FRACKING LIABILITY: Risk Management & Financing

[Oscar]

Fracking: Considerations for risk management and financing

QUOTE: "Considering the large dollar amounts associated with claims on comparable historical pollution events, there could be several scenarios where the indemnity and defense costs for future fracking-related pollution claims amount to several multiples of the largest pollution liability limits that are currently being purchased. For a company responsible for such an event, if insurance coverage is inadequate then investors are at risk of losing up to the full amount of their investment in the company. If the full net worth of the company (in addition to insurance coverage) is insufficient to cover the costs associated with an event, those costs will be borne by those who have suffered property damage or injuries. With the common practice of using site-specific LLC/LLP corporations that are dissolved after operations are completed, and the hundreds of small companies active in shale gas production with typically minimal pollution liability coverage, this outcome is a very real possibility." [Emphasis added.]

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Fracking: Considerations for risk management and financing

http://insight.milliman.com/article.php?cntid=8107

PDF:
http://publications.milliman.com/publications/
life-published/pdfs/fracking.pdf

by Richard Soulsby, Jason Kurtz, Bhavini Kamarshi, June 21, 2012, Insight Expert Thinking from Milliman

Increased awareness, along with negative publicity of recent accidents, has raised concerns about both the risks inherent in the fracking process and the public’s increased exposure to the risks of energy extraction in general. In this article, we will address a number of risk management considerations and strategies, including the potential for strengthened insurance requirements to protect the public, particularly those who suffer injury or property damage, from ultimately bearing the cost of pollution.

… If groundwater contamination does occur, the cleanup process could take anywhere from several years to many decades. The size and complexity of underground aquifers, the difficulty of locating and localizing the contamination, the different behaviors of the contaminants, and the techniques used for the clean-up process all would impact the final cost. The recent MTBE contamination in California, while not fracking-related, offers an example of the difficulties in cleaning up ground water contamination and the potential liabilities when public water supplies are compromised. A common additive to gasoline in the 1990s, MTBE was found to have contaminated Santa Monica’s water supply in 1996, forcing the city to find other sources for half of its water. That incident led to a $120 million settlement. Another high-profile case was settled for a $422 million payment upfront, with additional funds for cleanup costs over the following 30 years. There are differences between MTBE and the chemicals found in fracking fluids, but if fracking operations were to lead to such widespread water contamination, the liabilities could reach similar levels.

… The biggest uncertainty surrounds the long-term impacts of fracking on public health (through water pollution and airborne effects) and whether it will result in a wave of latent injury allegations sometime down the road. The expected growth of fracking over the next several decades, both domestically and internationally, combined with the time that latent injuries could take to manifest and the time needed to clean up contaminated sites means these issues will be dealt with for many years to come.

… Considering the large dollar amounts associated with claims on comparable historical pollution events, there could be several scenarios where the indemnity and defense costs for future fracking-related pollution claims amount to several multiples of the largest pollution liability limits that are currently being purchased. For a company responsible for such an event, if insurance coverage is inadequate then investors are at risk of losing up to the full amount of their investment in the company. If the full net worth of the company (in addition to insurance coverage) is insufficient to cover the costs associated with an event, those costs will be borne by those who have suffered property damage or injuries. With the common practice of using site-specific LLC/LLP corporations that are dissolved after operations are completed, and the hundreds of small companies active in shale gas production with typically minimal pollution liability coverage, this outcome is a very real possibility.

… A lack of insurance availability for certain energy companies in a region may be a signal that the likelihood of major pollution losses is too high, either because best practices are not being followed or because of the complexities associated with the use of fracking in that region.

… There are many uncertainties associated with fracking—we have highlighted a number of risk management considerations and strategies that energy industry participants, regulators, insurers, and other affected parties have available. [Emphasis added]


above posted at ernstversusencana.ca

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Long-term concerns

The fracking technique, in conjunction with horizontal drilling, has allowed energy producers to access deep shale formations long known to contain large amounts of natural gas. While the economic benefits17 of increased domestic energy production are widely acknowledged, many fear that the long-term costs in terms of public health and pollution will outweigh any benefits. A review of the fracking-related events to date and associated health concerns provides insight into the types of pollution exposures that exist. [ . . . ]

FULL ARTICLE pdf:

http://publications.milliman.com/publications/
life-published/pdfs/fracking.pdf

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ERCB Investigates FIVE FIRMS OVER FRACKING

http://www.wetaskiwintimes.com/ArticleD ... ?e=3524771

http://www.esaa.org/files/EWN040612.pdf

April 6, 2012
(Source: Wetaskiwin Times) A provincial expert says his organization – the Energy Resources Conservation Board – is investigating five incidences in Alberta where fracking has caused environmental damage.

ERCB senior advisor Bob Willard made that announcement concerning the oil and gas recovery method at the Wetaskiwin Synergy Initiative’s Fracturing 101: the facts on hydraulic fracturing held March 22 in Wetaskiwin.

Stakeholders updated

"We’ve had five occurrences in which the pressure was sufficient to cause the wellhead to be damaged," said Willard to the group of more than three-dozen stakeholders.

"In one or two cases, (it caused the) fluid to actually flow on the surface, not only on lease, but off lease," said Willard. "We’re investigating those situations. We’re working with ERCB) staff, Alberta Environment and Water.

"In some of those cases, we’ve drilled new groundwater observation test wells to have hard data to understand the potential for impact from those five incidences.

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Quebec bans any fracking pending studies

http://www.calgaryherald.com/business/
Quebec+bans+fracking+pending+studies/6407785/story.html

By Rebecca Penty, Calgary Herald; Postmedia News April 5, 2012

CALGARY - The province of Quebec has moved from a de facto ban on shale gas development to a "complete and total moratorium," lamented Calgary oilpatch executive Michael Binnion on Tuesday, following news that a review on hydraulic fracturing won't include any demonstrations in the province.

A committee named by Quebec Environment Minister Pierre Arcand to determine whether shale gas can be extracted while respecting the environment released plans Tuesday for further study and recommended the minister not authorize hydraulic fracturing, or fracking, even for research purposes during an ongoing halt in development. [ . . . ]