OEE insurance as a well control tool

 BHAVESH RANKA, Cudd Well Control 

The oil and gas industry is vital to the global energy supply and is one of the core industries for growth and survival. While the global safety standards across the oil and gas industry have improved, some activities remain risky. Well control remains one of the most complex aspects of oil and gas operations, requiring a multi-pronged approach. Well control incidents, particularly blowouts, can have catastrophic consequences, including environmental damage, loss of life, and significant financial loss.  

Operators worldwide are becoming increasingly proactive in implementing well control preventative measures. Robust well control practices and advanced technology are crucial to mitigating well control risks. Preventative engineering can protect the industry from catastrophic incidents. However, the growing costs of such proactive measures can act as a deterrent for some companies, who can view these costs as an additional burden on the financial viability of projects. Operators can use insurance as a powerful tool in the overall well control strategy. 

Fig. 1. Operators Extra Expense (OEE) insurance can be utilized as a risk management tool.

Operators Extra Expense (OEE) insurance can be utilized as a risk management tool that can not only mitigate the financial consequence of a well control incident but also provide a safety net, incentivize and encourage proactive well control preparedness, Fig. 1. 

In this article, we will explore how OEE insurance can be a vital part of a companywide risk management and safety strategy. We will show with case studies how OEE insurance can help prevent well control incidents, save lives, and minimize financial losses. 

WHAT IS OPERATORS EXTRA EXPENSE (OEE) INSURANCE? 

Operators Extra Expense (OEE) is a specialized insurance policy designed to cover the costs associated with regaining control of a blowing well. Also known as Control of Well Insurance, OEE reimburses insured operators for additional expenses incurred, due to unforeseen circumstances that disrupt normal operations, Fig. 2. Unlike general liability or property insurance, OEE is tailored to address the unique and high-risk nature of well control incidents. OEE coverage can include:

• Well Control Operations: Costs associated with mobilizing specialized equipment, personnel, and services to regain control of a well.  
• Environmental Remediation: Expenses for cleaning up pollution and restoring the environment to its pre-incident state. 
• Re-drilling Costs: Costs associated with drilling a new well, where a well control event has caused irreversible damage to the original well. 
• Business Interruption: Losses resulting from production downtime, market disruptions, and reputational damage. 
• Legal and Regulatory Costs: Expenses incurred in complying with legal and regulatory requirements following a well control incident. 

Fig. 2. OEE insurance reduces the financial impact of well control incidents, ensuring that operators can recover from these costly events without jeopardizing business continuity.

Not all costs will be covered by every policy. Some of the items can be covered via extra endorsements. 

HOW CAN OEE INSURANCE HELP PREVENT WELL CONTROL INCIDENTS? 

OEE was originally designed to primarily serve as an instrument to provide financial protection. However, as the number of well control incidents increased, underwriters wanted to use OEE as a preventative tool. As insurance companies partner with well control companies, such as Cudd Well Control, a comprehensive well control preparedness plan has been developed. Some policies like Amwins Upstream Alliance Powered by CuddAssured™ offer several benefits to the insured operator, to develop a robust risk management program. Please note that Cudd Well Control does not sell insurance. 

The OEE insurance encourages healthy well control practices. Some of the ways that OEE insurance can help with well control preparedness is, as follows: 

• Incentivizing Risk Mitigation: OEE insurance can incentivize operators to invest in robust well control practices, such as:  
• Enhanced training and certification programs for well control personnel 
• Regular maintenance and inspection of well control equipment 
• Adherence to industry best practices and regulatory standards 
• Development and implementation of comprehensive emergency response plans. 
• Promoting a Culture of Safety: A strong insurance program can foster a safety-first culture within an organization. By understanding the potential financial, environmental and safety consequences of a well control incident, employees are more likely to prioritize safety in their daily operations. 
• Securing Expert Support: In the event of a well control incident, OEE insurance can enable operators to quickly mobilize experienced well control experts. 
• Emergency Preparedness: Most OEE policies have some incentives that are offered to operators for utilizing well control engineering services. The underwriters will fund a certain dollar amount for availing well control engineering services.  
• Some of the programs, like Amwins Upstream Alliance Powered by CuddAssured™, provide incentives to operators for calling a well control company like Cudd Well Control earl,y when there are signs of well control issues. 
• By providing operators with money to fund mobilization of well control experts, escalation of a well control issue can be prevented. Such timely intervention can be the difference between pressure control (circulating out a kick) vs uncontrolled flow (blowout). Well control companies can provide risk assessments, training, and emergency response plans.  
• In high-risk projects, operators may contract with specialists to offer guidance, adding a layer of expertise to the operator’s own capabilities. This could include onsite well control engineers while drilling a critical hole section. 
• Pay-on Behalf: Policies like Amwins Upstream Alliance Powered by CuddAssured™ can offer pay on behalf for a covered well control event. By paying the well control provider and other service companies responding to a covered well control event, underwriters can protect cash flow for operators. 
• Operating plan reviews: For critical drilling or wellsite operations, underwriters can mandate review of the operating (drilling, workover, etc.) plan to be reviewed by a well control engineer. By trying to be proactive, well control risks can be minimized. 

How OEE Insurance Contributes to Saving Lives 

OEE insurance also plays an indirect but critical role in saving lives by reinforcing well control measures that protect onsite personnel. By providing financial resources for training, equipment surveys (Fig. 3) and expert consultation, OEE insurance enables operators to adopt life-saving protocols that enhance onsite safety. 

Fig. 3. Routine wellhead and equipment surveys can identify and address potential problems.

ADVANCED WELL CONTROL TRAINING AND EMERGENCY PREPAREDNESS 

OEE insurance policies often include funding for well control training, which is essential for personnel safety. Onsite personnel must be prepared to act swiftly in the event of a kick or blowout, and specialized training programs provide workers with the skills to detect early signs of a kick, shut down operations if necessary, and activate well control equipment. 

FINANCIAL BENEFITS OF OEE INSURANCE IN WELL CONTROL PROGRAMS 

Financial stability is critical for well control, especially in high-cost environments like offshore or deepwater drilling. OEE insurance provides operators with the financial resources to implement well control measures, fund incident response efforts, and maintain continuous operation even after a severe well control incident. Key financial benefits of OEE insurance include: 

Funding for relief wells and high-cost interventions. Relief well drilling can be an option to regain control in severe blowouts, but this method is time-consuming and costly. OEE insurance can cover relief well costs, including rig rental, mobilization of well control experts, and operational expenses. In HPHT wells or deepwater settings, these costs can reach millions of dollars, making OEE coverage essential for financial stability. 

Mitigating financial losses and protecting business continuity. OEE insurance reduces the financial impact of well control incidents, ensuring that operators can recover from these costly events without jeopardizing business continuity. Additionally, insurers often provide financial incentives for implementing advanced well control measures. 

Financial impact mitigation. For high-stakes projects, especially in environmentally sensitive areas, OEE insurance allows operators to address well control incidents without affecting cash flow or financial standing. 

INTEGRATION OF INSURANCE INTO A COMPREHENSIVE WELL CONTROL PROGRAM 

To maximize the benefits of OEE insurance, it should be integrated into a comprehensive well control program. Key considerations include: 

• Risk assessment: 
  • Conduct a thorough risk assessment to identify potential well control hazards and develop appropriate mitigation strategies. 
  •  Prioritize high-risk operations and allocate resources accordingly. 
  • Regularly review and update risk assessments to account for changes in operational conditions and technological advancements. 
• Well Control Procedures: 
  • Develop and implement detailed well control procedures that are tailored to specific well types and operational conditions. 
  • Ensure that well control procedures are regularly reviewed and updated to reflect industry best practices and regulatory requirements. 
  • Conduct regular drills and exercises to test the effectiveness of well control procedures and identify areas for improvement. 
• Emergency Response Planning: 
  • Develop a comprehensive emergency response plan that outlines the steps to be taken in the event of a well control incident. 
  • Ensure that the emergency response plan is regularly reviewed and updated to reflect changes in operational conditions and regulatory requirements. 
  • Conduct regular drills to test the effectiveness of the emergency response plan and identify gaps and areas for improvement. 
• Training and Certification: 
  • Provide regular training and certification for all personnel involved in well control operations. 
  • Ensure that training programs are tailored to the specific needs of each job role and are conducted by qualified instructors. 
  • Maintain accurate records of all training and certification activities. 
• Equipment Maintenance: 
  • Implement a rigorous equipment maintenance program to ensure that all well control equipment is in good working order. 
  • Conduct regular inspections and testing of well control equipment to identify and address potential problems. 
  • Maintain accurate records of all equipment maintenance activities. 
• Insurance Coverage: 
  • Work with an experienced insurance broker to develop a comprehensive insurance program that includes OEE coverage. 
  • Ensure that the insurance policy provides adequate coverage for all potential losses, including property damage, environmental cleanup, business interruption, and liability. 
  • Regularly review and update the insurance policy to ensure that it continues to meet the needs of the organization. 
  • Review the benefits offered by the policy and utilize those benefits to ensure that all funds offered by the underwriters are fully utilized. 
  • Utilizing and fulfilling all requirements stated by the underwriters can lead to premium discounts.  

By integrating OEE insurance into a robust well control program, operators can significantly reduce the risk of well control incidents, protect their financial interests, and safeguard the environment.  

BEYOND THE FINANCIAL: THE INTANGIBLE BENEFITS OF OEE  

While the financial benefits of OEE insurance are significant, it's essential to recognize the intangible advantages: 

• Enhanced reputation: By demonstrating a commitment to safety and environmental responsibility, operators with robust insurance programs can protect their reputation and build trust with stakeholders. 
• Improved risk management: OEE insurance can incentivize operators to implement comprehensive risk management strategies, including regular safety audits, emergency response drills, and rigorous training programs. 
• Increased investor confidence: Investors often view companies with strong insurance coverage as more financially stable and less risky, leading to higher valuations and easier access to capital. 

CASE STUDY 

An operator in North America has enrolled in an OEE program that offers engineering services. As part of this program, well control equipment surveys have been conducted for the operator's various operations, including drilling, workover, and fracing. This operator has not encountered covered well control issues (blowouts, fires, etc.) since enrolling in OEE-backed engineering services. A total of 57 sites have been inspected, and these inspections have been instrumental in preventing loss of control events. The operator values the engineering services so much that they it has started paying out of pocket for additional services after exhausting its insurance-funded budget. 

THE FUTURE OF OEE INSURANCE AND WELL CONTROL 

As the oil and gas industry continues to evolve, so, too, will the role of OEE insurance in well control. Emerging trends and challenges, such as climate change, geopolitical tensions, and increasing regulatory scrutiny, will necessitate innovative approaches to risk management. OEE insurance can play a pivotal role in addressing these challenges by: 

• Supporting the energy transition: By providing coverage for various well types (CCUS, hydrogen, etc.), OEE can be part of energy transition. 
• Facilitating international operations: By offering comprehensive coverage for operations in high-risk regions (Fig. 4), OEE insurance can enable operators to expand their global footprints. 

Fig. 4. Region-specific certified well control training supports safe operations.

CONCLUSION 

OEE insurance has evolved from a financial backstop to a proactive component of well control. By incentivizing best practices, enhancing safety protocols, and providing access to expert resources, OEE insurance contributes to a safer, more resilient industry. Operators who integrate OEE into their well control programs can better manage risks, improve safety, and maintain operational continuity, ultimately advancing global industry standards. 

About the Author

BHAVESH RANKA, P.E., serves as the engineering manager for Cudd Well Control. Bhavesh has been involved with all facets of well control and well control engineering. In his 18-year well control career, he has been involved with various well control, engineering, training and special services projects. Mr. Ranka holds an MS degree in natural gas engineering from Texas A&M University, Kingsville, and a BE degree in chemical engineering from University of Mumbai. He is a registered professional engineer in the State of Texas