Incident management impacts risk management policies, which impact insurance premiums and profitability.
That being said, there are some risks you can mitigate and some you can’t. Safety issues can be addressed, human error minimized with proper training, theft reduced with security measures, and transportation incidents addressed by maintaining roads, vehicles, and driver expectations.
On the other hand, you can’t necessarily account for the impact of price changes, geopolitical conditions, nor weather.
Accidents happen, but tracking them helps oil companies make informed decisions about policy changes, training, risks, and budgeting. It’s a human resources concern and a profitability issue in addition to affecting insurance premiums. Incident management software makes it easy to track incidents… even for multi-site operations, especially for multi-site operations.
Accidents happen, but tracking them helps oil companies make informed decisions about policy changes, training, risks, and budgeting.
What the numbers say about oilfield incidents
Have you just been writing off oilfield incidents as the cost of doing business, tracking them on a yellow pad or Excel spreadsheet? That’s lazy management and poor stewardship of your resources. Consider these numbers.
Drilling site injuries
The CDC reported that between 2003 and 2013, an average of nine oil and gas workers died each month, totaling more than 1,100 deaths during those 10 years. During those same years, there was an increase in the number of drilling rigs and a doubling of oilfield workers. The fatality rate improved, but those who lost loved ones in fatality incidents would prefer the numbers be even better.
Those who suffered injuries in the field would also prefer a more pristine record. Injuries include falling from heights or being wedged between two objects as well as being involved in an explosion or motor vehicle collision. Approximately 1,400 non-fatal accidents occur each year (116 per month or between three and four every day).1
Oil spills at drilling sites
Safety may have improved, but spill rates have not. A study published by ScienceDirect indicates “Texas and Colorado spill data shows that the spill rate on the well pads has increased over the recorded time period [1999-2015 for Texas and 2009-2015 for Colorado]. The most common spill cause was equipment failure.”
With each spill comes the cost of clean-up, equipment repair, property restoration, and environmental liability (not to mention the hit your company’s reputation takes in the community and the media). Such clean-up costs often fall under an umbrella coverage policy that smaller oil companies decline for budgetary reasons.
If the primary cause for spills is equipment failure, the ability to track assets and the preventative maintenance they require could prevent the costly spills and environmental damage. That’s a win for everybody.
Oilfield thefts
Losses due to theft add insult to injury.
The Houston-based Energy Security Council estimates that this year alone, Texas companies will lose between 10 and 30 million barrels of oil to theft, a revenue loss of $450 million to nearly $1.5 billion at today’s prices.2
The Oilfield Theft Task Force estimates that Permian Basin equipment thefts total between $200,000 and $300,000 a month.3 That’s between $2.4 million and $3.6 million dollars of equipment theft each year.
That’s just Texas… and just the Permian Basin. Oil companies can’t afford to just write off oilfield thefts as a cost of doing business. Law enforcement is limited in what they can do, because the thefts are often reported days or weeks after the oil or equipment disappears.
Equipment damage
The numbers above don’t address incidents like equipment damage caused by age, design failures, human error, or natural disasters. One insurance company reports that up to 14% of claims are due to machine breakdown. Wouldn’t it be nice to reduce losses by up to 14%? It could be argued that fires, explosions, and blow outs could be minimized with proper equipment maintenance and use.
Supply Chain Disruption
Another energy industry insurance provider reports on consequences associated with the supply chain disruption incidents like those mentioned above can cause, as illustrated in this graph.
Many of these consequences are preventable. However, it requires tracking oilfield incidents in such a way that patterns surface and can be addressed with training, maintenance, or policy changes. Incident management software helps you identify such patterns quickly, saving you both time and money.
Oil companies can’t afford to just write off oilfield thefts as a cost of doing business. Law enforcement is limited in what they can do, because the thefts are often reported days or weeks after the oil or equipment disappears.
Insurance coverage is just one means of risk management
“But we track the important incidents and have insurance… what’s the big deal? Isn’t that all we really need.”
The numbers above should convince you otherwise, but if they didn’t, let’s see what an insurance company has to say about it. In an annual review of the power and renewable energy market, Willis Towers Watson lists the following insurable risk questions energy companies should consider:
- What is the loss profile of the risks: how many losses are expected each year (frequency) and how large will they be (severity)?
- Are our assets and operations exposed to catastrophic hazards and climate risk and if yes, what could be the potential financial impact?
- How much risk should we retain, how much insurance should we buy and what should this insurance cost?
- How can I reduce my risk costs through alternative policy structures and risk mitigation?
Incident management software is the first step toward answering the last question. The only way to know how to reduce risk and change policy is to thoroughly track incidents and find patterns. At its core, risk management (and incident management) is an analytics issue.
The Willis Tower Watson review goes on to say, “For large power companies, risk analytics is becoming an essential strategic resource and a corporate governance necessity. As more companies adopt this approach, so the body of risk data and quality of advice is developing and improving, to the benefit of the industry.”
You use data to discover and extract oil. You should use data to make business decisions as well.
- Consider all the possible coverages an oil company might need:
- General liability
- Property
- Equipment
- Auto
- Workers’ compensation
- Environmental
- Umbrella coverage
Insurance is helpful after an incident occurs, but wouldn’t you rather prevent the incidents from happening in the first place? It would save the company both time and money.
The only way to know how to reduce risk and change policy is to thoroughly track incidents and find patterns. At its core, risk management (and incident management) is an analytics issue.
Verity Incident Management System
Verity Incident Management System is a web-based application (software) that centralizes incident reporting and presents information in a way that enables users to make data-based decisions. Not only does it make incident management, faster, easier, and better, but you can connect it to local law enforcement so that thefts are reported instantly in the same application where you log the incident. Think of it as a tool that assists with:
- Risk management
- Safety measures
- Reducing loss
- Theft prevention
- Consistency across multiple sites
- Fewer insurance claims
- Improved equipment longevity
The question isn’t whether you can afford the software; the question is whether you can afford NOT to use it. To quote Ben Franklin, who was referring to fire safety at the time, “An ounce of prevention is worth a pound of cure.”
2http://insideenergy.org/2017/06/15/a-boom-in-oil-thefts-in-the-permian/