Does control of well insurance cover the cost of a blowout preventer failure?

It covers the cost of regaining control after the loss of control event, including the cost of well control specialists and equipment. Damage to the blowout preventer itself is a property question, and whether it is covered depends on whether the damage resulted from the blowout or from a mechanical failure. Review the property and control of well forms together to confirm there is no gap.

Is pollution liability included in control of well coverage?

Seepage, pollution, and contamination coverage within the control of well form covers cleanup costs for contamination arising from the loss of control event. Third party liability claims from neighbors, landowners, and downstream users for pollution damage require a separate energy liability policy with a pollution liability endorsement. The two coverages address different aspects of the same event.

What is the deductible on a control of well policy?

Deductibles vary by operator size and risk profile, commonly ranging from 25,000 to 250,000 dollars per occurrence for onshore operators. Offshore operators typically carry higher deductibles. The deductible applies to the well control costs and may be separate from the seepage and contamination deductible. Confirm both deductibles when reviewing the policy.

Does control of well insurance cover wells drilled by a contractor?

The operator's control of well policy covers the operator's costs regardless of who is drilling. The drilling contractor carries its own insurance for its equipment and liability. Review the drilling contract to confirm the allocation of insurance obligations between the operator and the contractor, since the two programs need to work together without gaps or overlaps.

Do we need control of well coverage for producing wells, not just drilling wells?

Yes. Producing wells can experience blowouts from workover operations, tubing failures, and formation pressure changes. The risk is lower than during drilling but not zero, and the cost of controlling a producing well blowout is comparable to a drilling blowout. Most operators carry control of well coverage on their entire well inventory, not just on wells currently being drilled.

Control of Well Insurance for Oil and Gas Operators: What It Covers and What It Does Not

What is control of well insurance?

Control of well insurance pays the costs incurred to regain control of a well that has experienced a blowout, cratering, or uncontrolled flow of oil, gas, or water. It covers the fees of well control specialists, the cost of equipment and materials used in the control operation, and the cost of redrilling or restoring the well after control is regained. It is a first party coverage that responds to the operator's own costs, not to third party claims. The liability exposure to neighboring landowners, downstream users, and the public requires a separate energy liability policy.

Well control specialist fees, commonly 50,000 to 500,000 dollars per day for a major blowout
Equipment, materials, and supplies used in the control operation
Redrilling costs to restore the well to its pre-loss condition
Cleanup and restoration of the wellsite after control is regained
Evacuation costs for personnel and nearby residents in some forms
Does not cover third party liability claims, which require energy liability coverage

What is seepage, pollution, and contamination coverage?

Seepage, pollution, and contamination coverage pays for the cost of cleaning up surface and subsurface contamination arising from a loss of well control. It covers the cost of containing and removing oil, gas, and produced water that has escaped the wellbore, including contamination of soil, groundwater, and surface water. This coverage is typically sublimited within the control of well form and is subject to its own deductible. The cleanup costs after a significant blowout can exceed the well control costs, particularly in environmentally sensitive areas or near populated areas.

Cleanup and remediation of soil and groundwater contamination
Containment and removal of surface spills and produced water releases
Regulatory compliance costs for environmental reporting and remediation
Third party property damage from contamination is a liability question, not a first party one
Sublimit commonly 1 million to 10 million dollars within the control of well form
Deductible often separate from the main control of well deductible

What is operators extra expense coverage?

Operators extra expense coverage pays for the additional costs incurred to restore production capacity after a well is controlled. It covers the cost of workover operations, recompletion, and other expenses necessary to return the well to production. It is the production restoration component of the control of well program, and it is often the largest single cost element after a major blowout. Set the limit to the cost of restoring the well to its pre-loss production rate, which for a high producing well can run into the tens of millions of dollars.

Workover and recompletion costs to restore production
Cost of additional drilling if the original wellbore cannot be restored
Equipment rental and mobilization costs during the restoration period
Lost production is not covered, which requires a separate business interruption or loss of production income form
Limit should reflect the cost of restoring the well, not just the original drilling cost

What does control of well insurance not cover?

Understanding the exclusions is as important as understanding the coverage. Control of well insurance does not cover third party liability claims, which require an energy liability policy. It does not cover loss of production income during the control and restoration period, which requires a separate form. It does not cover damage to the wellhead equipment caused by normal wear or mechanical failure without a blowout, which is a property question. And it does not cover intentional acts or violations of regulations, which are standard exclusions across all energy forms.

Third party bodily injury and property damage liability claims
Loss of production income during the control and restoration period
Wellhead equipment damage from mechanical failure without a blowout
Intentional acts and regulatory violations
Pollution liability for gradual releases not arising from a loss of control event
Contractual liability assumed in drilling contracts beyond what the policy would otherwise cover

How should operators set control of well limits?

Limits should be set to realistic well control cost scenarios for the wells in the program, not to a generic round number. The cost of controlling a shallow onshore well is fundamentally different from the cost of controlling a deep high pressure well or an offshore well. Consult with a well control specialist or use published cost data for comparable wells in the same formation and depth range. Then add the seepage and contamination sublimit and the operators extra expense limit separately, since each has its own cost driver.

Shallow onshore wells: commonly 1 million to 5 million dollars in well control costs
Deep high pressure onshore wells: commonly 5 million to 25 million dollars
Offshore wells: commonly 25 million to 100 million dollars or more
Set seepage and contamination sublimit to realistic cleanup cost scenarios for the operating area
Set operators extra expense to the cost of restoring the highest value well in the program
Review limits when drilling new wells or entering new formations

Ready to review your oil and gas insurance program?

Grandbay Financial Services places energy insurance programs for oil and gas operators, including control of well, energy liability, and property coverage. If you are drilling new wells or approaching renewal, let us review the structure against your current well inventory. Schedule a review at calendly.com/grandbayfinancial.

Frequently Asked Questions

This article is for general information and is not a substitute for policy language or professional advice.

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