Top three challenges facing downhole tool owners

By Craig Johns, SVP, Gallagher Energy

Oilfield equipment is expensive, and ensuring that your tools are functioning well is vital to keeping a project on time and on budget. But sometimes equipment breakdowns are unavoidable. If you have a tool downhole that is stuck, are you prepared for what comes next? Are you doing everything possible to protect your organization from delays, insurance issues, and lengthy legal battles?

With a significant list of potential complications, directionaldrilling contractors, tool rental companies, and wireline/coiled tubing contractors, consultants and operators need to understand the challenges and risks they face daily.

1. BROKEN SIGHTLINES AND LACK OF UPFRONT COMMUNICATION LEADING TO DELAYS IN RECOVERY

Misplaced loss—owners place their trust in operators, but should they?

Tool owners/contractors often contractually put the risk of loss on operators but don’t actually check that the contract is being upheld. Often, the specifics of what the operator purchases aren’t passed along in a clear and meaningful way; instead, they are baked into the cost of the authorization for expenditure (AFE) costs. It’s vital that the equipment owner (specifically their finance and risk management teams) has a line of sight and solid understanding of what the drilling/operations team is purchasing so they aren’t leaving themselves open to risks they’re not comfortable taking – simply because they don’t realize they’re taking the risk in the first place.

Without adequate insurance, this could lead to significant issues and delays with the project, as well as legal battles between various parties working on the well.

Ownership of a reasonable attempt

In the case of a loss, most insurance policies require the policyholder to make two “reasonable attempts” at recovery. Unfortunately, policy wording rarely indicates the definition of a reasonable attempt. This puts huge pressure on the owner or operator to make a call that could be contentious, which they may not be comfortable handling if they haven’t dealt with insurance companies on the issue before.

When the owner and operator are hesitant to confirm that a reasonable attempt has been made to recover the tools, they may look to their insurance brokerage for guidance. The energy insurance broker who placed your policy has been through the process before and can help work with the operator, fishing company, and other relevant parties to determine when a reasonable attempt has been made.

2. INSURANCE COSTS ARE CREEPING (OR SKYROCKETING) UP

Generally speaking, limits are reducing, deductibles are creeping up, costs are increasing, and there’s a pinch on all aspects of coverage. As a result, it can be difficult to find and buy enough limit for large wells/bottom hole assemblies (BHAs).

Finding and purchasing adequate insurance coverage reduces the financial risk exposure to those who would bear the cost, which typically falls on the exploration and production (E&P) company unless contractually moved to the consultant or downhole tool provider.

3. HOLE INTEGRITY FOR LOSS OF A TOOL

If a tool is lost downhole, hole integrity is a significant concern. Knowing there’s adequate protection for the tool can make decision-making easier regarding next steps to ensure the well is brought back online as quickly as possible.

GALLAGHER’S UNIQUE INSURANCE SOLUTION

We know that some risk is inevitable and, with the growing challenge of finding coverage for downhole tools, Gallagher has created a solution that lets you select the coverages you want so you can have a truly custom solution that fits your needs.

Our solution allows you to pick and choose the tools/BHAs we want to insure, including vertical, build, lateral, logging, drill stem test (DST), pipe, etc., and buy insurance for one well or several. In addition, our solution offers lower deductibles than those of our competitors.

Want to learn more about our program? Find out more: www.ajg.com/ca/get-a-policy-specifically-built-for-downholetools/ v