Do oilfield service contractors need control of well insurance?

IRMI describes control of well as a specialty coverage that pays "for the expenses of bringing a blowout under control," for cleaning up resulting pollution, and for damage to the operator's property. Its entry on operators extra expense describes it as a specialized policy available to oil or gas well operators that "covers the cost of regaining control of a wild well," with pollution, stuck drill stem, evacuation, and care, custody, or control exposures available by endorsement. Relief well coverage, for the cost of drilling a new well to relieve pressure and help bring a wild well under control, is an optional add-on to OEE.

Texas law has its own definition. Chapter 127 defines a "wild well" as "a well from which the escape of oil or gas is not intended and cannot be controlled by equipment used in normal drilling practice."

The costs control of well pays are the costs of owning and operating the well: bringing it back under control, relief wells where that option is bought, pollution cleanup, and damage to the operator's own property. Those land on the operator because it is the operator's well. That is why IRMI frames OEE as a policy for well operators.

A service contractor's exposure is different. It is liability: injury to people, damage to other people's property, and pollution claims that come out of the contractor's own work. IRMI notes that coverage for liability to others' property damaged by a blowout or cratering is an optional coverage under the general liability policy, which is one reason oil and gas GL policies need a careful read.

Chapter 127 of the Texas Civil Practice and Remedies Code voids many oilfield indemnities for the other side's negligence. But Section 127.004 says the chapter does not apply to loss or expense arising from "personal injury, death, or property injury that results from the performance of services to control a wild well," or to the "cost of control of a wild well, underground or above the surface." Pollution and reservoir or underground damage are excluded from the chapter too.

So if your MSA makes you pay for well control, the statute will not cap it. The contract decides. The IADC model daywork contract shows the traditional allocation:

For most service contractors, the right program is the one that backs up the risks the MSA actually assigns to you:

• General liability with the oil and gas endorsements your work needs, including underground resources and equipment coverage if you work downhole.
• Contractors pollution liability for pollution the MSA puts on you, usually spills from your own equipment above the surface.
• Umbrella or excess limits that follow those policies.

If an MSA lists control of well insurance among contractor requirements, ask whether that requirement was meant for drilling contractors or operators, and whether it fits your scope. That is a reasonable point to raise. See whether you can negotiate operator insurance requirements.