What Is Control of Well Insurance?

Control of well insurance, also called well control insurance, covers some or all of the costs associated with a well blowout, including regaining control, cleaning up pollution, and redrilling or restoring the well to operation. A blowout is when crude oil and natural gas are accidentally and uncontrollably released from a well, as a result of a failure of pressure control systems.

Key Takeaways

  • Control of well insurance covers the costs associated with a well blowout, in which crude oil and natural gas are uncontrollably expelled from a well.
  • The uncontrolled release of substances can cause debilitating production shutdowns, severely damage the ecology, and result in human casualties.
  • Control of well insurance transfers the risk associated with a well blowout to another party in exchange for a fee.
  • Usually, these policies will cover the costs associated with regaining control, cleaning up pollution, and getting the well back to working order.

Understanding Control of Well Insurance

Wells are delicate things, so companies in the business of using them to extract resources are regularly advised to get insurance.

That’s particularly the case for oil and gas companies. Hunting down energy resources often requires operating in difficult conditions and environments, searching far under the ocean or deep underground. Oil and gas are highly combustible, too, so digging for them can trigger explosions and fires with nasty consequences—both financially and in terms of fatalities.

Blowouts can cause massive, debilitating production shutdowns, hinder or prevent future production and lead to severe ecological damage and human casualties. Control of well insurance is designed to transfer the risks associated with an uncontrolled release of substances to another party.

How Control of Well Insurance Works

In exchange for a fee or premium, these policies will usually cover and foot the bill for:

  • Regaining control: The costs associated with wrestling back control of a well after an explosion or another damage occurs can be expensive, especially considering that they are often drilled far under the ground or ocean and in remote areas.
  • Clean-up efforts: A large amount of oil or natural gas is likely to leak before the flow can be capped, and these materials, which are usually highly toxic and damaging, have to be cleaned up and kept from spreading.
  • Restoration and re-drilling expense: After control of a well has been regained, companies will likely want to bring the well back into operation. This requires restoring the existing well or redrilling the well to the same depth at which it operated previously.

5 million

The number of barrels estimated to have been spilled in the Deep Horizon debacle of 2010.

Control of Well Insurance Requirements

As its name suggests, this type of insurance relates specifically to a loss of control of wells. Claims can be made on these policies only after an unintended and uncontrollable flow of fluid emerges above the earth’s surface or in the ocean that cannot be stopped by blowout preventers—devices specifically designed to close off a well in a blowout.

Blowouts are the most dangerous and destructive potential disasters associated with oil drilling and preventative measures tasked with thwarting them are called well control.

Well control issues are often the result of human error or equipment failure. For example, an engineer may make adjustments that result in a loss of fluid or formation pressure around and inside the wellbore, with the result being damage to the well. Intense pressure may also cause steel pipes to burst. 

Special Considerations

Control of well insurance isn’t just limited to oil and gas. Wells are used to serve many other purposes as well, including to extract water, salt, and other pivotal substances.

Moreover, as is the case with most types of insurance, well control policies can contain several nuances and variations that differ depending on the provider. It is thus important that those seeking this form of protection choose a policy that meets all of their specific needs.