This document summarizes trends in oil and gas claims, including differences between traditional and fracking-induced blowouts, issues with old plugged and abandoned wells interacting with CO2 injection fields, pollution claims involving both control of well and general liability policies, additional insured claims, and relationship problems between operators and service companies due to liability claims. Key points discussed include available casing repair endorsements, court rulings on coverage, new regulations in Texas, CO2 injection processes, cement and rock factors in well integrity, and case studies on claim amounts and abandoned well liabilities.

1. Latest Trends in Oil/Gas
Claims
Stephanie R. Tippit, Esq. – Senior Counsel
Rodney J. Winkler, M.B.A. – Vice President
John M. Griffin, Ph.D., P.E. – Principal Consultant
Timothy D. Christ, M.B.A. – Vice President

2. Agenda
• Traditional COW vs. Fracking COW
• CO2 Injection and Old P&A Wells Causing New Problems
• Pollution Claims and Interaction between GL and COW policies
• “Additional Insured” Claims
• Liability Claims causing Relationship Problems between Operator and Service
Companies
• Final Remarks

3. • Operational Differences
• How policies have traditionally responded
• Available Casing Repair Endorsement
• Court Rulings
• New Texas Railroad Commission Rule
Traditional COW vs. Fracking COW

4. Traditional COW vs. Fracking COW
• Operational Differences
• In a traditional blowout, typically all
damage done to the well is a direct
result from the uncontrolled flow

5. Traditional COW vs. Fracking COW
• Operational Differences – Timeline of Frack Blowout
Spud
Total
Depth
Completion
Starts
Multi- Stage
Frac
Casing
Failure
COW
Casing
Repair
Well Restored

6. • How policies have traditionally responded
• In a traditional blowout, most any operations carried out to restore the well
are covered under Section IB as the damages are directly related to the
uncontrolled flow
• For a frac blowout, repair of the casing is typically not covered as it is not
damage caused by the uncontrolled flow
Traditional COW vs. Fracking COW

7. • Available Casing Repair Endorsement
• Endorsements are now widely available and generally read:
“Restoration / redrilling expense is hereby extended to include the cost of
repair or replacement of casing damaged during fracking operations but
only when such damage directly results in a well control claim recoverable
under the Control of Well section”
Traditional COW vs. Fracking COW

8. • Court Rulings, industry commentators/experts,
purpose and history of policy :
• Section IB for restoration/redrill is triggered
by perils named in the policy.
• Typically: Section IA unintended,
uncontrolled flow, crater and perils named
by endorsement.
• Casing failure is not an identified peril.
Traditional COW vs. Fracking COW

9. • New TRRC Rule for frac treated wells (effective Jan. 1, 2014)*
Traditional COW vs. Fracking COW
* Excerpt of the TRRC
summary of amendments
available at:
http://www.rrc.state.tx.us/oi
l-gas/compliance-
enforcement/rule-13-
geologic-formation-
info/summary-of-
amendments-to-swr-13/.
See full text of rule for actual
wording and additional
amendments.
http://texreg.sos.state.tx.us/
public/readtac$ext.TacPage?
sl=R&app=9&p_dir=&p_rloc
=&p_tloc=&p_ploc=&pg=1&
p_tac=&ti=16&pt=1&ch=3&r
l=13.

10. CO2 Fields and Old P&A Wells Causing New
Problems
• What is CO2 or Tertiary Recovery?
• Recent Problems From Plugged & Abandoned Wells
• How Does a Plugged & Abandoned Well Become a Conduit of Flow?
• How do policies respond to these types of events?

11. CO2 Fields and Old P&A Wells Causing New
Problems
• What is CO2 or Tertiary Recovery?

12. • Problems Caused by Plugged & Abandoned Wells
CO2 Fields and Old P&A Wells Causing New
Problems

13. • How Does a Plugged & Abandoned Well Become a Conduit of Flow?
CO2 Fields and Old P&A Wells Causing New
Problems

14. “I think we will see a trend where we are going to see barriers with multiple layers,”
--Bart Joppe
Long-term cement failures
Cite Ms. Wreden, CSI who says fluctuating pressures and temperatures cause casing to expand and contract
which eventually can crack or damage cement (Am O&G Reporter, Dec. 2014, p119)
Short-term cement failures
Gas migration after cementing and before cement sets
Cement design
Design for stresses anticipated over “life of well”
With permeability and shrinkage considered
CSI’s R&D
Stressed cement repeatedly with a load applied then removed, to detect deformation
“A durable cement will recover its shape and not show signs of damage under loading, while a weaker cement or
a cement that has been loaded many times will fatigue , like a paper clip that has been bent back and forth until
it breaks.”
Cement as a Barrier

15. Portland Cement Plus, Polymeric Additive
Cement Permeability

16. Knowing the rock around the spot to be plugged can be critical. A paper analyzing the
quality of cementing in 53 offshore wells (SPE 170667) done by two Schlumberger
cement experts found that of the variables thought to contribute to better quality, the
most telling was the characteristics of the rock next to the cement.
The best is nearly impermeable rock, such as shale. A Canadian joint industry project
done by the research organization C-FER looked at cement jobs in wells used to produce
heavy oil using steam-assisted gravity drainage, and found that “geology rules” on the
ultimate quality of the cement sheaf in sections above the production zone, said Cam
Matthews, director of C-FER
Rock aside Cement Sheath

17. It uses heavy drilling mud in between cement plugs. In California, the company has
received approval from regulators to seal wells used for heavy oil production with
compressed bentonite rather than cement.
“The benefit is that cement can crack and break down as the earth moves, a common
California occurrence,”
“The compressed bentonite actually continues to expand over time and creates a good
seal. The downside is we have to pour it from the surface...”
--Don Stelling, president of Chevron Environmental Management Company.
Compressed Bentonite

18. • How do policies respond to these types of events?
• What if the P&A Well is the culprit well but is not scheduled for coverage?
• Could take months of operations and lots of money to re-enter several wells
before identifying the culprit well. Are those costs covered?
CO2 Fields and Old P&A Wells Causing New
Problems

19. Pollution from a Blowout and the Interaction
Between the COW and GL Policies
• Typical Pollution Scenario Due to a
Blowout
• Recent 5th Circuit Ruling

20. Pollution from a Blowout and the Interaction
Between the COW and GL Policies
• Typical Pollution Scenario Due to a
Blowout
• Pollution effects “Well Pad” and
Surrounding Land
• Often times a split between the COW
and GL policy is reached and usually
hinges on what is on the pad versus
surrounding land

21. Pollution from a Blowout and the Interaction
Between the COW and GL Policies
CGL CGL C CGL
Mineral
lease
Well
site
Neighbor
Insured argued: Court ruled:
Pollution
• Recent 5th Circuit Ruling

22. Pollution from a Blowout and the Interaction
Between the COW and GL Policies

23. “Additional Insured” Claims
“[A]dditional insureds are automatically
added” “where required by written
contract.”
BP is Additional Insured if Transocean is
“obligated … to provide[BP] insurance” in an
“Insured Contract” “under which [Transocean]
assumes the tort liability of [BP].”
Transocean shall name BP as “additional insured[ ]…for
liabilities assumed by [Transocean] under the terms of
this Contract.” Those liabilities did not include subsea
pollution.
Policy:
Drilling Contract:
Court Ruled:
Drilling contract is “Insured Contract” for assumed risks,
but not subsea pollution. Therefore, BP is additional
insured for assumed risks, but not subsea pollution.

24. Liability Claims Causing Relationship
Problems between Service Contractors and
Operators
• Various Case Studies
• Trend is that contractor does not want to fight the operator

25. Client had 36 stages in N. Dakota to individually frac
1. Deepest zone is fracked, in cracks created by high pressure, oil company pumps
sand in gel to hold fractures open indefinitely
2. Plug is placed above this deepest zone and fracked repeated for next
shallowest zone
Insured submitted claims for two incidents
1. Wireline severed and fell when frac valve closed and cut wireline
2. Wireline severed and fell when wellhead valves at surface opened without first
equalizing pressure

26. Occurrences No. 1 (Sept 22) and No. 2 (Nov 3) claims submitted was difference
between cumulative well cost when incident occurred vs. when fish retrieved from
the well to resume operations
CLAIM 1
SEPT 22-OCT 4
CLAIM 2
NOV 3-NOV 22
$1,100,873
$593,079
$ 507,794
$3,426,145
$3,026,009
$400,136

27. This reduction was possible by
1. Breaking down each charge into categories
A. Costs due to fishing job
B. Cost incurred during normal operations
2. Distinguishing between calendar days vs. working days
A. Rental invoices are tied to calendar days
B. Services are tied to working days
Incident No. 1 Incident No. 2
Initial Claim $507,794 $400,136
LWG adjusted to $322,721 $215,174
Savings to insured $185,073 $184,962
Total savings $370,035

28. Final Remarks

29. stippit@hallmaineslugrin.com
Rodney.winkler@bcjohnson.com
jgriffin@lwgexpertalliance.com
tchrist@lwgconsulting.com

30. Close valve on
wireline

31. Operator closes valve on
wireline

35. Their claim included a kill fluid credit of $38,800.00
However, actual invoiced credits were $77,487.12. So, we corrected their
initial claim from $664,270 to $586,782.88
Also, accounting records indicated that 300 barrels of both the 16# and 17.8#
kill fluid were invoiced to the client. However, the daily reports only showed
200 barrels of each being used.
Correcting the Adjusted Operator costs to reflect only 200 barrels
$586,782.88
($60,641.73) 16.0# fluid
($92,978.45) 17.8# fluid
$433,164.70 New Adjusted Operator Costs

36. $433,164.70 New Adjusted Operator Costs
($121,283.45) 16# mud
(4,880.00) fluid spacer
($14,393.50) one day of rig time
($1,300) consultant day rate
$291,699.75 Expert opinion on appropriate value of claim due to
insured’s employee error
Original claimed amount - $625,470.00

37. 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.

40. 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

41. Our expert opinion is that the insured’s act of dropping the tubing down the
hole did not damage the wellbore in any significant manner.
Furthermore, the insured’s act of dropping the tubing down the hole is not
the cause of the surface pressure nor did it compromise the plug &
abandonment work that was performed in September.
The insured’s act of dropping the tubing down the hole did result in some
delays and additional costs that otherwise would not have been incurred
during the second, and ultimately, successful attempt to plug the well.
The second attempt to plug the well was primarily successful due to the new
deep plug that was set at 9912’, not the original 2250’ as noted in the
Contractor’s P&A plan for the September work.