Energy Pipeline: Insurance costs play a role in safety, accident clean-up
Source: http://www.greeleytribune.com, June 5, 2015
By: Alison Dyer Bluemel
While penalties and regulations work to discourage safety violations in the oil and gas industry, accidents and legal fees happen, and a company’s size plays a large role in how they handle insurance to mitigate the damage.
Weld County leads Colorado in the number of active wells at 22,314 — 42 percent of the state’s total, and more than double the next leading county, Garfield — which places a lot of attention on accident regulation and clean-up for companies operating in the county.
When environmental spills happen — and they happen a lot in this fast-producing state — it draws even more attention, especially if the spill garners headlines. From 2009-13, Colorado, as an example, recorded 1,933 spills between three companies: Noble, Encana and Anadarko, according to a study by the Natural Resources Defense Council. Overall, 197 spills have occurred in Colorado in 2015, compared to 850 in 2014 and 568 in 2013, according to the Colorado Oil and Gas Conservation Commission
Aside from negative publicity from accidents, spills and other violations put companies at fiscal and legal risk that require comprehensive insurance coverage or a budget large enough to cover the incurred costs. How they handle this can split two ways: pay for insurance that covers defense costs, some site clean-up and contractor liability, or pay up to a certain amount of pocket.
For smaller companies, those that often cannot afford to pay damages out of pocket, more traditional insurance avenues offer them more protection from legal fees and operational costs following an on-site accident.
“The smaller operators may not be as fiscally fit to carry that type of insurance,” said Robin Olsen, spokeswoman for Anadarko Petroleum Corp. in Denver. “A half a million or $20,000 clean-up may be more impactful to their budget. It doesn’t work for everybody.”
In most cases, insuring their property and equipment helps reduce pollution exposure and increases employee safety, said Mike Mitchell, agency principal for Mitchell Insurance Agency in Greeley.
“Pollution exposures are one of the bigger exposures most of these companies have,” he said. “You have to be careful that you have the proper coverage.”
If a spill occurs, Mitchell said these insurance policies also must cover clean-up and legal fees.
Insurance also protects site operators from damages done by contracted workers and ancillary companies. If someone that does not directly work for the operator causes an accident, the oil and gas company, not that person’s employer, is generally held responsible, he said.
“Attorneys will always go after the one doing the work and the one who hired the work,” Mitchell said.
However, for smaller companies, a lack of business history, location, inclement weather risks and a history of accidents can hike insurance premiums, he said.
“Weld County has its own unique circumstances because of the oil field they’re in,” Mitchell said. “Also, weather plays a role in vehicle, pump and claims coverage.”
While these factors do not uniquely affect smaller companies, larger oil and gas companies or ancillary businesses — such as trucking — often choose to pay fees normally covered by insurance out of pocket up to a certain amount, Olsen said.
In Anadarko’s case, their insurance threshold kicks in when expenses exceed $1 million, said Korby Bracken, health, safety and environmental director for Anadarko.
“We do have insurance for those incidents that are outside of a current threshold (number),” Olsen said. “We cover the cost for anything below that threshold.”
The decision comes from weighing the cost of annual insurance against the amount incidents would cost annually.
“Very seldom do we ever hit an event that would cause us to need other insurance,” Bracken said.
To avoid risk associated with accidents caused by contractors, Bracken said contractors are required to provide their own coverage to ensure that the company is not unduly impacted.
“If something were to occur on our location and it’s their fault then they are covered,” he said.
Bracken noted that the fact that clean-up money comes from company funds does not motivate them any more or less to avoid incidents such as spills.
“Regardless of what the cost is our goal is zero,” he said. “We do everything we can to be productive and prevent spills. We never like to incur costs for environmental clean-ups.”
Contrary to smaller companies, larger corporations similar to Anadarko budget for possible clean-up costs and facility modification during regular fiscal year talks, Bracken said, and “incur them as normal operating business” costs.