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The Business Impact of Injuries and Incidents

The Business Impact of Injuries and Incidents. Permian STEPS Network 12 February 2013. Presented by: Warren Hubler, CSP Co-Chairman, O&G Extraction Council VP for HSE & Training, H&P Int’l Drilling Co. Centers for Disease Control (CDC) National Institute for Occupational Safety & Health

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The Business Impact of Injuries and Incidents

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  1. The Business Impact of Injuries and Incidents Permian STEPS Network 12 February 2013 Presented by: Warren Hubler, CSP Co-Chairman, O&G Extraction Council VP for HSE & Training, H&P Int’l Drilling Co.

  2. Centers for Disease Control (CDC) National Institute for Occupational Safety & Health National Occupational Research Agenda (NORA) Oil & Gas Extraction Council Permian STEPS Meeting 12 February 2013

  3. Introduction from NIOSH Research • Very Large Drilling Contractor with large deductible • Small Drilling Contractor with small deductible • Pay LESS now or pay MORE later • Lost family income from a typical O&G fatality • The REAL cost of workplace injuries Permian STEPS Meeting 12 February 2013

  4. The O&G Extraction Industry has ONE OF THE HIGHEST fatality rates in the USA. (27 vs. 4 per 100,000 workers) • Fatality rates are related to O&G Company SIZE and TYPE. • O&G Workers employed by SMALL DRILLING CONTRACTORS are at GREATEST RISK of fatal injury. • More than 50% of O&G Extraction deaths are the result of … a. Motor vehicle / highway crashes or b. Struck by objects / caught in or between machinery Permian STEPS Meeting 12 February 2013

  5. O&G Extraction Fatality Rates by COMPANY SIZE Permian STEPS Meeting 12 February 2013

  6. O&G Extraction Fatality Rates by COMPANY TYPE & SIZE 40x 14x 9x 5x 5x 4x 3x 2x Benchmark Drilling Contractors Operators Well Servicing Permian STEPS Meeting 12 February 2013

  7. CAUSES of O&G Fatalities 2003-2009 (Source: BLS CFOI Database) 30% = Motor vehicle / highway crash 27% = Struck by or Caught in or between 15% = Other 14% = Explosions and/or Fires 6% = Falls 5% = Elec 3% =Aircraft

  8. Case Study #1 – Large Contractor • Source: Workers Comp Loss Run for 10 years (‘02–’11) • Average DIRECT cost of an OSHA Medical Treatment Case offshore (30) @ $8,500 each / onshore (218) @ $6,500 each • Average DIRECT cost of an OSHA Restricted Workday Case offshore (11) @ $21,500 each / onshore (103) @ $25,000 each • Average DIRECT cost of Lost Time / Lost Workday Case offshore (1) @ $198,000 / onshore (27) @ = $200,000 each Permian STEPS Meeting 12 February 2013

  9. INDIRECT costs are estimated to be 5-7x GREATER than the DIRECT costs. Permian STEPS Meeting 12 February 2013

  10. Direct Costs of Injuries Emergency medical services and transport Medical or dental treatment Rehabilitation and/or physical therapy Insurance premiums and deductibles Fees for third party insurance administration Indemnity payments for lost wages (LTI) Regulatory fines / penalties Permian STEPS Meeting 12 February 2013

  11. Indirect Costs of Workplace Injuries • Time spent finding replacement personnel • Hiring and training of permanent replacements • Pre-hire physical exams and drug/alcohol screening • Loss of productivity while shorthanded • Time and travel to investigate and correct • Time and travel to explain to Operator WHY & HOW Permian STEPS Meeting 12 February 2013

  12. Indirect Costs of Workplace Injuries (continued) Damage control efforts to resume normal operations Downtime until able to resume normal operations Cancellation of contract and lost revenue for unsatisfactory safety performance ($$$,$$$) Lost future revenue due to poor reputation for being UNSAFE ($,$$$,$$$) Permian STEPS Meeting 12 February 2013

  13. OSHA Recordable (MTC or RWC) Permian STEPS Meeting 12 February 2013

  14. OSHA Recordable (MTC or RWC) DIRECT Cost $12,500 per event INDIRECT Cost (X5) + $62,500 per event TOTAL Cost $75,000 per event Permian STEPS Meeting 12 February 2013

  15. Lost Time / Lost Workday Case Permian STEPS Meeting 12 February 2013

  16. Lost Time / Lost Workday Case DIRECT Cost $ 200,000 per event INDIRECT Cost (X5) + $1,000,000 per event TOTAL Cost $1,200,000 per event Permian STEPS Meeting 12 February 2013

  17. Positive Cashflow / Margins (in an up market) Revenue (Dayrate) $25,000 per day Operating Costs - $15,000 per day Positive Cashflow = $10,000 per day (up market) Permian STEPS Meeting 12 February 2013

  18. Positive Cashflow / Margins (in a down market) Revenue (Dayrate) $16,000 per day Operating Costs - $15,000 per day Positive Cashflow = $ 1,000 per day (down market) Permian STEPS Meeting 12 February 2013

  19. Question How many days must a rig work AFTER sustaining an OSHA injury to cover the total cost of the injury? Permian STEPS Meeting 12 February 2013

  20. Answer in Zero Margin Dayswith no contribution to profits Up mkt Down mkt MTC / RWC 7.5 days 75 days LTI / LWC 120 days 1,200 days Permian STEPS Meeting 12 February 2013

  21. Answer in Downtime Days off the payroll at ZERO Dayrate Up mkt Down mkt MTC / RWC 3 days 4.6 days LTI / LWC 48 days 75 days Permian STEPS Meeting 12 February 2013

  22. Dropped Blocks Incident Permian STEPS Meeting 12 February 2013

  23. Cost of Parted Drill Line / Dropped Block New Service Loop = $ 10,000 New Drill Line = $ 15,000 New Elevator Links and Elevators = $ 25,000 Rental Equipment & Trucking = $ 50,000 Crown / Traveling Eqpt Inspect & Repair = $ 50,000 Lost Revenue (8 days x $25,000 / day) = $200,000 TDS Repair (parts and labor) = $300,000 Total DIRECT Cost = $650,000 Total INDIRECT Cost (5x direct cost) = $3,250,000 TOTAL COST $3,900,000 Permian STEPS Meeting 12 February 2013

  24. Bottom Line Question How many rigs can a drilling contractor operate at ZERO margin and still remain a profitable business? Permian STEPS Meeting 12 February 2013

  25. Famous Quote for Consideration “No margin … No mission!” M.A. “Pete” Miller former H&P VP U.S. Land Operations and Present CEO, President and Chairman of the Board of National Oilwell Varco (NOV) Permian STEPS Meeting 12 February 2013

  26. Case Study #2 – Small Contractor • Source: Workers Comp Loss Run for a Lost Time Injury • Lost Time Injury (LTI) involved partial amputation of a thumb. 14-days off work, followed by 94-days of light duty. • DIRECT cost of medical treatment and lost wages = $24,000 • Estimated INDIRECT cost of the incident = 5 x $24,000 = $120,000 • TOTAL COST of the incident = $144,000 • DAYS @ ZERO PROFIT = $144,000 / $5,000/day = 28+ days Permian STEPS Meeting 12 February 2013

  27. Case Study #2 – Small Contractor Permian STEPS Meeting 12 February 2013

  28. Case Study #3 – Case Mismanagement • Source: Medical care service provider of on-site EMT safety resources to remote drilling operations • Rig Worker sustained a wicker injury through his glove. The steel cable was contaminated with grease and mud. • Injured Party ignored the injury and did not clean the wound. He delayed reporting the injury until his 3rd day off-duty. • Medical examination revealed a staph infection requiring IV antibiotics. Several days later the injury did NOT improve. • Injured party was admitted to the hospital for surgical treatment to open, drain and cleanse the wound. Permian STEPS Meeting 12 February 2013

  29. Case Study #3 – Case Mismanagement Permian STEPS Meeting 12 February 2013

  30. Case Study #3 – Skyrocketing Cost of Unreported / Mismanaged Injuries • Wound was left open for 3-days to irrigate and drain. • 18-days hospitalization followed by 6-wks of restricted duty. • Actual DIRECT Cost = $80,000 • Estimated INDIRECT Cost = $400,000 • TOTAL Cost = $480,000 • Additional INDIRECT Cost = $16 MM (Potential LOSS OF CONTRACT) Permian STEPS Meeting 12 February 2013

  31. Case Study #3 – Conclusions • Effective case management is essential to control costs • Utilization of safety/medics in remote operations … • (1) Ensures timely medical treatment • (2) Mitigates escalation of injury severity and • (3) Contains direct medical costs • “An ounce of prevention is worth a pound of cure” Permian STEPS Meeting 12 February 2013

  32. Case Study #4 – Lost Future Income • 25-year old O&G Extraction Worker was killed as a result of being ejected from a Company-provided pick-up truck that drifted off the road and rolled multiple times. NO SEATBELT ! • DIRECT Cost = $115,000 (from an actual 2011 loss run) • INDIRECT Cost to the family: LOST FUTURE INCOME • 42 working years of @ $87,000 per year (adjusted for inflation & salary increases using consumer price index) = $4,858,770 … Nearly $5-MM !!! • … Permian STEPS Meeting 12 February 2013

  33. Case Study #5 – The Human Cost • Source: Small, private, family-oriented contractor • Employers find a way to absorb the DIRECT & INDIRECT financial costs of injuries and deaths. Families do not !!! • The ULTIMATE price of a workplace injury / fatality is paid by the EMPLOYEE and his/her FAMILY. • BOTTOMLINE of a workplace fatality… A mother and father have lost their son or daughter. A spouse has lost a soul-mate, best friend and provider. A child has lost his/her parent, coach, mentor, and hero. Permian STEPS Meeting 12 February 2013

  34. Case Study #5 – The Human Cost While an employer will likely overcome the tragic loss of an employee, the effects on the immediate family lasts FOREVER. Permian STEPS Meeting 12 February 2013

  35. Conclusions Strong investment in TIME … EFFORT … $$$ … Prevents harm or death to O&G Extraction workers Protects families from devastation Improves your company’s overall performance Improves the Upstream O&G industry’s image Safety is good busine$$ and a worthwhile investment. Permian STEPS Meeting 12 February 2013

  36. The Proof … $1.50 per Manhour less X 16 MM Manhours more $24 MM Saved per year Permian STEPS Meeting 12 February 2013

  37. Defining Moment Permian STEPS Meeting 12 February 2013

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