Earthquake Preparedness in Oil & Gas Exploration

Earthquake Preparedness Alerts (EPA) in oil and gas industry covers a full range of topics of safety, health and environment in seismic industry. An EPA triggers HSE methodologies, processes, procedures and tools necessary to ensure and manage a safe working environment during the high-risk time-window.

HSE

Earthquake Preparedness Alerts affects HSE through:

  • Marine Seismic Industry
  • HSE development
  • HSE Management Systems
  • Local Legislation
  • Safety Management System
  • Offshore Operations
  • Manual Handling & Ergonomics
  • Hazard Identification & Risk Analysis
  • Risk Management and Job Safety Analysis (JSA)
  • Equipment Safety
  • Operational Systems
  • Safe Working Procedures & Permit to Work and Lock out Tag out (PTW & LOTO)
  • Personal Protective Equipment
  • Social Media & Community Relations
  • Personal Security
  • Safety Leadership
  • Auditing techniques
  • Behavioral Based Safety
  • Incident investigation & Root Cause Analysis
  • Life Protection
  • Waste Management

Business Interruption

We propose proportional and non-proportional insurance covers for owners, operators and contractors of facilities and utilities during high-risk seismic time-windows, of course, before an expected major earthquake getting happen. Business interrruption, and extending coverage of already exist policies need to be added into your organization earthquake preapredness action plan.
The greatest amount of damage to subsurface equipment occurring in shallow wells were that have the casing collapsed or tubing kinked. In some wells, it is necessary to redrill the well. In the Kern County, California, M5 earthquake damage to subsurface equipment occurred in the Tejon Ranch field, 150 wells were found to be sanded up as a result of the earthquake. In the oil industry, financial risks can be managed through each or all of the solutions that are mentioned as follow, when a short-term seismic time-windows detected:

  • Construction and Erection All Risk
  • Delay in start-up insurance
  • Liability
  • Operational All Risk, incl. Business Interruption
  • Parametric Cover solutions
  • Multi-Line of Business structures
  • Essential Oil Insurance
  • Oil Pipeline Insurance
  • Oil Pollution Insurance
  • Oil Reserve Insurance
  • Oil Refinery Insurance
  • Oil Rig Insurance
  • Oil Spill Insurance
  • Oil Casualty Insurance
  • Oil Distributors Insurance
  • Oil Disaster Insurance
  • Oil Well Drilling Insurance
  • and, Business Interruption.

While property policies are typically written to provide coverage for physical damage or loss to the policyholder’s own property, some them also cover economic losses that a policyholder suffers on account of an interruption of its business due to the property damage, for example, a well blowout or an earthquake caused by vibrations and pressures associated with fracking activities. The business interruption (BI) coverage of property policies may prove invaluable because it reimburses the policyholder for lost profits resulting from actual damage to its property. Property policies may also contain contingent business interruption (CBI) coverage, which provides insurance protection for lost profits resulting from damage to the policyholder’s supply chain, as the damage is of a type that would be covered under the policyholder’s own insurance policy.

Human-Induced Earthquakes

In recent years, the use of hydraulic fracturing technology has increased, leading to the extraction of more oil and gas from places deep under the ground where hydrocarbons were previously unrecoverable. This has led to a boom in drilling resulting in thousands of fracking wells throughout the U.S. The increase in fracking has led to significant exposures, such as groundwater contamination, explosions and earthquakes, on the part of energy companies, drillers and others involved in fracking.

As of Spring 2013, nearly 30 fracking-related lawsuits had been filed across the United States, which shows oil insurance policy should be revised. We expect more filings in the near term as fracking becomes even more prevalent. Within these 30 lawsuits, cases have been brought against:

Central and Eastern United States

A typical fracking case may allege bodily injury or property damage. “USGS’s studies suggest that the actual hydraulic fracturing process is only occasionally the direct cause of felt earthquakes.” Further, the USGS found that there has been an observed increase in seismic activity in 17 identifiable areas in eight Central states since 2000, and a substantial increase in earthquakes in those areas since 2009.

The USGS study builds on its earlier findings, which appeared to link wastewater disposal with a magnitude 5.3 earthquake in August 2011, near Trinidad, Colo. The Trinidad earthquake was reportedly the largest recorded seismic event along the Rocky Mountain Front Range since 1967 (when another magnitude 5.3 earthquake hit outside Denver, which was also believed to be attributable to wastewater disposal). The USGS’s study of the Trinidad quake concluded that, “the M5.3 earthquake likely occurred on a pre-existing, naturally stressed fault, but that the fault was triggered to slip by wastewater injection.”

For its part, the government of Oklahoma has now also acknowledged a link between earthquakes and the disposal of “billions of barrels of wastewater from oil and gas well” underground. The Oklahoma Geological Survey, as reported by The New York Times, said that it is “very likely” that wastewater wells are causing the majority of the state’s increasing earthquakes. In fact, before the 2000s when oil and gas exploration increased significantly, Oklahoma experienced an average of under two earthquakes a year exceeding the magnitude of 3.0. By contrast, in 2014 Oklahoma experienced 585 earthquakes with a magnitude of over 3.0, including some earthquakes well in excess of that magnitude that have caused significant damage.

The journal Geology also released a peer-reviewed paper concluding that injection wells used to store wastewater from fracking activities were related to certain earthquakes.

Depending on the nature of the underlying claim, insurance for oil and gas industry policies may respond to these claims to pay for both the defense costs that a policyholder incurs as well as any settlement or judgment reached in that action. In order to help you and your company navigate the challenges associated with fracking, we have highlighted a series of specific corporate insurance policies that could protect your company.

Directors and Officers

D&O policies protect a company and its senior management against claims by shareholders and certain other third parties that allege corporate negligence or some other malfeasance. Fracking activities could lead to claims alleging a failure to exercise due care to prevent underlying fracking-related liabilities. Companies may also face securities litigation and investigations arising out of their failure to disclose the hazards associated with fracking in their public filings. In each of these cases, the company and its directors and officers may look to their D&O policies for both defense and indemnity coverage. While fracking is still relatively new, it pays for companies to spend time reviewing their current policies and addressing known risks. Perkins Coie’s Insurance Recovery lawyers are well recognized for their work on behalf of their policyholder clients, and counsel them on the types of coverage available. Together with the firm’s Energy, Environment and Resources lawyers, Perkins Coie presents companies with a well-rounded approach to assess risk from all fronts. Not only do we understand the environmental concerns, we know how to prepare for them.