Onshore Upstream Oil & Gas Production: An Overview Of Onshore Upstream Oil And Gas Insurance, Part 1

Matt Begnaud

Senior Vice President / Broker, Worldwide Facilities – Houston

Tom Davies

Deputy Head of Marine and Energy Liability, Aspen Insurance

August 17, 2018

The US oil and gas industry is growing. As recently as February 2018, Forbes called the rise in US oil production amazing and “…at levels not seen in nearly 50 years.” US crude oil production could top 11 million barrels per day by fourth quarter 2018, Forbes predicts, and it named the US “the world’s swing oil producer,” meaning the US now ranks with Saudi Arabia and other Organization of the Petroleum Exporting Companies (OPEC) countries in oil production. The cost of oil production has changed dramatically since 2008 with innovations in shale extraction and other technological advances. As oil prices began to rise in the past year, oil and gas companies invested heavily in automation and new technology. Domestic oil imports from OPEC are now at their lowest levels since the mid-1980s. The International Energy Agency predicted in March 2018 that the US will “dominate” the oil industry for the next five years.

Last year, Worldwide Facilities partnered with Aspen Insurance to bring a new level of expertise to the onshore upstream oil and gas sector. Aspen provides reinsurance and insurance coverage to clients in various domestic and global markets. The Aspen / Worldwide Facilities alliance delivers experience in this challenging segment unmatched by few in the industry. Our collective experience qualifies us to provide solutions to the exposures insureds will face during this market upswing. Our partnership enabled us to design commercial general liability and excess programs, written on Worldwide Facilities’ forms, to help meet the needs of onshore, land-based oil and gas lease operators in the US.

For those less acquainted with the oil and gas industry, this three-part article will help delineate the industry’s sectors and describe the insurance challenges faced by exploration and production companies.

With the help of a wholesaler specializing in the oil and gas sectors, the retail insurance agent can tailor coverage to fit the demands of this challenging and rapidly innovating business sector.

Even a small-to-midsize upstream oil account can generate substantial premiums for the retail agent.

In this three-part article, we focus on upstream onshore oil production and how familiarity with this part of the oil-and-gas industry can help the retail insurance agent grow his or her business.

The US Oil and Gas Industry – The Basics

The chain of oil and gas is known collectively as “the oil and gas industry.” From exploring and extracting oil and natural gas to filling your car with gas, three main components comprise the oil industry: upstream, midstream and downstream.

Upstream Sector

Upstream oil operators locate, extract and produce oil and natural gas. Also known as the exploration and production (E&P) sector, E&P focuses on the search for crude oil and natural gas and the drilling and operation of wells in a continuous effort to extract crude and produce oil and natural gas. The upstream focus is wells – where to drill, how to design wells and how best to extract the oil and natural gas while operating wells in the safest, most economical manner possible. The production aspect focuses on efficiently recovering oil and gas in the field.

Midstream Sector

The midstream sector is the first step in the processing of oil and gas into marketable products. This sector also stores and transports oil and gas commodities. While pipelines may be a major transporter of commodities to other locations, oil and gas transport includes many transportation methods including barges, rail, ships and trucking. This segment has its own unique challenges, such as an aging infrastructure and regulations by the Federal Energy Regulatory Commission as well as state regulatory bodies.

Downstream Sector

The downstream sector includes the refining of crude oil and the processing and purifying of natural gas. Also included in the downstream sector are the petroleum and natural gas distributors as well as retail outlets that provide vital end-stage commodities such as propane and gas. The four key subdivisions in the downstream sector include oil refining, supply and trading of commodities, marketing the product and wholesale and retail sales. Some of the products include gasoline, jet fuel, heating oil, road asphalt, lubricants and pesticides.

To sum up the three sectors, upstream focuses on exploration, drilling and production. Midstream focuses on storing and transporting oil and gas. Downstream focuses on refinement and retail sales. In our next part, we focus on how the oil-and-gas industry used innovation to face market challenges.

Rely on Worldwide Facilities

We offer unmatched tools, resources and strategies to help insurance agents and brokers expand their corporate accounts to include the oil and gas market.

For more information, contact Matt Begnaud at (832) 319-6767 or mbegnaud@wwfi.com or Tom Davies, Deputy Head of Marine and Energy Liability at Aspen Insurance, at Tom.Davies@aspen-insurance.com.

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