Essential Texas Oil & Gas Insurance Solutions

Texas has long been a central component in the national fossil fuel industry. From Austin to Dallas, Texas oil and gas companies face unique exposures that necessitate specialized insurance products. In this article, we’ll take a closer look at the needs of energy clients and how insurance retailers can offer Texas oil and gas insurance that covers all the gaps.

Overview of the Texas Oil and Gas Industry

It is Texas’s unique geography that makes it such a productive state for fossil fuels. The majority of natural oil and gas is extracted from several key regions, including:

• Permian Basin: A large sedimentary basin that averages 4.2 million barrels of crude oil extracted per day.
• Eagle Ford Shale: A Late Cretaceous sedimentary rock formation where hydraulic fracturing extracts unconventional oil and gas reservoirs stored in shale deposits.
• Granite Wash: A field consisting of multiple oil and gas producing formations in the Texas Panhandle.
• Barnett Shale: One of the largest onshore natural gas fields in the U.S., extracted via hydraulic fracturing and horizontal drilling.
• Haynesville/Bossier Shale: A Jurassic Period rock formation in East Texas containing vast quantities of natural “shale gas,” extracted with hydraulic fracturing and directional drilling.

Each of these regions contributes vast amounts of resources to the Texas oil and gas industry, which can be further broken down into three different segments: upstream, midstream, and downstream.

Upstream Operations

Upstream operations refers to the exploration and production (E&P) stages of the oil and gas industry. Upstream firms are primarily concerned with performing land surveys to locate geological formations rich in hydrocarbons (e.g., oil and gas). Upstream firms are also responsible for constructing and operating the wells that extract crude oil and natural gas.

Midstream Operations

Midstream operations involve the storage, processing, and transportation of oil and natural gas. This can include constructing and operating oil pipeline systems, massive storage facilities, and distribution hubs that serve the final segment of the Texas oil and gas industry.

Downstream Operations

Firms operating in the downstream segment of the energy sector handle the facilities and processes that convert crude oil and gas into usable products, such as gasoline. These companies are also involved in the marketing and distribution of fossil fuel products, including rubber and plastics as well as energy sources.

Key Client Categories in Texas Oil and Gas

The Texas oil and gas industry is a diverse field in which multiple types of businesses and firms work and interact. Insurance retailers should be aware of the different insurance needs faced by these client categories.

Operators & Non-Operators

Clients in the oil and gas industry can be sorted into two broad categories: operators and non-operators. Operators are the businesses and contractors who work directly with oil wells and are responsible for managing daily oil and gas production. Accordingly, these clients face considerably greater risk of employee injury and/or damage to third parties.

Non-operators, meanwhile, have invested capital in the day-to-day operations of oil and gas wells, but are not directly involved in managing the equipment or production. Instead they are co-owners of the project and often consult on the exploration and production stages. Although non-operators face less physical risk, they nonetheless require insurance products that can protect their capital investments and provide coverage for contractual liability.

Service Contractors

It takes many different types of service contractors to make an oil and gas operation run, and each of these face various risks that require insurance coverage. Oil and gas service contractor clients can include contractors involved in:

• Drilling
• Pipeline construction
• Well service and maintenance
• Truck drivers

These types of clients face many of the same risks as general contractors, such as worker’s compensation and general liability.

Upstream, Midstream, & Downstream

As discussed in the previous section, the Texas oil and gas industry is divided into three segments: upstream, midstream, and downstream. Each segment handles a different stage of fossil fuel extraction, processing, and distribution.

• Upstream clients may require insurance coverage against the risk of physical damage to or loss of assets like offshore rigs
• Midstream clients handle the storage and transportation of oil and gas, and therefore may need commercial auto insurance as well as general liability and worker’s comp.
• Downstream clients may require coverage for potential property damage, builder’s risk coverage, pollution liability coverage, and coverage for the political risk faced by energy distributors.

Other Industry Players

The oil and gas industry does not end with those directly involved in capturing and processing fossil fuels. Many other players are brought into the mix, including industrial manufacturing companies, equipment rental providers, and power and utilities companies. Depending on where and how these other clients operate, their insurance needs may include commercial auto coverage, general liability, worker’s comp, and even marine products for offshore installations.

Specialized Lines of Coverage for Texas Oil and Gas

Now that we’ve covered the various players in the fossil fuel industry, let’s do a deeper dive into the types of Texas oil and gas insurance coverage that they may require. In addition to more basic products like general liability and workers’ comp, clients may need a host of industry-specific insurance offerings to fill gaps not covered by standard insurance.

General Liability

General liability insurance is required by most oil and gas industry operators. It covers a broad swath of business claims, from property damage to bodily injury. This is particularly important given the physical risks involved in exploring and extracting reservoirs of natural gas and oil.

Auto and Workers’ Compensation

Commercial auto insurance is key to the transportation-heavy oil and gas industry. Truck drivers, cargo ships, and freight trains are all involved in the movement of fossil fuel products across the country. Commercial auto insurance can provide coverage for damaged vehicles, as well as expenses related to spill cleanups.

Workers’ compensation, meanwhile, can help oil and gas industry clients cover the cost of claims by employees who were injured on the job.

Pollution Coverage

Pollution liability insurance (also known as environmental insurance) can help protect oil and gas industry operators against unexpected spills or leaks. This type of insurance can be further broken down into different categories. Contractors’ pollution liability insurance, for instance, covers unexpected environmental damage caused by service contractors. Site pollution liability insurance, meanwhile, provides coverage for site-specific pollution claims.

Specialized Coverage

Texas oil and gas insurance includes numerous industry-specific products that insurance retailers may need to provider for their clients:

• Control of Well: Insurance that covers costs incurred by oil well blowouts
• Contractors’ Equipment: Insures the cost of equipment used by service contractors
• Oil Lease Property: Covers damage to or loss of oil storage tanks
• Rig Physical Damage: Protects worksite equipment in the event of theft, breakdown, natural disaster, and terrorism/sabotage
• Cargo and Transit: Provides protection for accidental damage to third-party property during loading, unloading, and transportation of gas and oil
• Riggers Liability: Insures oil contractors for the cost of damaged equipment at the worksite

Tailoring Insurance Solutions for Retailers

Insurance retailers looking to meet the needs of Texas oil and gas clients should take steps to clearly understand the unique risks their clients face. Fully assessing these risks is key to determining the amount of coverage a client needs. This may include reviewing regional regulations and legal requirements under which the client operates.

From there, insurance retailers can begin building a comprehensive package that bundles various insurance products. These packages should include insurance solutions tailored to meet the needs of the client, in a way that leaves no gap in their coverage.

Key Considerations for Insurance Retailers in Texas

In a field as diverse and complex as Texas oil and gas production, insurance retailers may find it difficult to meet every client need and cover every industry-specific risk. Reviewing all products on offer with the client, as well as local regulations and industry-wide changes, can help ensure that every base is covered.

For insurance retailers seeking a trusted partner in providing Texas oil and gas insurance, Novatae offers comprehensive solutions customizable to your clients' unique needs. Our expertise in oil and gas insurance, coupled with a commitment to personalized service, ensures that you can confidently navigate the intricacies of the industry. Contact us today to explore how Novatae can elevate your offerings in construction risk management.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.