Fall Newsletter

the Energy Oil & Gas Reform in Mexico, What’s the Potential Team and what’s the Risk? New Movement in Reform LegislationU.S. Risk Underwriters is our in-house underwriting management division, and is divided into MGA and Specialty Program As discussed in our previous edition; Mexico has taken steps to commission that will take decisions, such as complex private con-Management centers located in several strategically located offices throughout the United States. The MGA center provides deregulate Oil & Gas. On December 12, 2013, Mexico voted tracts, out of the control of Pemex. During our sit down withunderwriting services for general liability, property and related lines on behalf of several highly rated property and casualty to end seventy-five years of government controlled Oil & Gas Chairman Craddick, we asked her thoughts on the oil and gasmarkets. ownership, thereby ending, in theory, the monopoly long held reform from a regulatory authority. Chairman Craddick believes by Petroleos Mexicanos (PEMEX), the state-owned oil and gas that Texas is best positioned to benefit from Oil & Gas reform inOur Specialty Programs Underwriting Management Energy team creates a variety of niche programs on behalf of many company. Prior to December 2013, companies were required Mexico. She believes the process will unfold over the next twohighly rated markets in Oil & Gas; including oil and gas contractors, lease operators and non-operators, salt water disposal to partner with Pemex on all oil and gas projects in the country. to three years. She was happy to say that The Texas RRC is cur-facilities, drilling contractors and oil and gas consultants. The U.S. Risk Energy team also has access to alternative energy Mexican oil and gas production peaked in 2004 and has seen rently working with PEMEX to help string the process along.markets. a steady decline in production ever since. Since our latest edi- There is great potential in Mexican energy reform. Chairman tion, President Pena Nieto signed new rules allowing foreign Craddick believes that Texas is best served to benefit from re-We here at U.S. Risk believe in the value of information. We know that proper underwriting requires a broad range of companies to enter into profit- and production- sharing contracts form and she’s right. Texas is a border state with Mexico and itknowledge and experience in our industry, from the agent to the carrier. To properly manage risk, we must stay current of their own. “Pemex’s role clearly has changed, it needs to com- only makes sense. However, as stated previously, many oil andwith regulation, policy and the energy market. This is why we are starting our quarterly newsletter, to keep you informed. pete for acreage in an open environment.” Pemex general di- gas contractors and consultants work across the country. ThereMeet the team! rector & chief executive, Gabriel Hernandez-Garcia. The is benefit to the oil and gas industry, nationwide. So, with the like- secondary laws package passed, Monday, August 11 and in- lihood of U.S. Oil & Gas companies, rolling across the border,Cason Burdett Chris Bufkin clude but are not limited to the following: we will see a brand new set of exposures. Here at U.S. Risk En- ergy, we are dedicated to protecting interests both foreign andCason joined U.S. Risk in 2012. He manages the US Risk Chris is a member of the U.S. Risk Energy Department and 1) All Exploration & Extraction Contracts will be awarded abroad.Energy Division which is responsible for underwriting General has a Bachelor Degree from Gonzaga University. Chris through public bids to companies making the best offers in termsLiability, Professional Liability, Excess Liability and Inland Ma- worked for Guy Carpenter & Company LLC in Seattle for 3 of revenue and economic benefit for the countryrine in the oil & gas sector. In addition to his underwriting re- years before joining U.S. Risk in February of 2011. Chris un-sponsibilities, Cason is also an energy broker for all lines of derwrites and brokers Energy business in East Texas, 2) Pemex shall have a participation of at least 20% in all cross-coverage handling mid-sized to large accounts. Prior to U.S. Louisiana, Arkansas and Kansas. border oilfield projects, meaning they will be at least requiredRisk, Cason was with AIG for 6 years as a Business Develop- to be involved as a partner in order to have access to all infor-ment Manager and primary casualty Underwriter. Cooper Clifton mation relating to the project.Cecil Rhodes Cooper brings with him experience in energy development 3) The sale of fuel to the public will remain closed to the free par- and management, including a graduate education in energy ticipation and competition between the state’s companies andCecil is a member of the U.S. Risk Energy Department and development. Cooper has experience in energy mergers and the private sector- “a cautious move so that the Mexican Gov-has a Masters of Insurance Degree from Georgia State Uni- acquisitions and project development from the investment ernment’s control over fuel subsidies.”versity, 39 years’ experience with various national and re- banking industry as well as serving as an energy consultantgional insurance companies, 31 years specializing in Energy, for his family’s insurance agency. Cooper’s focus at U.S. Risk These are just a few of the secondary changes regarding oil andand 18 years with U.S. Risk. Cecil underwrites and brokers will be underwriting oil and gas general liability, excess and gas reform in Mexico. It is anticipated that private contracts willEnergy business in West and South Texas. inland marine lines nationwide as well as brokerage place- be awarded within the next year. I reference these changes due ments for all lines of coverage for the Energy Division. Cooper to their regulatory nature. The new laws create a national oilGrant Bryant earned his undergraduate and graduate degrees at Texas Tech University and is currently pursuing an Executive MBAGrant brings with him over 6 years of experience in the insur- at the University of Texas.ance industry, most recently as an underwriter for Chubb intheir energy division in Dallas, TX. Grant’s focus at U.S. Risk Sourceswill be underwriting oil and gas general liability, excess andinland marine lines nationwide as well as brokerage place- 1.) Texas Railroad Commission Chairman, Christi Craddickments for all lines of coverage for the Energy division.. 2.) http://www.rrc.state.tx.us/oil-gas/ 3.) http://www.rrc.state.tx.us/media/24613/adopt-amend-3-9and3-46-seismic-activity-102814-sig.pdf “Natural Gas: comEnergy Team Photo from Left to Right: Cason Burdett, ChrisBufkin, Cecil Rhodes, Cooper Clifton, Grant Bryant modity markets ‘sleeping giant’. Saefong, Myra P. March, 15, 2013. 4.) “ICF study outlines LNG exports’ benefits to US economy”. Snow, Nick. May 16, 2013. 5.) “Dead Air: End of Tax Credit Deflates Wind Power”. Neuhauser, Alan. July, 17, 2014.

Energy Trends and Regulation Natural Gas Trends Salt Water Disposal, Injection Wells and Earthquakes;•Traditional vs. Renewable Energy The Natural Gas industry has seen much expansion and con- electrical power, natural gas powered cars and LNG exporta- Proposed Amendments•Injection Wells & Earthquakes traction in recent years. It has been estimated that the U.S. has tion should be sought after. One of the ways to curb market•Mexican Oil & Gas A Discussion with Texas a massive Natural Gas reserve, enough to keep America run- volatility is to hedge our demand with renewable energy This headline may seem familiar; we covered it in the summer mission has permitted over 50,000 Class II Injection wells in Railroad Chairman ning for hundreds of years. Natural gas provides the majority of sources. We, as American’s, have sought energy independence edition of our Oil & Gas Report. Since our last newsletter, the Texas since the 1930’s”. The amendment to rules 3.9 and 3.46 United States electrical power. With the advent of clean energy for years. The increased, smart production of natural gas will RRC has adopted new amendments to Injection Wells and Salt are lengthy so we have provided a link to the Memorandum on - Christi Craddick initiatives, many natural gas fired power plants has been put in provide jobs and yield economic dividends for individuals, busi- Water Disposal Procedure. We were able to discuss this with the Texas RRC’s website. The amendments relate to the permit- place of retired coal plants. Also, with our large reserve capac- nesses, municipalities and states’ as a whole. Chairman Craddick. ting of injection wells and salt water disposal wells.The Texas Railroad Commission is the Oil & Gas regu- We spent our time with Chairman Craddick discussing ity, many companies are gearing up to export natural gas So, as the Oil & Gas industry continues to thrive, we will see a Again, this issue is a much discussed topic in the industry. It’s seen abroad. Finally, commercial application of natural gas powered steady increase of exposures. The team here at U.S. Risk Energy across major news networks, read in newspapers and magazine Admendment to rules 3.9 and 3.46latory authority in Texas. Established in 1891, the TX RRC future trends in Natural Gas Supply, the co-existing of vehicles is on the horizon. So, many ask; do we really have will remain vigilant in remaining current with all energy trends. articles and even read across picket signs at municipal court- enough? Also, what happens to the market when we increase We are here to provide all services to our agents and their in- houses. Ohio and Arkansas are considered to have the toughest Permitting of injection wells and salt water disposal wellsis one of the oldest regulatory agencies in the United Natural Gas and Renewable Energy, Salt Water Dis- natural gas consumption and export excess? Simple economics sureds. injection and disposal rules in the U.S.. When we published this dictate when supply drops; a commodity’s’ value becomes article in our last edition, the Texas RRC had taken measures to •Each applicant must provide the commission with geologicStates. “The TX RRC, through its Oil & Gas division, posal & Injection Wells, and Mexican Oil & Gas Reform. greater. Electrical power and its price per kilowatt are at the We, as Americans have sought energy unveil the facts surrounding hydraulic fracturing, salt water dis- cross sections and/or cross sections in an area where forefront of energy finance, economic and political discussion. independence for years. posal wells, injection wells and there potential to trigger seismic conditions exist that increase the risk that fluids will notregulates the exploration, production, and transporta- Our goal was to obtain opinions and ideas from a reg- Exportation of Liquid Natural Gas has many backers and many activity. The Texas RRC hired an in house seismologist to analyze be confined to an injection interval. companies stand to make a great deal of money. LNG expor- data from across the state of Texas and formulate an opiniontion of oil and natural gas in Texas. It serves to 1) prevent ulatory standpoint. We then wanted to use our knowl- tation would also provide numerous jobs across the U.S., over and potential plan for regulation of the above mentioned oil & •Disposal well and injection well applicants must access 155,000 estimated in Texas alone. Chairman Craddick believes gas activity. the USGS database and provide a 10-year, five psi frontwaste of the state’s natural resources, 2) to protect the edge and experience, from petroleum land that we have ample supply. With the advent of hydraulic frac- Since our sit down with Chairman Craddick in July, the Texas boundary of the proposed disposal well location. turing and unconventional technologies, we have yet to scratch RRC released a Memorandum on August 5, 2014. The amend-correlative rights of different interest management, energy develop- the surface of our potential. Natural Gas Liquids are the most ments were available for comments up to September 9, •Amendment to 3.46 and 3.9 to clarify that the Texas RRC economical from the well head source. Craddick believes that 2014.The RRC has adopted an amendment to 16 Tex. Admin. has the authority to suspend or terminate a permit that isowners, 3) to prevent pollution, and The team at U.S. Risk Energy, through this ment, commercial energy under- with the proper infrastructure, continued use of natural gas for Code 3.9, relating to Disposal Wells and 3.46, relating to Fluid suspected to be causing seismic activity.4) to provide safety in matters such newsletter aspires to provide our agents writing and investment banking Injection into Productive Reservoirs. Remember, Salt Water Dis-as hydrogen sulfide.” The Oil & Gas and their insureds’ with energy industry is- to write about the issues from an Oil & Gas, Wind and Solar posal Wells are where flow-back water is disposed into a non- •Amendment to 3.46 and 3.9 to state that the commissionDivision is headquartered in Austin, sues and upcoming trends and regula- energy insurance perspective. productive formation. Injection wells are where fluid is injected may require monitoring and monitoring reporting to theTexas. Being the regulatory body tion. For this edition, we are pleased to Wind and Solar energy, commercially, have seen a large push man Christi Craddick. into a productive formation to maintain pressure. “The United commission of the injection pressure and injection rate.of exploration & production for cover some new topics and update you We want to give our readers a over the past decade. Wind farms dot the horizon across Texas, The two can work well together. 99% of oil production and con- States Environmental Protection Agency estimates that there arethe largest producing state in the on content covered in our previous edi- perspective on where the energy California, Iowa, New York, Wyoming and the 144,000 Class II Injection wells in the United States. The com-U.S., many look to how the RRC tion. We were able to gather thoughts industry lies. This editorial, by no Dakotas. Funny enough, most of these are high sumption is for the transportation industry.conducts business. The RRC is from the Texas Railroad Commission means, is a representation of the production Oil & Gas States. Solar farms are Natural Gas serves roughly 50% of Ameri-also looked to for future regula- Chairman, Christi Craddick. Texas Railroad Commission’s seen where the sun is most abundant, Texas, can Electricity and is considered a “demandtion, energy trends and legisla- thoughts of what the industry California, Nevada and other areas of the power”. Wind & Solar energy are considered Southwest. a “base power” and is considered, in the fu-tion. should do. As energy underwrit- The debate truly lies in the political and finance ture of the energy industry to be a great realm and for our purpose at U.S. Risk, we will hedge against the volatility of natural gasChristi Craddick was born and raised in Midland, Texas ers, it is our job to assess an insureds’ risk. Part of assess- allow you, the reader to form your own opinion pricing. of the two sides of energy. However, renew- From an insurance perspective you have lia-and is the daughter of Senator Tom Craddick. Chair- ing risk is to know the industry and to keep our clients able energy is going to be with us for decades. bility, property and equipment exposure with Clean energy legislators’ and developers will both renewable and traditional energy. Tar-man Craddick attended law school at the University abreast of future risk and trends. We at U.S. Risk believe remain vigilant. So, does the Oil & Gas industry get classes are and not limited to Operators, believe in a co- existence? When asked about Service Contractors and Consultants. Whileof Texas at Austin and was elected to serve as a Texas in the value of information and keeping our clients in- the future of renewable energy, Chairman the type of exposure varies, the need for cov- Craddick said “yes, if the economics are there”. erage for both traditional and renewable en-Railroad Commissioner in November of 2012, she was formed. Oil & Gas production has been around since ergy is there. Those agents operating in Oil the early 1930’s and has a large, efficient in- & Gas states have opportunity to serve bothelected to Chairman of the Commission in August frastructure. Wind and Solar power are fairly sides of the isle. We at U.S. Risk have industry These amendments, in short, require an operator to access historical and current geological data during the permitting process. new to the United States and have a lot of obstacles to over- knowledge and expertise in Oil & Gas, Wind The operator must provide the Texas RRC with this information prior to well permitting. This data will be analyzed by the TX RRC’s2014. Chairman Craddick has served time in multiple come. For those calling for an end to traditional; “You don’t take and Solar Energy and Biofuel Plants and are here to service any seismologist to determine if seismic activity could be triggered by oil & gas activity. The proposed amendments were adopted at your best player out of the game because of fairness”- Chair- and all of your needs. the October 28, 2014, Railroad Commission open meeting. The new rules will be published in the Friday, November14, 2014facets of the energy business issue of the Texas Registrar. The Memorandum can be read at: http://www.rrc.state.tx.us/media/24613/adopt-amend-3-9and3-46-seismic-activity-102814-sig.pdf We know that many of our agents’ lye outside of the State of Texas. However, many operators, contractors and consultants work across the country. We at U.S. Risk Energy want to inform our agents of any and all proposed risks that may affect insureds’.