represented USD 1,150,000,000 of the
total reported
• Known losses under 10m but in excess
of 1m represented the reaming USD
50,000,000
Downstream Energy Losses - 2016

#IRMI2017
2015
Location No.
Value
(USD)
Fire & Explosion 5 1,197,796,000
Fire 7 315,855,000
Mechanical Failure 1 13,000,000
Contamination 1 21,500,000
Flood 1 12,600,000
2016
Location No.
Value
(USD)
Fire & Explosion 5 693,344,000
Fire 4 115,500,000
Mechanical Failure 2 62,600,000
Faulty work 1 29,000,000
Supply Interruption 1 55,300,000
Flood 1 52,000,000
Downsteam Energy Losses in excess of USD 10M – 2015 – 2016 Comparisons

#IRMI2017
Downsteam Energy Losses – Claim examples – YPF La Plata

#IRMI2017
• Texas Supreme Court issued two opinions recently on the applicability
of Chaper 95 of the Texas Civil Practice & Remedies Code
• First Texas Bank v. Carpenter
• Ineos USA, LLC v. Elmgren
• Texas Supreme Court issued opinion on OCIP coverage and worker’s
compensation bar
• TIC Energy & Chem. Co. v. Martin
Courtesy of Donato Minx Brown & Pool
Case Law Update

#IRMI2017
• First Texas Bank (“FTB”) asked Chris Carpenter to investigate a roof leak in its roof. Carpenter had been FTB's “go-to guy” for roof repairs for
years. After his initial inspection, Carpenter informed FTB the building had hail damage. In connection with its insurance claim, FTB asked
Carpenter to show the insurance adjuster the hail damage. Carpenter and the adjuster used one of Carpenter's ladders to ascend to the
first tier of FTB’s roof and used one of FTB's ladders to access the second tier. In the process of descending from the second tier, Carpenter
fell, crushing two vertebrae.
• Carpenter filed suit against FTB and asserted the ladder was defective. In connection with its defense, FTB sought the protections afforded
by Chapter 95. Chapter 95.003 provides, in part:
• A property owner is not liable for personal injury... to a contractor, subcontractor, or an employee of a contractor or subcontractor who
constructs, repairs, renovates, or modifies an improvement to real property... unless:
• (1) the property owner exercises or retains some control over the manner in which the work is performed... and;
• (2) the property owner had actual knowledge of the danger or condition... and failed to adequately warn.
• Carpenter asserted Chapter 95 was inapplicable because he did not have a contract with FTB and was therefore not a “contractor” as
required by Chapter 95. The trial court granted FTB's motion for summary judgment. The intermediate court of appeals reversed the trial
court.
• The Supreme Court of Texas began its analysis by noting Chapter 95 did not define the term “contractor.” Thus, it recognized the generally
accepted definition as a “party to a contract.” The Carpenter court then turned its attention to Chapter 95's applicability. In undertaking this
inquiry, the court noted Chapter 95's applicability does not hinge on whether the agreement for the work to be done is written, formal or
detailed. Rather, its applicability turns on the type of work to be done. Based on this analysis, the Carpenter court determined Carpenter
was a “contractor” for purposes of Chapter 95 because he was FTB's roofing contractor. Chapter 95 is only applicable, however, to
contractors, subcontractors, and their employees who “construct[ ], repair[ ], renovate[ ], or modify[ ] an improvement to real property.” It
does not apply to one injury apart from such work.
• The court concluded that because the record was unclear as to whether FTB hired Carpenter to perform work covered by Chapter 95 at the
time of his injury. Therefore, the case was remanded back to the trial court for further proceedings.
First Texas Bank v. Carpenter

#IRMI2017
• In Ineos USA, LLC v. Elmgren, the court was presented with two primary issues: (1) whether Chapter 95 applies to negligence claims other than premises liability
(Elmgren asserted a negligent undertaking claim in the trial court) and (2) whether the protection afforded by Chapter 95 extends to a property owner's agent or
employee.
• Ineos USA, LLC owns a petrochemical plant in Alvin, Texas. Johannes Elmgren worked as a boilermaker for Zachary Industrial, an independent contractor that
provided services at the plant. Elmgren was injured in June 2010 while replacing a vale on a furnace header. At the time Elmgren was injured, both Ineos and
Zachary employees conducted a lockout-tagout procedure to isolate the section where the valves Elmgren was replacing were located. A “sniff test” was conducted
an indicated no gas was present in the section. As Elmgren and a co-worker were removing the second valve, a burst of gas exploded out of the pipe, resulting in
burns to his torso, neck, and face.
• Elmgren and his wife filed suit against Ineos and Jonathan Pavlovsky, an employee he alleged was the “furnace maintenance team leader.” Ineos and Pavlovsky filed
motions for summary judgment asserting Elmgren's claims were barred by Chapter 95. Elmgren asserted Chapter 95 did not apply to the claims against Ineos and
Pavlovsky and was not entitled to its protection because he was not a “property owner.” The trial court granted the summary judgments. The intermediate court of
appeals affirmed in part and reversed in part.
• After the intermediate court of appeals issued its opinion, the Supreme Court of Texas issued its opinion in Abutahoun v. Dow Chemical Co., 463 S.W.3d 42, 50 (Tex.
2015), holding that Chapter 95 applied “to all negligence claims that arise from either a premises defect or the negligent activity of a property or its employees by
virtue of the ‘condition or use’ language in section 95.002(2).” Thus, the trial court was correct in applying Chapter 95 to all of Elmgren's negligence-based claims.
• The second part of the court's analysis focused on whether the protection afforded by Chapter 95 extended to Pavlovsky, Ineos's employee. Pavlovsky asserted the
intermediate court of appeals erred in holding that Chapter 95 did not apply to him based on the language in Abutahoun that it applies “to all negligence claims
that arise from either a premises defect or the negligent activity of a property owner or its employees.”
• The court first looked at whether Pavlovsky was entitled to protection as a “property owner.” Section 95.001 defines a “property owner” as “a person or entity that
owns real property primarily used for commercial or business purposes.” The Elmgren court concluded that because Pavlovsky did not own the real property where
Elmgren was injured, he was not a “property owner” as defined.
• The court next examined whether Pavlovsky was entitled to Chapter 95's protections as Ineos's agent. Because Chapter 95's definition of “property owner”
contained “no language including agents who act on behalf of or hold themselves out as the property owner,” the Elmgren court concluded its protections did not
extend to a property owner's agent.
• Finally, the Elmgren court examined Pavlovsky's argument that the term “property owner” must include the owner's employees because otherwise claimants could
circumvent Chapter 95's protections because the employer would ultimately be liable under the doctrine of respondeat superior. This argument was rejected by
the court on the grounds that “Chapter 95 protects a property owner even against claims asserting vicarious liability based on respondeat superior, ...”
Ineos USA, LLC v. Elmgren

#IRMI2017
• In TIC Energy & Chem. Co. v. Martin, No. 15-0143 (Tex. June 3, 2016), a Union Carbide employee,
Kevin Martin, lost one of his legs in a workplace accident and recovered workers' compensation
benefits through an owner-controlled insurance program (OCIP) administered by Union Carbide's
parent company, Dow Chemical Company. Because Union Carbide was protected by the worker's
compensation bar to suit, it could not be sued. Martin thus sued TIC Energy & Chemical Company,
a subcontractor providing maintenance services at the facility, alleging TIC's employees
negligently caused his injury.
• Defense argued that TIC should share in the worker's compensation bar as a fellow employee
because it was a participant in the OCIP pursuant to Labor Code Section 406.123, providing that a
subcontractor and its employees are employees of the general contractor if workers'
compensation insurance is provided for the subcontractor's employees. Martin argued that Labor
Code Section 406.122(b), providing that a subcontractor and its employees are not employees of
the general contractor when, as occurred in this matter, it is operating as an independent
contractor and has entered into a written agreement with the general contractor that evidences a
relationship in which the subcontractor assumes the responsibilities of an employer for the
performance of work. The trial and appellate courts both sided with Martin.
TIC Energy & Chem. Co. v. Martin

#IRMI2017
• Carpenter remanded back to trial court because “record unclear as to whether
FTB hired carpenter to perform work covered by Chapter 95.” It will be necessary
to determine (1) whether an agreement, written or oral, was in place, and (2) was
the injured party in the course of performing the work provided for in the
agreement.
• Elmgren concluded that Chapter 95 protections do not extend to a property
owner’s agent “who act on behalf of or hold themselves out as the property
owner” so this allows claimants to circumvent the protections by asserting claims
against individual employees.
• Both opinions provide openings for plaintiffs to assert Chapter 95 is not applicable as an
affirmative defense or avoid its applicability all together.
• Court held that subcontractors who opt to participate in an owner’s or general
contractor’s OCIP are now given protection of the worker’s compensation bar
from suits by OCIP holder’s employees.
Key Take-aways

#IRMI2017
On the Horizon
• Pascal Ray predicts that the energy industry will see a wave of claims in the near future because of deferred and delayed
maintenance, upgrades and integrity testing of a company's crucial assets of wells, pipelines and refineries. “The downturn in
the [oil] industry has forced cutbacks in maintenance and asset integrity testing, which is most likely going to manifest itself
in asset integrity-related claims,” he says.
• Those strained resources, says Ray, also can cloud executives’ judgment when it comes to crafting the policies that protect
their business: “Many companies can't afford to buy the insurance coverage they need, forcing risk managers into difficult
decisions based on survivability,” he says. Clients, however, still need the proper coverage, whether it's a drain on their
finances or not — and agents may see this market's current environment as an opportunity. Extremely thorough
underwriting and asking the right questions of the client are critical for survival in this market. Increased competition has led
to a soft rate environment in the energy marketplace, with more players — but not always ones that possess a deep bench of
expertise.
•
The soft market created by this increased competition may continue to soften into the near future except in the midstream
sector (transportation and storage entities, such as pipelines, oil tankers and storage systems), where rates may flatten, says
Ray. The U.S. and Canadian midstream sector has been hit with an “unusually high” number of large pipeline losses this year,
he says, which has caused more stringent underwriting and rating of these accounts.
• “More risk exists now than ever before,” Ray adds. “One thing all companies can do to reduce the uncertainty of one of their
greatest risks — asset integrity — is to focus resources on the maintenance and testing of their assets to help prevent them
from becoming the next member of the billion-dollar claims club.”

#IRMI2017
michael.nelson@LloydWarwick.com
andrew.kadin@marsh.com
john.griffin@EnvistaForensicsEA.com
timothydavid.christ@gmail.com

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