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Insurance Abstract
An insurance policy funds end-of-lifetime activities for a non-human
facility at an end of a lifetime of the facility with a policy benefit
whose amount is based upon growth of a premium.
Insurance Claims
What is claimed is:
1. A method, comprising: issuing an insurance policy that funds
end-of-lifetime activities for a non-human facility at an end of
a lifetime of the facility with a policy benefit, wherein an amount
of the policy benefit is based upon growth of a premium.
2. The method of claim 1, wherein said issuing comprises issuing
said insurance policy in response to receipt of full upfront payment
of the premium.
3. The method of claim 1, and further comprising: naming an entity
separate from a policy purchaser as owner of the insurance policy.
4. The method of claim 3, wherein said owner of the insurance policy
is a governmental entity.
5. The method of claim 1, and further comprising: forming a contract
in which a service company agrees to fund the end-of-lifetime activities
for the facility in exchange for being designated as primary beneficiary
of the insurance policy; and designating the service company as
primary beneficiary of the insurance policy.
6. The method of claim 1, and further comprising: designating,
as primary beneficiary of the insurance policy, a service company
that agrees to find the end-of-lifetime activities for the facility
in exchange for being designated as primary beneficiary of the life
insurance policy.
7. The method of claim 6, and further comprising: designating an
entity separate from a policy purchaser as contingent beneficiary
of the insurance policy.
8. The method of claim 1, wherein said insurance policy is non-cancelable
by an issuing insurance company and non-surrenderable by a policy
owner of said insurance policy.
9. The method of claim 1, wherein the amount of the policy benefit
is guaranteed by the insurance policy.
10. The method of claim 1, wherein: said facility includes a well
bore; and said end-of-lifetime activities include plugging the well
bore.
11. The method of claim 1, and further comprising: in response
to receipt of information regarding the facility, a risk management
application running on a computer automatically determining the
amount of the premium.
12. The method of claim 11, and further comprising: in response
to receipt of identifying information identifying the facility,
the risk management application automatically obtaining premium-determinative
data regarding the facility; and wherein said step of automatically
determining the amount of the premium comprises said risk management
application automatically determining the amount of the premium
from the premium-determinative data.
13. The method of claim 11, and further comprising: the risk management
application receiving said identifying information over a network
from a remote client device.
14. The method of claim 11, and further comprising: validating
the amount of the premium with one or more qualifying tests; and
in response to the amount of the premium automatically determined
by the risk management application failing at least one qualifying
test, manually determining the amount of the premium.
15. The method of claim 11, and further comprising: the risk management
application automatically generating an insurance policy application
specifying the amount of the premium.
16. The method of claim 15, and further comprising: the risk management
application automatically receiving a digital signature on the insurance
policy application.
17. The method of claim 1, wherein said insurance policy comprises
a life insurance policy.
18. A method, comprising: issuing a life insurance policy that
funds end-of-lifetime activities for a non-human facility at an
end of a lifetime of the facility with a policy benefit, wherein
an amount of the policy benefit is based upon growth of a premium;
designating an entity separate from a policy purchaser as owner
and contingent beneficiary of the life insurance policy; and designating,
as primary beneficiary of the life insurance policy, a service company
that agrees to find the end-of-lifetime activities for the facility
in exchange for being designated as primary beneficiary of the life
insurance policy.
19. A method, comprising: in response to receipt of information
regarding a facility, determining an amount of a premium for a issuing
a insurance policy that funds end-of-lifetime activities for a non-human
facility at an end of a lifetime of the facility with a policy benefit,
wherein an amount of the policy benefit is based upon growth of
the premium.
20. The method of claim 19, wherein said determining comprises
a risk management application running on a computer automatically
determining the amount of the premium.
21. The method of claim 19, and further comprising: the risk management
application running on a data processing system automatically obtaining
premium-determinative data; wherein said step of automatically determining
the amount of the premium comprises said risk management application
automatically determining the amount of the premium from the premium-determinative
data.
22. The method of claim 21, wherein said premium-determinative
data include a procedure for performing the end-of-lifetime activities
for the facility.
23. The method of claim 21, wherein said premium determinative
data include a materials cost to perform the end-of-lifetime activities.
24. The method of claim 19, and further comprising: the risk management
application receiving said identifying information over a network
from a remote client device.
25. The method of claim 19, and further comprising: validating
the amount of the premium with one or more qualifying tests; and
in response to the amount of the premium automatically determined
by the risk management application failing at least one qualifying
test, manually determining the amount of the premium.
26. The method of claim 25, wherein: the facility includes a well
bore; the end-of-lifetime activities include plugging the well bore;
and the one or more qualifying tests include verifying that a cost-to-plug
the well bore exceeds a time and materials cost to plug the well
bore.
27. The method of claim 19, and further comprising: the risk management
application automatically generating an insurance policy application
specifying the amount of the premium.
28. The method of claim 27, and further comprising: the risk management
application automatically receiving a digital signature on the insurance
policy application.
29. The method of claim 27, and further comprising: the risk management
application automatically generating a service contract between
a policy purchaser and a service company in which the service company
agrees to find the end-of-lifetime activities for the facility in
exchange for being designated as primary beneficiary of the life
insurance policy.
30. The method of claim 18, wherein the insurance policy comprises
a life insurance policy.
31. A program product, comprising: a data processing system usable
medium; and program code within the medium to cause a data processing
system to perform the step of: in response to receipt of information
regarding a facility, determining an amount of a premium for a issuing
a insurance policy that funds end-of-lifetime activities for a non-human
facility at an end of a lifetime of the facility with a policy benefit,
wherein an amount of the policy benefit is based upon growth of
the premium.
32. The program product of claim 31, wherein the program code further
causes the data processing system to perform the step of: automatically
obtaining premium-determinative data; wherein said step of determining
the amount of the premium comprises said risk management application
automatically determining the amount of the premium from the premium-determinative
data.
33. The program product of claim 32, wherein said premium-determinative
data include a procedure for performing the end-of-lifetime activities
for the facility.
34. The program product of claim 32, wherein said premium determinative
data include a materials cost to perform the end-of-lifetime activities.
35. The program product of claim 31, wherein said program code
further causes a data processing system to perform the step of:
receiving said identifying information over a network from a remote
client device.
36. The program product of claim 31, wherein said program code
further causes a data processing system to perform steps of: validating
the amount of the premium with one or more qualifying tests; and
in response to the amount of the premium failing at least one qualifying
test, flagging the facility for manual premium determination.
37. The program product of claim 36, wherein: the facility includes
a well bore; the end-of-lifetime activities include plugging the
well bore; and the one or more qualifying tests include verifying
that a cost-to-plug the well bore exceeds a time and materials cost
to plug the well bore.
38. The program product of claim 31, wherein said program code
further causes a data processing system to perform the step of:
automatically generating an insurance policy application specifying
the amount of the premium.
39. The program product of claim 38, wherein said program code
further causes a data processing system to perform the step of:
receiving a digital signature on the insurance policy application.
40. The program product of claim 38, wherein said program code
further causes a data processing system to perform the step of:
generating a service contract in which a service company agrees
to fund the end-of-lifetime activities for the facility in exchange
for being designated as primary beneficiary of the life insurance
policy.
41. The program product of claim 31, wherein the insurance policy
comprises a life insurance policy.
42. A risk management system, comprising: a data processing system;
a data processing system usable medium; and program code within
the medium to cause the processing data processing system to perform
the step of: in response to receipt of information regarding a facility,
determining an amount of a premium for a issuing a insurance policy
that funds end-of-lifetime activities for a non-human facility at
an end of a lifetime of the facility with a policy benefit, wherein
an amount of the policy benefit is based upon growth of the premium.
Insurance Description
PRIORITY CLAIM
[0001] The present application claims priority to U.S. Provisional
Application No.60/579,350, filed on Jun. 14, 2004, which is incorporated
herein by reference in its entirety.
BACKGROUND OF THE INVENTION
[0002] 1. Technical Field
[0003] The present invention relates in general to risk managing
future events, and in particular, to insurance-funded end-of-lifetime
activities for a facility.
[0004] 2. Description of the Related Art
[0005] In the United States, there are approximately 950,000 existing
oil and gas industry related wells currently being tracked and/or
regulated by state and federal agencies. About 30,000 new wells
are drilled each year on private, state, federal, and Indian lands
onshore and in the bay, coastal and offshore waters of the United
States.
[0006] Over time, a well's production rate declines as fluids (e.g.,
oil and gas) are removed from underground reservoirs via the commercial
production/depletion process. When the daily expenses of production
approach the daily value of the fluids produced, the continued production
of the well becomes uneconomical. Because larger and more stable
oil companies generally have higher operating costs, when it becomes
uneconomical to produce a well, that well is often sold down the
operator "food chain" to operators with lower operating
expenses. Smaller operators with lower operating costs are typically
better able to profitably produce the well into its last years of
life. The vast majority of wells are therefore sold several times
over their lives, with each successive or "legacy" owner/operator
typically having less financial resources than the previous operator.
[0007] State and/or federal governmental regulatory agencies generally
require wells that have been non-producing longer than a specified
time period be plugged by the last operator. The process of plugging
a well bore (also referred to as "plugging and abandonment"
or "P&A") with cement or other material renders the
well bore environmentally safe and incapable of acting as a conduit
for commingling of subsurface formation fluids and/or the introduction
of either subsurface or surface contaminates into fresh water underground
aquifers. Because the financial burden of plugging a non-producing
well is significant, many operators unfortunately choose to abandon
non-producing wells without the required plugging. Wells having
no clearly responsible party with the ability to perform the required
plugging are referred to as "orphaned" wells. It therefore
becomes the responsibility of the state, federal or Indian government
to pay for the plugging and abandonment of these orphaned wells.
[0008] To mitigate the cost of plugging orphaned wells, most states
have instituted a bonding program requiring well and facility operators,
as a condition of state authorization to operate, to post financial
assurance bonds naming the state as payee in case the operator fails
to plug wells as required. Although operators can elect to "bond"
wells by the foot of depth this option is chosen in relatively few
instances such as when the operator has only a few wells together
having aggregrate footage depth such that the cost per foot is less
than a blanket bond for the same number of individual wells. More
typically operators elect a blanket bonding option wherein a fixed
monetary amount covers multiple wells. In such instances the amount
of money the state is able to collect from delinquent operators'
blanket bonds typically averages far less than the actual cost incurred
to plug the wells which are covered by the blanket bonding. Since
it is less expensive than plugging their wells, unscrupulous operators
often abandon wells and forfeit their bonds. This has led to thousands
of wells being "dumped" to the states for plugging. The
result is billions of dollars of plugging liability falling to states
as thousands of wells are left unplugged, potentially contaminating
subsurface fresh water sources needed for human and agricultural
use. Additionally, entire parcels of surface land have been devalued
due to the fact that the aforementioned "unscrupulous operators"
were negligent in containing surface contamination of multiple well
sites during operations prior to their "dumping" of said
wells. This is a common and growing environmental problem facing
governnents and private land owners throughout North America.
[0009] Operators of oil and gas industry wells and the owners (private
and public) of the land and royalty rights where wells and/or support
facilities are located (including bay, coastal and offshore) are
at significant economic risk from unplugged wells and improperly
decommissioned/abandoned support facilities (e.g., offshore drilling
and production platforms). Some operators feel at risk from a legacy
operator failing to properly plug a well because there is a growing
concern that state governments may begin to seek damages from "deep
pocket" previous operators to help defray the state's rapidly
growing plugging expenses. Land and royalty owners are at risk from
surface and subsurface commingling of fluids despoiling the land
for agriculture and other purposes and/or damaging underground reservoirs
above the well production zone, rendering them significantly polluted
and/or unusable. In addition, governmental entities are at financial
risk as the financial burden of plugging orphaned wells continues
to grow.
SUMMARY OF THE INVENTION
[0010] An insurance policy finds end-of-lifetime activities for
a non-human facility at an end of a lifetime of the facility with
a policy benefit whose amount is based upon growth of a premium.
[0011] All objects, features, and advantages of the present invention
will become apparent in the following detailed written description.
BRIEF DESCRIPTION OF THE DRAWINGS
[0012] The novel features believed characteristic of the invention
are set forth in the appended claims. However, the invention, as
well as a preferred mode of use, will best be understood by reference
to the following detailed description of an illustrative embodiment
when read in conjunction with the accompanying drawings, wherein:
[0013] FIG. 1 is a conceptual diagram depicting the entities involved
in risk managing end-of-lifetime activities for a facility;
[0014] FIG. 2 is a conceptual diagram depicting the entities involved
in risk managing end-of-lifetime activities for a well bore;
[0015] FIG. 3 is a block diagram of a network environment that
may be employed to facilitate risk management of facilities in one
embodiment of the present invention; and
[0016] FIGS. 4A-4B together form a high level logical flowchart
of an exemplary method of risk managing end-of-lifetime activities
for a facility, such as a well bore, in accordance with one embodiment
of the present invention.
DETAILED DESCRIPTION OF ILLUSTRATIVE EMBODIMENT
[0017] The present invention recognizes that many facilities, for
example, well bores and associated support facilities, have limited
useful lifetimes, which terminate in some known, relatively predictable,
definable and quantifiable mandatory economic activity. For example,
like a human being, an oil or natural gas well bore is "born"
(drilled), lives a limited useful "life" (the period of
production), and is generally required by statute to be "buried"
(plugged) after it "dies" (ceases production for a specified
period of time). Other facilities similarly having limited useful
lifetimes that terminate in a relatively predictable, definable
and quantifiable mandatory economic activity include, without limitation,
CO.sub.2, steam, geothermal, water, injection, monitoring, disposal,
and exploratory well bores (whether on land or in bay or offshore
waters); production, drilling, and service platforms associated
with offshore oil and gas production; mining and processing facilities,
including open pit and subsurface mines, waste and settling ponds,
and other forms of ore enriching operations; hydrocarbon and chemical
processing plants; wind driven energy producing facilities; above-ground
and underground hydrocarbon storage systems; nuclear power plants
and spent fuel processing or reprocessing facilities; municipal
waste and other disposal sites; waste water treatment facilities;
and any variety of special purpose tanks, buildings, rooms and enclosures
(such as those used for biological agents manufacture, nuclear research
laboratories and hazardous substances storage) that must eventually
be dismantled, removed, disposed of or decommissioned. To some degree,
all such facilities have the attendant risk that the owner and/or
operator of the facility at the end of the limited useful lifetime
of the facility will be unable or unwilling to perform end-of-lifetime
activities that are statutorily, environmentally or otherwise desired
or required.
[0018] In view of this recognition, the present invention further
appreciates that a large market exists for a risk management process
and insurance product that will mitigate or reduce the above mentioned
risks and liabilities associated with the end of the useful life
of a facility. The present invention therefore provides, in one
embodiment, insurance-backed pre-funding of the known, relatively
predictable, definable and quantifiable end-of-lifetime economic
activity for a facility. In a preferred embodiment, the insurance
vehicle employed to prefund the end end-of-lifetime economic activity
is legally classified as a life insurance policy (i.e., a funding
agreement) rather than a property and casualty (P&C) insurance
policy. As will be appreciated, the use of life insurance instruments
to prefund costs has previously been restricted (generally by statute)
to insuring activities for which the triggering event is the end
of a human life (e.g., pre-need human burial insurance.)
[0019] With reference to the figures and in particular with reference
to FIG. 1, there is illustrated a conceptual diagram depicting the
governmental and business entities involved in risk managing end-of-lifetime
activities for a facility in one embodiment of the present invention.
In the depicted embodiment, a facility operator 100, which may also
be the facility owner, purchases an insurance policy from insurance
company 102 (the policy insurer) that prefunds end-of-lifetime activities
for a non-human facility having a limited useful lifetime (of known
or unknown duration). Purchase of the insurance policy may or may
not be statutorily required by a governmental regulating entity
106 having statutory or regulatory authority over the facility in
order for facility operator 100 to legally operate the facility.
[0020] The insurance policy preferably has a number of features.
First, as noted above, the insurance policy is preferably a non-cancelable,
non-surrenderable, long duration (i.e., multi-year) contract form
of life insurance (rather than a property and casualty) instrument
formally classified as a "funding agreement" typically
used to pay for certain mandated activities at the end of a facility's
lifetime. That is, as a life insurance instrument, the insurance
policy is intended to provide funding in response to an occurrence
of a triggering event (i.e., end of the useful lifetime of the facility)
that is actuarially certain. In contrast, property and casualty
policies are typically annually renewable contracts that can be
cancelled by the insurance company when it feels the risk levels
exceed its level of comfort and are intended to transfer the risk
of the occurrence of an event or events that may or may not occur
(e.g., fire, flood, or hail damage) and when/if they do occur the
frequency of such occurrences and the magnitude of the associated
costs per incident are relatively unpredictable.
[0021] Second, the insurance policy is prepaid by the facility
operator 100 in advance of need ("pre-need"). Insurance
company 102 may require facility operator 100 to purchase the insurance
policy with a single upfront pre-payment or, alternatively, can
utilize well known securitization methods to enable facility operator
100 to make multiple premium payments in lieu of a single upfront
pre-payment.
[0022] Third, the insurance policy is preferably non-cancelable
by the insurance company, non-surrenderable by the purchaser, transferable
with the facility, and facility-specific. Thus, once the insurance
policy is bound to a facility, the insurance policy cannot be revoked
and remains bound to the facility for the duration of the facility's
lifetime, despite changes in ownership or operatorship of the facility.
[0023] Fourth, facility operator 100, although the policy purchaser,
is not the beneficiary of the insurance policy. Instead, the policy
beneficiary is preferably a service company 104 that contracts with
facility operator 100 to pay for the actual (future) cost of the
end-of-lifetime activities for the facility in exchange for being
named the primary beneficiary under the insurance policy. Service
company 104, in exchange for being named primary beneficiary, takes
advantage of the law of large numbers in that they assume economic
risk by speculating that by properly and adequately specifying an
acceptable benefit schedule at the time of policy sale the cost
of the specified end-of-lifetime activities for the facility will,
on the average, be less than the benefits to be received (i.e. some
wells will naturally cost more to plug than the policy benefits
to be received and some will cost less). Service company 104 may
itself perform the end-of-lifetime activities specified by the insurance
policy, or additionally or alternatively, serve as a "general
contractor" negotiating with one or more activity performance
companies 108 ("sub-contractors") to perform the specified
activities. It will be appreciated that although insurance company
102, service company 104 and activity performance company 108 are
separately illustrated, one or more of these business entities may
be commonly owned and operated.
[0024] Fifth, an additional entity separate from the facility operator
and the service company is preferably designated as the policy owner
and contingent beneficiary. This additional entity is preferably
perpetual in duration and not subject to state or federal taxation.
In a particularly preferred embodiment, the state (whether the U.S.
federal government, a state government, an Indian nation or a governmental
regulating agency 106), as a perpetual entity with vested interest
in each specified facility, is preferably designated as the policy
owner and contingent beneficiary of the insurance policy. As the
policy owner, this additional entity can change the designation
of the policy beneficiary from service company 104 to another governmental,
quasi-governmental, business, or non-profit entity. As contingent
beneficiary, the this additional entity will receive the policy
benefits from insurance company 102 if for any reason the primary
beneficiary (e.g., service company 104) cannot perform its contractual
duties to perform the end-of-lifetime activities for the facility.
[0025] Referring now to FIG. 2, there is depicted a conceptual
diagram depicting the governmental and business entities involved
in risk managing end-of-lifetime activities for a well bore in accordance
with the embodiment of the invention depicted in FIG. 1. As shown,
a well operator 200a makes a premium payment 201 to an insurance
company 202 to purchase a type of life insurance policy that prefunds
specified end-of-lifetime activities for the well bore, which activities
include the plugging and abandonment (P & A) of the well bore
as required by applicable statute or regulation. As described above,
the insurance policy is preferably non-cancelable, non-surrenderable
and well-specific (i.e., the policy is attached to and therefore
a permanent asset of the well bore itself), and names a field service
company 204 as the primary beneficiary and an additional entity
(such as the U.S. federal government, a state government, an Indian
nation or a governmental regulating agency 206) as the policy owner
and contingent beneficiary. In exchange for being named the primary
beneficiary of the insurance policy, field service company 204 establishes
a unilateral service contract 205 guaranteeing to pay all costs
needed to provide the future service of plugging the well bore.
A copy of this service contract is provided to the purchasing well
operator 200a and remains binding and valid for all operators of
record 200a-200n for the subject well. The purchase of the insurance
policy is preferably recognized by the relevant governmental regulating
entity 206 having statutory or regulatory authority over the well
bore as an enduring supplemental or alternative proof of financial
strength of well operators 200a-200n in addition to or in lieu of
conventional per-well or blanket bonding, lines of credit or cash.
[0026] Because the financial value of the well bore declines over
time and the financial strength of the well operators 200a-200n
tend to also decline over the life of the well, the purchase of
the insurance policy, whether for a new well or an existing well,
tends to be at the time of greatest availability of finds for the
current and future well operators 200a-200n and any working interest
partners. Well operator 200a is incentivized to purchase the insurance
policy, not only to meet the financial strength requirements imposed
by government al regulating entity 206, but also to insulate well
operator 200a from future liability for the plugging and abandonment
of the well bore (which may otherwise be present regardless of whether
well operator 200a continues to own or operate the well bore). Advantageously,
the policy premium may also be tax deductible as an intangible drilling
cost for a new well or as a lease operating expense for an active
well.
[0027] Insurance company 202, through the purchase of investment
securities 203, holds and safely grows premium payment 201 at some
guaranteed rate of return (e.g., 2%-3% per annum) stipulated by
field service company 204 in the underwriting process. In this regard,
insurance company 202 functions much like a bank that guarantees
repayment of the purchase price of a certificate of deposit (CD)
plus interest at a fixed rate of return as a guaranteed policy benefit
207. However, in the case of insurance company 202, the policy benefits
of the insurance policy are payable only to a named primary or contingent
beneficiary, preferably after the contracted activity (plugging)
has been completed in accordance with applicable regulations of
governmental regulating entity 206 then in effect. It should be
noted that the guaranteed policy benefit 207 paid by insurance company
202 is preferably determined according to a fixed schedule and thus
is not a function of well, lease, or field productivity or the actual
incurred cost to plug and abandon the specified well bore.
[0028] At the end of the useful lifetime of the well bore as determined,
for example, by the governmental regulating entity 206 and/or the
current well operator 200n (which may or may not be the same well
operator 200a that originally purchased the insurance policy), authorization
to plug the well bore is generally obtained from governmental regulating
entity 206. For example, the current well operator 200n may request
field service company 204 to begin closure services in accordance
with service contract 205. In response, field service company 204
verifies the request and, in turn, requests authorization (either
directly or through a plugging company 208) from governmental regulating
entity 206 to perform a P & A on the specified well bore. Once
regulatory agency documentation authorizing P & A is received,
field service company 204 arranges for and pays all costs associated
with plugging the specified well bore in accordance with the regulations
of governmental regulating entity 206 then in effect, as shown at
reference numeral 209. As noted above, field service company 204
may itself perform the required plugging or may alternatively subcontract
with a separate plugging company 208 to plug the specified well
bore.
[0029] After the plugging is completed field service company 204
obtains from governmental regulating entity 206 official verification
and/or certification that the completed plugging work meets required
regulatory standards (i.e., that the well bore is declared "closed"
by the state), field service company 204 presents a benefits claim
form (which may include the official verification mentioned above)
to insurance company 202, which then validates the benefits claim
and certifications received from field service company 204 to ensure
that all work to plug the well bore has been completed. After validating
the submitted claim, insurance company 202 issues the beneficiary
payment to field service company 204 in accordance with the insurance
policy provisions (i.e., the initial premium grown at the guaranteed
rate over the policy life) and closes the policy.
[0030] Although it is preferred for field service company 204 to
receive guaranteed policy benefit 207 only after plugging of the
well bore has been completed by field service company 204 and/or
plugging company 208 and certified by governmental regulating entity
206, insurance company 202 may alternatively provide guaranteed
policy benefit 207 to the state (e.g., governmental regulating entity
206) or its designee (e.g., another service company or plugging
company 208) prior to, during or after completion of plugging the
well bore. This alternative benefit arrangement may arise, for example,
because governmental regulating entity 206 exercised it prerogative
as policy owner to change the primary beneficiary of the insurance
policy to itself or another service company, because field service
company 204 ceases operations or is otherwise unable to perform
under service contract 205, or because of an alternative benefits
payment provision in the insurance policy.
[0031] With reference now to FIG. 3, there is depicted a high level
diagram of an exemplary network environment 300 in which the present
invention may be practiced. As depicted, network environment 300
includes one or more client devices 302a-302n in communication with
one or more server systems 304a-304b via a network 310, which may
comprise one or more wired or wireless, packet or circuit switched
communication networks. Network 310 may include, for example, one
or more local area networks (LANs) or wide area networks (WANs),
such as the Internet.
[0032] As shown, each client device 302, which may be, for example,
a personal computer system, laptop computer, personal digital assistant,
web-enabled mobile communication device or the like, includes a
client operating system 312 that provides a software operating environment
for client device 302 and a browser 314 that provides an interface
(e.g., a graphical user interface (GUI)) through which a user of
client device 302 may communicate with one or more of server systems
304 via network 310. For example, in some embodiments, browser 314
may comprise Internet Explorer, available from Microsoft Corporation
of Redmond, Wash. Browser 314 and client operating system 312 are
preferably stored in non-volatile storage, such as a flash memory,
hard disk drive, or optical drive, communicatively coupled to client
device 302.
[0033] Server system 304a includes or is communicatively coupled
to a non-volatile storage device 316 to execute and/or process program
code stored therein. The program code stored within non-volatile
storage device 316 includes an operating system 320 that provides
a software operating environment for server system 304a, a server
application 322 (e.g., a web server) that supports communication
with browser 314 via network 310, and a risk management application
324 that, in one embodiment of the present invention, automates
the acquisition of risk management insurance, as described further
below. As will be appreciated by those skilled in the art, risk
management application 324 includes instructions that may be executed
or processed by server system 304a, and may further include program
data.
[0034] Server system 304a is further coupled for communication
to a facility database 330 that provides information regarding and/or
related to facilities (e.g., well bores) that are or may be subject
to underwriting. Server system 304a may be coupled to facility database
330 directly, or alternatively, via another server system 304b coupled
to server system 304a by network 310 and/or a private network 332.
A server system 304b separate from server system 304a may be utilized
to host facility database 330 for a number of reasons, including
data security, load balancing, or because facility database 330
is owned and/or operated by a different business or governmental
entity than server system 304b. By way of example rather than limitation,
a business entity may, for a cost, provide information within facility
database 330 to other business entities, such as an insurance company
102 or service company 104 that causes server system 304a to process
risk management application 324. Information regarding and/or related
to the facilities that may be underwritten by an insurance company
may optionally further be obtained by a server system 304a, 304b
via network 310 from a secondary database 340 provided by a governmental
regulating entity or a private entity. The information within secondary
database 340 may duplicate or supplement some or all of the information
contained within facility database 330.
[0035] In operation, a user stationed at a client system 302 invokes
the execution of browser 314 to enable communication with server
application 322 and risk management application 324 on server system
304a via network 310. Through this communication, a user stationed
at client system 302 is able to insure a facility in an at least
partially automated fashion, and in at least some embodiments, a
fully automated fashion.
[0036] Referring now to FIGS. 4A-4B, there is depicted a high level
logical flowchart of an at least partially automated process of
risk managing and insuring a facility in accordance with one embodiment
of the present invention. As a logical flowchart, it should be understood
that at least some of the illustrated steps may be performed concurrently
or in a different order than illustrated. In order to promote understanding
of the present invention, the flowchart depicted in FIGS. 4A-4B
is specifically described with reference to insuring and risk managing
a well bore in accordance with the arrangement depicted in FIG.
2 and utilizing the network environment 300 of FIG. 3. This description
is merely exemplary of the present invention and should not be construed
in a limiting sense.
[0037] The process begins at block 400 with a server system 304a,
which is operated by or at the behest of field service company 204
and/or insurance company 202, executing or processing risk management
application 324 to provide a risk managing service, in part through
data communication with client devices 302a-302n. The process proceeds
from block 400 to block 402, which illustrates risk management application
324 determining whether it has received from a client device 302
a request for a quote for the amount of a premium payment of an
insurance policy that prefunds end-of-lifetime plugging activities
for a well bore. For example, a user of client device 302, which
may be a representative of well operator 200a or an agent of insurance
company 202 or field service company 204, may submit a request for
a quote to risk management application 324 by utilizing browser
314 to navigate to an Internet website hosted by server application
322 and then responding to the information requests contained in
one or more web pages served by server application 322.
[0038] If risk management application 324 has not received a request
for a quote, the process iterates at block 402 until a request for
a quote is received from a client device 302. In response to determining
at block 402 that a request for a quote has been received, risk
management application 324 determines at block 404 whether or not
the request for quote includes a minimum amount of identifying information
regarding the well bore. For example, the minimum identifying information
may include the well operator identifier assigned by governmental
regulating entity 206 to well operator 200a and a well identifier,
which may be presented to the user, for example, in a pick list
that is automatically populated by risk management application 324
from facility database 330 and/or secondary database 340 in response
to entry of the well operator identifier. If risk management application
324 determines at block 404 that the request for quote does not
contain sufficient identifying information for a quote to be developed,
risk management application 324 preferably prompts the user of client
device 302 for more information, as indicated by the process iterating
at block 404, until sufficient identifying information is obtained.
[0039] Once sufficient identifying information is obtained, risk
management application 324 attempts to locate descriptive information
regarding the specified well within facility database 330, as illustrated
at block 410. If descriptive information regarding the specified
well is located within facility database 330, the process proceeds
to block 430, which illustrates risk management application 324
automatically populating data fields of a well information form
with descriptive information regarding the well from facility database
330. These data fields may include, for example, the well's geographic
location and age, as well as well configuration information such
as well bore depth, bore size, casing size, and the number and location
of producing zones.
[0040] If risk management application 324 does not find descriptive
information regarding the specified well in facility database 330
at block 410, the process proceeds to block 412, which depicts risk
management application 324 determining if the reason that descriptive
information regarding the well is not contained within facility
database 330 is that the well is a new well that has yet to be drilled
or has only recently been drilled. Risk management application 324
may make this determination, for example, by reference to the specified
well identifier. In response to determining at block 412 that the
well is a new well, risk management application 324 obtains descriptive
information regarding the well from an official well information
form (e.g., The Texas Railroad Commission well Forms W-2 for oil
wells or G-1 for gas wells) or other information within secondary
database 340 (e.g., the Texas Railroad Commission database or a
privately-maintained database such as DrillingInfo, Lasser, Petroleum
Information, or Petro Data Source). Risk management application
324 uses the information to populate facility database 330 with
descriptive information regarding the well, as well as to fill the
data fields of the well information form, as depicted at block 414
and 430.
[0041] Referring again to block 412, if risk management application
324 determines that the well is not omitted from facility database
330 because of the newness of the well, risk management application,
either automatically or through the intervention of a human operator,
determines at block 416 whether or not to accept descriptive information
regarding the well from well operator 200a based upon, for example,
the well operator identifier, the number of wells for this well
operator 200a that are currently specified within insurance policies,
and/or the reasonability of the entered data in absolute terms or
with respect to comparative wells in geographic proximity or having
similar horizons. In response to a negative determination at block
416, risk management application 324 denies the request for a quote
(e.g., by causing server application 322 to transmit to client device
302 a web page denying the request for quote), and the process ends
at block 420. In response to a positive determination at block 416,
the process passes to block 430, which depicts risk management application
324 populating data fields of the well information form with well
information provided by well operator 200a. The process then passes
from block 430 to block 432.
[0042] Block 432 illustrates risk management application 324 obtaining
various premium-determinative data utilized to determine premium
payment 201. In one embodiment, risk management application 324
itself generates these premium-determinative data from the descriptive
information for the well obtained from facility database 330, secondary
database 340, and/or well operator 200a. In an alternative embodiment,
risk management application 324 obtains the premium-determinative
data from another source, such as server system 304b. In particular,
in some embodiments, a server system, such as server system 304b,
may be configured to provide the premium-determinative data to risk
management application 324 or other requestors as a fee-based service.
[0043] As indicated, the premium-deteminative data may include,
for example, the dimensions of the well bore; the well casing configuration,
the plugging procedure to be following given the well type, age,
bore depth, number and location of producing zones, etc.; estimated
time-and-materials cost of the plugging procedure; and the current
cost-to-plug. The current cost-to-plug may be determined, for example,
by reference to a historic plugging cost database (which may be
maintained as a part of facility database 330 or secondary database
340) that provides recent historical costs to plug wells (e.g.,
average price per foot of total depth) by geographic region. Alternatively,
the current cost-to-plug can be determined using the volumetric
consumption data (e.g., the volume of cement required, the number
of plugs required, the time required to place the plugs and cement,
the number of pieces of field equipment such as pole or derrick
work-over rigs, the number of workers to operate the equipment,
etc.) extended by relevant cost data (e.g., cement cost per unit
volume, worker hourly wage rates, service unit costs, and appropriate
overhead and administrative costs plus customary profit margins)
generated from the state-mandated well plugging procedure documentation.
[0044] Based upon the premium-determinative well data, risk management
application 324 then calculates the amount of premium payment 201,
as illustrated at block 434. For example, in one embodiment, risk
management application 324 may calculate the amount of premium payment
201 by separately computing cost components for each of field service
company 204 and insurance company 202. Assuming that the growth
of premium guaranteed by insurance company 202 is sufficient to
cover projected increases in plugging costs, the cost component
for field service company 204 may be computed, for example, by adding
the current cost-to-plug,a profit margin for the field service company
204, and optionally, a risk adjustment based upon the age of the
well bore and/or the estimated time-to-plugging. The risk adjustment
may account, for example, for additional plugging costs that may
be incurred as a result of well bore deterioration (e.g., casing
corrosion). As will be appreciated, if field service company 204
can contract to perform end-of-lifetime activities for a sufficiently
large number of facilities (e.g., well bores), the cost component
for field service company 204 need not be set sufficiently high
to guarantee that field service company 204 will never lose money
in funding end-of-lifetime activities for a facility. Instead, by
leveraging actuarial analysis of a sufficiently large data set,
field service company 204 may set its cost component so that it
achieves a desired (or market-supported) profit margin on the average.
The cost component for insurance company 202 may be computed by
risk management application 324 by summing a trend factor, a risk
margin, an expense margin (e.g., for administrative costs and commissions),
and a profit margin. The sum of these two cost components would
then equal the amount of premium payment 201.
[0045] It should be noted that although the determination of the
amount of premium payment 201 can be based upon additional factors,
such as a well's (or field's) net production value profile or an
estimated insurance premium payment curve, production estimates
and estimated premium payment curves are preferably not considered.
In addition, although the amount of premium payment 201 is preferably
determined on a per-well basis, assuming enough policies are underwritten
in a given geographic area, the beneficiary field service company
202 will be able to aggregate wells to be plugged in a common geographic
area over some period of time (e.g., the multi-year period following
cessation of production as specified by some governmental regulating
entities 206 in which plugging must to be performed) to negotiate
a "volume discount" in price from a plugging company 208
at the time plugging is needed. Thus, some of the risk to field
service company 204 associated with correctly projecting the growth
rate of plugging costs is mitigated by its expected negotiating
power at the time of plugging.
[0046] Next, as illustrated at block 436, risk management application
324 determines whether or not the amount of premium computed at
block 434 passes one or more qualifying tests. For example, one
qualifying test may be to ensure that the cost-to-plug the well
based upon its total depth and the historical average price per
foot of total depth in the well's geographic region is greater than
the time-and-materials cost of plugging the well. A second qualifying
test that may be applied is to ensure that the total depth of the
well bore is less than a threshold depth and that the number of
producing zones is less than a threshold number. If the amount of
premium fails any of the qualifying test(s), as represented in FIG.
4A by the process passing to block 438, risk management application
324 preferably halts automated processing of the request for quote
and flags the request for quote for manual review, for example,
by making an entry in a database within non-volatile storage 316
and/or transmitting an email identifying the request for quote to
a representative of field service company 204 and/or insurance company
202. In response to risk management application 324 flagging the
request for quote, the representative evaluates the request for
quote and either denies the request for quote or, more preferably,
manually computes a premium amount and transmits (e.g., from a client
device 302) the premium amount to risk management application 324,
which is then able to resume automated processing of the request
for quote.
[0047] Once the premium amount passes the qualifying tests at block
436 or is manually set at block 438, the process proceeds through
page connector A to blocks 440-444 of FIG. 4B. Blocks 440-444 represent
risk management application 324 automatically generating an executable
insurance policy application, a policy schedule of benefits, and
a plugging service contract 205 by populating data fields within
corresponding preexisting form documents (e.g., stored as program
data within non-volatile storage device 316) with information specific
to the well to be specified in the insurance policy. As described
above, the insurance policy is preferably non-cancelable, non-surrenderable
and well-specific (i.e., the policy is attached to and therefore
a permanent asset of the well bore itself), and names field service
company 204 as the primary beneficiary and the state (whether the
U.S. federal government, a state government or a governmental regulating
agency 206) as the policy owner and contingent beneficiary. The
policy preferably further specifies an upfront, paid up premium,
and the policy schedule of benefits preferably sets forth a fixed
schedule of benefits that is not a function of the actual future
cost incurred to plug and abandon the well and that specifies a
guaranteed policy benefit that will not be paid until the well is
officially recognized by the state (e.g., governmental regulating
entity 206) as being properly plugged. The plugging contract preferably
unilaterally obligates field service company 204 to pay all costs
associated with plugging the specified well in accordance with the
requirements of governmental regulating entity 206 in exchange for
being named primary beneficiary under the insurance policy. The
insurance policy, schedule of policy benefits, and plugging contract
each preferably employs a unified multi-state format approved or
legally sufficient for use in multiple states but may have and/or
generate formats unique to each state.
[0048] Following block 444, the process passes to blocks 446-460.
Each of the steps represented by blocks 446-460 may be performed
entirely manually by humans, or advantageously, at least partially
through electronic means. As shown at block 446, the well information
form generated at block 430, the policy application and policy benefit
schedule generated at block 440-442, and the plugging service contract
205 generated at block 444 are archived in non-volatile storage
device 316 and transmitted to well operator 200a together with a
quote form indicating the amount of premium payment 201 and information
regarding acceptable methods of payment (e.g., electronic funds
transfer (EFT) or check). This transmission can be performed, for
example, by risk management application 324 through an HTML or email
transmission to a client device 302 via network 310, or alternatively,
by conventional physical mail, courier service, or facsimile.
[0049] In response to receipt of the quote package (consisting,
for example, of a cover letter describing the contents and actions
required by the operator, a formal quotation of the premium amount
for the subject well bore, a well bore information verification
form, an insurance policy application form, and specific detailed
directions for proper premium remittance procedures) transmitted
at block 446, well operator signs the well bore information verification
form to signify accuracy of the underwriting data upon which the
premium for the specified well is based, and attendant conditions,
and also signs the insurance policy application form indicating
agreement to purchase the subject policy for the specified well
for the premium amount stipulated in the formal quotation form,
returning to a representative of the field service company the signed
forms and simultaneously remits the premium in accordance with the
directions for doing so. In response to receipt of the quote package
transmitted at block 446, well operator 200a executes and returns
to a representative of field service company 204 the well information
form in order to signify accuracy of the underwriting data upon
which the premium for the specified well is based, and attendant
conditions, and an obligation to remit premium payment 201 (block
450). Well operator 200a can execute and return the well information
form and insurance policy application, for example, by entering
a digital signature directly into an HTML page served by risk management
application 324 and server application 322 of server system 304a.
Alternatively, well operator 200a may digitally or physically sign
the well information form and insurance policy application and return
them by email to risk management application 324. Of course, well
operator 200a may alternatively physically sign the well information
form and insurance policy application and return them by physical
mail, courier or facsimile.
[0050] In addition, as shown at block 452, well operator 200a remits
premium payment 201 to insurance company 202 in accordance with
the executed insurance application. For example, well operator 200a
may remit payment by EFT payment either independently of communication
with server system 304a or through an EFT web page served by server
application 322 (which may then automatically initiate the electronic
funds transfer). Alternatively, premium payment 201 may be made
by physical check. As indicated by a negative determination at block
454, if payment is not received for a period of time or if an attempted
payment fails (e.g., incorrect EFT information is provided or a
check is returned for insufficient funds), well operator 200a is
contacted to arrange remittance of premium payment 201. For example,
risk management application 324 may cause server application 344
to serve an HTML payment error page to a client device 302 or may
transmit an email to client device 302. Alternatively or additionally,
a human representative of insurance company 202 and/or field service
company 204 may contact well operator 200a.
[0051] Once premium payment 201 is received by insurance company
202, as indicated by a positive determination at block 454, well
operator 200a and governmental regulating entity 206 are notified
that the insurance policy is in force, as depicted at block 458.
For example, risk management application 324 may cause server application
344 to serve an HTML "payment received" page to a client
device 302 and/or may transmit an email notification indicating
that the policy is in force to a client device 302 or a designated
receiving email address of governmental regulating entity 206. Alternatively
or additionally, notice may be provided by physical mail, courier
or facsimile.
[0052] After the insurance policy is in force, field service company
204 and/or insurance company 202 regularly (e.g., monthly) monitors
secondary database 340 for any changes in conditions affecting the
specified well bore that impact the underwriting assumptions (block
460). This monitoring may be performed manually by a human operator
or in automated fashion by risk managing application 324 accessing
secondary database 340 via network 310 to obtain statistics on wells,
automatically comparing the downloaded statistics to corresponding
information within archived well information forms of policy-specified
wells, and then flagging (e.g., by a database entry or email) any
significant discrepancies (e.g., well deepening, a plug back/re-complete
procedure, etc). Because such modifications to the well bore can
affect the future plugging and abandonment cost, field service company
204 may provide notice to the current well operator 300n and to
governmental regulating entity 206 that a policy addendum or additional
insurance policy is required in view of the changed characteristics
of the modified well bore. Following block 460, the process passes
through page connector B and terminates at block 420 of FIG. 4A.
[0053] As has been described, the present invention supports managing
and reducing the environmental and/or financial risks associated
with end-of-lifetime activities for a non-human facility by prefunding
those activities with a life insurance instrument. The life insurance
instrument is preferably transferable with the facility ownership/operatorship,
non-cancelable by the insurance company and non-surrenderable by
the purchaser or owner. The insurance policy preferably names as
owner and contingent beneficiary an entity separate from the policy
purchaser (e.g., a perpetual governmental entity having vested interest
in the proper performance of end-of-lifetime activities (e.g., plugging,
decommissioning, and/or environmental remediation) for the facility).
The insurance policy preferably further names as primary beneficiary
a company that agrees to fund the end-of-lifetime activities for
the facility, regardless of actual future costs, in exchange for
receipt of the policy benefits. Thus, the future cost associated
with the end-of-lifetime activities for the facility may be fixed
at a known present day amount that is prefunded by the (preferably)
upfront premium payment of the life insurance instrument.
[0054] One advantage of the innovative insurance arrangement disclosed
herein is that the inherent risk associated with the ownership/operatorship
transfer of facilities is reduced by creating an enduring asset
of known value attached to the facility that automatically survives
ownership transfer of the facility to subsequent operators and for
which operator 200a may be reimbursed for the policy premium as
part of the price paid by legacy operator 200n for ownership of
the well bore and associated assets.
[0055] Another advantage of the innovative insurance arrangement
disclosed herein is that it protects the environment by reducing
the financial incentive of the terminal operator 200n for the abandonment
of a facility without performance of needed and/or required end-of-lifetime
activities.
[0056] Yet another advantage of the innovative insurance arrangement
disclosed herein is that the financial risk to governmental entities
that they may be required to fund the end-of-activities for a facility
is reduced or eliminated completely.
[0057] Still another advantage of the innovative insurance arrangement
disclosed herein is that it is capable of providing continuing insurance
protection over extremely long time periods (e.g., over 100 years)
that are well beyond the duration of conventional insurance policies
(e.g., property and causality insurance policies) typically used
to protect non-human entities.
[0058] Yet another advantage of the innovative insurance arrangement
disclosed herein is that it provides a "fail safe" in
that, by making a perpetual, tax exempt governmental entity the
policy owner and contingent beneficiary, the policy benefits can
be used by the governmental entity to fund and/or perform the end-of-lifetime
activities for the facility should the primary beneficiary service
company be unable to fund and/or perform the end-of-lifetime activities.
[0059] Another advantage of the innovative insurance arrangement
disclosed herein is that it minimizes the corporate state and federal
income taxes paid on the growth of the premium over the life of
a specified facility to maximize the net growth of premium and/or
insurance company profits, promoting insurance company stability,
viability, and profitability over the possibly extended lifetime
of the specified facility.
[0060] Still another advantage of the innovative insurance arrangement
disclosed herein is that it allows the operator of a policy-specified
facility to remove the associated liability for the end-of-lifetime
activities from the operator's balance sheet, facilitating the acquisition
of added capital for business operations. In addition, the innovative
insurance arrangement disclosed herein facilitates the acquisition
of funding in the form of a collateralized loan to purchase and
transfer ownership of the facility using the facility as collateral
inasmuch as a facility specified by such a "burial policy"
will not unexpectedly become a liability when the end-of-lifetime
of the facility is reached. Otherwise, in the event of foreclosure
by the lending entity, the use of the facility as collateral may
well place the lender in the position of having to find end-of-lifetime
activities for the facility finding that the well bore(s) used as
collateral for the loan has transformed into a liability thus compounding
the lender's potential losses.
[0061] Yet another advantage of the present invention is that it
provides a "locked in" or "fixed" price coupled
with a "turnkey" solution to the significant and growing
problem of funding end-of-lifetime activities for facilities in
that, once a policy specifying a facility is purchased, the end-of-lifetime
activities for the facility are certain to be performed with the
operator having no obligations beyond paying the initial "locked
in" premium amount. Advantageously, the present invention leverages
a known financial instrument (i.e., a funding agreement) to fund
the end-of-lifetime activities, while establishing an entirely new
market for this form of life insurance. The present invention further
insures against some previously uninsurable risks, for example,
the liability of previous facility owner and/or operators due to
the failure to perform of legacy owners and/or operators.
[0062] As applied to the plugging and abandonment of oil and gas
industry well bores and/or the decommissioning of associated support
facilities, the innovative insurance arrangement disclosed herein
permits the premium amount to be determined irrespective of the
timing of the needed end-of-lifetime services, without requiring
a knowledge of the hydrocarbon reservoir size or contents, without
calculating the facility's productive life, and without knowledge
of the net production value profile of a policy-specified well or
any other well, and without the need to periodically adjust a premium
payment curve based on discrepancies between the predicted and actual
production profile.
[0063] In addition, the innovative insurance arrangement disclosed
herein permits the premium payment to be classified as an allocable
intangible drilling cost in the instance of a new well or an allocable
lease operating expense in the instance of an active well, thus
permitting a well operator to significantly reduce personal risk
and expenses incurred by current state bonding systems requiring
the operator to personally fund the required bonding by permitting
the costs to be allocated among the non-operated working interest
partners in a specified well.
[0064] Furthermore, numerous wells needing P & A activities
in the same general time period can advantageously be aggregated
in order to utilize volume discounts and economies of scale to reduce
the total costs associated with the plugging and abandonment of
oil and gas industry well bores and/or the decommissioning of associated
support facilities.
[0065] While the invention has been particularly shown as described
with reference to a preferred embodiment, it will be understood
by those skilled in the art that various changes in form and detail
may be made therein without departing from the spirit and scope
of the invention. For example, although aspects of the present invention
have been described with respect to a data processing system executing
program code that directs the functions of the present invention,
it should be understood that present invention may alternatively
be implemented as a program product for use with a data processing
system. Program code defining the functions of the present invention
can be delivered to a data processing system via a variety of signal-bearing
media, which include, without limitation, non-rewritable storage
media (e.g., CD-ROM), rewritable storage media (e.g., a floppy diskette
or hard disk drive), and communication media, such as digital and
analog networks. It should be understood, therefore, that such signal-bearing
media, when carrying or encoding computer readable instructions
that direct the functions of the present invention, represent alternative
embodiments of the present invention.
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