It seems like fracking is the buzz word when it comes to energy these days, but within the sector there are a plethora of coverages and exposures people may not realize exist.
“Fracking that really is the word of the day it seems. Everyone is interested in it. There has been a huge uptick in the activity level in the on-shore US market,” said Bruce Jefferis, chief executive officer of
Aon Risk Solutions' energy practice. “It’s not just the East really, in fact frankly it is probably more so South Texas in the eagle ford shale area and also in the North Dakota Bakken region. Those areas along with the northeast where you have the Marcellus Shale, the activity levels are substantially above what it was say five years ago.”
Nevertheless, beyond fracking there exists a whole other segment in the market surrounding logistic issues.
“This includes things such as trucking, pipelines, rail so when you find oil and gas it’s great, but then you also have to move it,” explained Jefferis. “There really has been as much focus on the transportation issues and logistics as there has been on the drilling and fracking side of it.”
Jefferis also weighed-in on the seemingly endless expansion in energy markets.
“It’s not so much the question of expanding coverage in terms of changing the coverage but we have companies really expanding the scope and scale of their operations,” he said. “They’re getting bigger, moving into new areas, they’re growing, building things so there are a number of changes going on in that sense. There has been quite a lot of entrepreneurial activity, mergers & acquisitions and private equity so there has been a focus on the transactional side of that.”
In fact there are quite a few differences even within the various sectors of energy businesses depending on their specialty.
“For example if you’re an exploration and production company, what we call upstream, you’re looking for oil and gas underground, you’re designing wells, you’re contracting to drill,” stated Jefferis.”Their risks are oriented around the well itself and very special coverages, also called operators extra expense. It’s designed around blow-out, redrilling and pollution from a well.”
He continued, “At the other end of the spectrum you have giant refining and petrochemical companies that have plants worth $5 or $6 billion and very large business interruption exposures. Their risks have nothing to do with wells but are all around huge property placement, business interruption a loss control safety issues, things like that.”
“The other aspect of the business though is earlier you were talking about fracking and the onshore operations, a lot of that is not so much property risk because they have a lot of property but it is very well distributed but then they have thousands, or hundreds of thousands of employees. In these cases they become much more focused on the casualty oriented workers comp and general liability issues.”
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