Risk Insider: Joe Boren

Calculating the Costs of Fracking

By: | January 5, 2015 • 2 min read
Joseph L. Boren is Chairman of the Environmental product line at Ironshore Holdings (U.S.) Inc., Executive Vice President of Ironshore Insurance Services, LLC, President of U.S. Field Operations and Director of Strategic Relations. He has experience in every segment of the environmental market; a regulator, practitioner, and insurer. Joe can be reached at joe.boren@ironshore.com.

In October 1973, the U.S. experienced a major energy crisis.

Initiated by an OPEC oil embargo, Americans were left scrambling to try and deal with a sudden and severe fuel shortage that seemed to go on forever.

Gas was rationed to 10 gallons per purchase, and the wait for that meager amount often stretched to hours. Stations only accepted cash. Frustration and anger provoked fights among those waiting in line.

In response, President Richard Nixon vowed that we would become energy independent as a nation; we would never again be held hostage by foreign countries for energy. Czars were named and task forces formed.

Guess what impact these efforts produced? Zero.

Sure, we built some nuclear power plants and gave out additional drilling permits. But the urgency of the issue dissipated when the gas lines eased and Americans were no longer inconvenienced.

Energy independence was dropped as a priority and the issue became a periodic campaign slogan.

Yet, even without political leadership, the American energy industry found a real path to energy independence.

Yet, even without political leadership, the American energy industry found a real path to energy independence.

The innovation is called hydraulic fracturing (fracking for short).

We had long known of extensive U.S. oil and gas reserves that, if tapped, would provide energy independence. But existing drilling technology was inadequate to remove the energy from the ground.

Fracking was the answer. In a previously unimaginable short period of time, we became the number one oil and gas producing country in the world.

Huge new reserves were tapped, long-struggling communities became boom towns, and “U.S. energy independence” transformed from fiction to inevitability.

But like most things in life, a decision to act (or not act) comes down to an assessment of risk. Who takes it? How much? Who pays if something goes wrong?

And last week, New York Gov. Andrew Cuomo announced the results of his own fracking risk assessment.

From a professional risk management perspective, the insurance industry came to a very different conclusion.

Quoting a four-year-in-the-making “independent” health and environmental study conducted by New York State, and feeling protected by his recent re-election, Gov. Cuomo banned fracking.

The reasons? Concerns about water contamination and air pollution, plus insufficient scientific evidence to affirm the safety of fracking.

From a societal perspective, the reactions were predictable.

Environmental groups and the democratic left applauded. Residents and political leaders from parts of New York State where the economy was suffering and oil and gas resources are plentiful demurred.

From a professional risk management perspective, the insurance industry came to a very different conclusion.

Based on our own analysis and real world experience, we concluded that the risks are manageable and insurable, just like the environmental risks from many other U.S. industrial companies.

While Gov. Cuomo is busy calculating the political costs, we as an industry back up our assessment by putting our capital at risk. And then we work with our energy clients to ensure that the risks associated with fracking are constantly monitored and managed.

As a New York resident and an environmental risk professional, it’s a sad day to see such disconnect between public policy and effective risk management.

Read all of Joe Boren’s Risk Insider contributions.

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Energy Risks

Getting From Here to There

Transportation safety in the oil and gas industry is being challenged by increased production.
By: and | December 3, 2014 • 4 min read
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Companies within the energy industry are facing growing risks as their trucks roll through urbanized areas and rural roads not designed for heavy-duty traffic.

With the boom in oil exploration comes the need to move high-value machinery, hazardous materials and hazardous waste, and natural resources at seemingly ever-faster paces into locations previously untouched by the industry.

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The expansion of the U.S. energy business is evident.

From February 2010 to February 2013, onshore oil production within the lower 48 states increased by 64 percent, according to the U.S. Energy Information Administration, and the number of natural gas wells found in shale plays in the United States increased to 10,173 in 2011, from 5,531 in 2009. From 2010 to 2011, shale drilling expenditures increased by 88 percent, totaling $65.5 billion, according to the American Petroleum Institute.

As a result of this expansion, organizations face greater reputational and environmental liability risks, and may also experience an increase in third-party liability claims.

Risk reduction is possible for companies that develop a robust and proactive risk management strategy that makes safety a high priority.

Fleet operators understand that their reputation is on the line with every accident, whether in the headlines or not. Organizations’ health and safety performance data can hinder a service company’s ability to win contracts. Their entire safety record is made public through the Department of Transportation’s Safety and Fitness Electronic Records (SAFER) system.

Any future business they get within the oil business is contingent on their risk management performance and regulatory compliance. This concern is shared by every link in the energy supply chain, as every ancillary operator in the business — from drilling, to well-servicing and beyond — has drivers, trucks and exposures.

A 21st century energy company understands the need to evaluate their safety risks and develop effective risk mitigation strategies.

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Contributing to the transportation risk scenario are key factors such as high levels of driver demand, a relatively inexperienced driver pool across the U.S., increased state and federal regulatory oversight, and drivers operating in unfamiliar locations.

Recognizing the broad and ever-changing nature of transportation risks is crucial, and companies working to keep these exposures in check do so through the development and implementation of a systemic approach to fleet risk management and loss control that includes the following steps:

1. Gap Analysis/Regulatory Review

The first step in a risk management program is to gain an understanding of the current state of affairs.

Part of this involves ensuring that a Motor Carrier Consensus Form is accurate. One good indicator of safety is the SMS BASIC percentile rank that can be found in the monthly CSA Data Preview.

Inspection and violation histories can also help companies identify patterns and trends, revealing which areas of their transportation program (including their own business processes) require improvement.

2. Safety Training

Training involves making drivers aware of Department of Transportation rules. Even experienced truckers, upon coming to the energy business, might need training on the challenges of driving on smaller roads through towns and the varied other operating environments they experience.

Part of any training program must also involve increasing all drivers’ awareness that their performance on the road directly affects the company.

The Consumer Energy Alliance Trucking Safety Task Force recommends making sure drivers know that no load is worth sacrificing safety standards or violating rules.

3. Driver Vetting

This can be a daunting task. The economy of the oil business dictates that operators are active as much as possible while the prices are high; for gas, despite the lower commodity prices, wells are being drilled more and more.

Drivers are wanted. Screening procedures and drug testing are more than ever a necessity to mitigate fleet risk.

4. Periodic Re-Evaluation

Repeat steps one, two and three on a regular basis. As the Consumer Energy Alliance Trucking Safety Task Force guidelines suggest, meet with community members and leaders, local law enforcement and emergency to understand their safety concerns and address them in upcoming training as needed.

Meet regularly with the drivers themselves and ensure they are aware of changes on the ground.

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The domestic energy industry is experiencing an exciting and prosperous moment, yet with growth in exploration and production comes growth in risk and its consequences — particularly those centered around transportation.

Some larger oil and gas service companies have already spent millions of dollars to understand and mitigate their fleet risk. Other companies are not quite as far along. Yet all service providers appreciate that creating a safety culture can only help them in the future.

Jeff Melo is an experienced risk management professional and part of the ESIS Health, Safety, and Environmental team. Mike Billingsley is responsible for proactive management of ESIS Health Safety, and Environmental accounts. Jeff can be reached at Jeffrey.Melo@esis.com. Mike is at Michael.Billingsley@esis.com.
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Sponsored: Liberty International Underwriters

From Coast to Coast

Planning the Left Coast Lifter's complex voyage demands a specialized team of professionals.
By: | January 7, 2015 • 5 min read

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The 3,920-ton Left Coast Lifter, originally built by Fluor Construction to help build the new Bay Bridge in San Francisco, will be integral in rebuilding the Tappan Zee Bridge by 2018.

The Lifter and the Statue of Liberty

When he got the news, Scot Burford could see it as clearly as if somebody handed him an 8 by 11 color photograph.

On January 30,  the Left Coast Lifter, a massive crane originally built by Fluor Construction to help build the new Bay Bridge in San Francisco, steamed past the Statue of Liberty. Excited observers, who saw the crane entering New York Harbor, dubbed it the “The Hudson River Hoister,” honoring its new role in rebuilding the Tappan Zee Bridge over the Hudson River.

Powered by two stout-hearted tug boats, the Lauren Foss and the Iver Foss, it took more than five weeks for the huge crane to complete the 6,000 mile ocean journey from San Francisco to New York via the Panama Canal.

Scot took a deep breath and reflected on all the work needed to plan every aspect of the crane’s complicated journey.

A risk engineer at Liberty International Underwriters (LIU), Burford worked with a specialized team of marine insurance and risk management professionals which included John Phillips, LIU’s Hull Product Line Leader, Sean Dollahon, an LIU Marine underwriter, and Rick Falcinelli, LIU’s Marine Risk Engineering Manager, to complete a detailed analysis of the crane’s proposed route. Based on a multitude of factors, the LIU team confirmed the safety of the route, produced clear guidelines for the tug captains that included weather restrictions, predetermined ports of refuge in the case of bad weather as well as specifying the ballast conditions and rigging of tow gear on the tugs.

Of equal importance, the deep expertise and extensive experience of the LIU team ensured that the most knowledgeable local surveyors and tugboat captains with the best safety records were selected for the project. After all, the most careful of plans will only be as effective as the people who execute them.

The tremendous size of the Left Coast Lifter presented some unique challenges in preparing for its voyage.

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The original intention was to dry tow the crane by loading and securing it on a semi-submersible vessel. However, the lack of an American-flagged vessel that could accommodate the Left Coast Lifter created many logistical complexities and it was decided that the crane would be towed on its own barge.

At first, the LIU team was concerned since the barge was not intended for ocean travel and therefore lacked towing skegs and other structural components typically found on oceangoing barges.

But a detailed review of the plan with the client and contractors gave the LIU team confidence. In this instance, the sheer weight and size of the crane provided sufficient stability, and with the addition of a second tug on the barge’s stern, the LIU team, with its knowledge of barges and tugs, was confident the configuration was seaworthy and the barge would travel in a straight line. The team approved the plan and the crane began its successful voyage.

As impressive as the crane and its voyage were, it was just one piece in hundreds that needed to be underwritten and put in place for the Tappan Zee Bridge project to come off.

Time-Sensitive Quote

SponsoredContent_LIUThe rebuilding of the Tappan Zee Bridge, due to be completed in 2018, is the largest bridge construction project in the modern history of New York. The bridge is 3.1 miles long and will cost more than $3 billion to construct. The twin-span, cable-stayed bridge will be anchored to four mid-river towers.

When veteran contractors American Bridge, Fluor Corp., Granite Construction Northeast and Traylor Bros. formed a joint venture and won the contract to rebuild the Tappan Zee, one of the first things the consortium needed to do was find an insurance partner with the right coverages and technical expertise.

The Marsh broker, Ali Rizvi, Senior Vice President, working with the consortium, was well known to the LIU underwriting and engineering teams. In addition, Burford and the broker had worked on many projects in the past and had a strong relationship. These existing relationships were vital in facilitating efficient communication and data gathering, particularly given the scope and complexity of a project like the Tappan Zee.

And the scope of the project was indeed immense – more than 200 vessels, coming from all over the United States, would be moving construction equipment up the Hudson River.

An integrated team of LIU underwriters and risk engineers (including Burford, Phillips, Dollahon and Falcinelli) got to work evaluating the risk and the proper controls that the project required. Given the global scope of the project, the team’s ability to tap into their tight-knit global network of fellow LIU marine underwriters and engineers with deep industry relationships and expertise was invaluable.

In addition to the large number of vessels, the underwriting process was further complicated by many aspects of the project still being finalized.

“Because the consortium had just won this account, they were still working on contracts and contractors to finalize the deal and were unsure as to where most of the equipment and materials would be coming from,” Burford said.

Despite the massive size of the project and large number of stakeholders, LIU quickly turned around a quote involving three lines of marine coverage, Marine Liability, Project Cargo and Marine Hull & Machinery.

How could LIU produce such a complicated quote in a short period of time? It comes down to integrating risk engineers into the underwriting process, possessing deep industry experience on a global scale and having strong relationships that facilitate communication and trust.

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Photo Credit: New York State Thruway Authority

When completed in 2018, the Tappan Zee will be eight lanes, with four emergency pullover lanes. Commuters sailing across it in their sedans and SUVs might appreciate the view of the Hudson, but they might never grasp the complexity of insuring three marine lines, covering the movements of hundreds of marine vessels carrying very expensive cargo.

Not to mention ferrying a 3,920-ton crane from coast to coast without a hitch.

But that’s what insurance does, in its quiet profundity.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.




LIU is part of the Global Specialty Division of Liberty Mutual Insurance.
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