The Business Impact of Injuries and Incidents

Presented by: Warren Hubler, CSP Co-Chairman, O&G Extraction Council

VP for HSE & Training, H&P Int’l Drilling Co.

December 4 -5, 2012

Centers for Disease Control (CDC)

National Institute for Occupational Safety & Health

National Occupational Research Agenda (NORA)

Oil & Gas Extraction Council

December 4 -5, 2012

Presentation Outline

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

December 4 -5, 2012

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

Introduction from NIOSH Research

December 4 -5, 2012

O&G Extraction Fatality Rates by COMPANY SIZE

Company Size1 (No. of workers)

Fatality Rate per 100,000 workers

Small (<20) 60.2 Medium (20-99) 21.7 Large (100) 12.1 Total 27.0

Source: BLS CFOI (Census of Fatal Occupational Injuries). 1Company size is from the field “establishment size” in the CFOI dataset.

December 4 -5, 2012

O&G Extraction Fatality Rates by COMPANY TYPE & SIZE

0

5

10

15

20

25

30

35

40

45

RA

TE R

ATI

O

Drilling Contractors Well Servicing Operators

40x

14x

5x 9x

4x 5x 3x 2x

Benchmark

December 4 -5, 2012

CAUSES of O&G Fatalities 2003-2009 (Source: BLS CFOI Database)

0

50

100

150

200

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RA

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OF

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TS

30% = Motor vehicle / highway crash 27% = Struck by or Caught in or between

14% = Explosions and/or Fires

6% = Falls 5% = Elec

15% = Other

3% =Aircraft

December 4 -5, 2012

• 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

Case Study #1 – Large Contractor

December 4 -5, 2012

INDIRECT costs are estimated to be 5-7x GREATER than the DIRECT costs.

December 4 -5, 2012

1. Emergency medical services and transport

2. Medical or dental treatment

3. Rehabilitation and/or physical therapy

4. Insurance premiums and deductibles

5. Fees for third party insurance administration

6. Indemnity payments for lost wages (LTI)

7. Regulatory fines / penalties

Direct Costs of Injuries

December 4 -5, 2012

1. Time spent finding replacement personnel

2. Hiring and training of permanent replacements

3. Pre-hire physical exams and drug/alcohol screening

4. Loss of productivity while shorthanded

5. Time and travel to investigate and correct

6. Time and travel to explain to Operator WHY & HOW

Indirect Costs of Workplace Injuries

December 4 -5, 2012

7. Damage control efforts to resume normal operations

8. Downtime until able to resume normal operations

9. Cancellation of contract and lost revenue for

unsatisfactory safety performance ($$$,$$$)

10.Lost future revenue due to poor reputation for being

UNSAFE ($,$$$,$$$)

Indirect Costs of Workplace Injuries (continued)

December 4 -5, 2012

OSHA Recordable (MTC or RWC)

December 4 -5, 2012

DIRECT Cost $12,500 per event

INDIRECT Cost (X5) + $62,500 per event

TOTAL Cost $75,000 per event

OSHA Recordable (MTC or RWC)

December 4 -5, 2012

Lost Time / Lost Workday Case

December 4 -5, 2012

DIRECT Cost $ 200,000 per event

INDIRECT Cost (X5) + $1,000,000 per event

TOTAL Cost $1,200,000 per event

Lost Time / Lost Workday Case

December 4 -5, 2012

Revenue (Dayrate) $25,000 per day

Operating Costs - $15,000 per day

Positive Cashflow = $10,000 per day

(up market)

Positive Cashflow / Margins (in an up market)

December 4 -5, 2012

Revenue (Dayrate) $16,000 per day

Operating Costs - $15,000 per day

Positive Cashflow = $ 1,000 per day

(down market)

Positive Cashflow / Margins (in a down market)

December 4 -5, 2012

How many days must a rig work

AFTER sustaining an OSHA injury

to cover the total cost of the injury?

Question

December 4 -5, 2012

Up mkt Down mkt

MTC / RWC 7.5 days 75 days

LTI / LWC 120 days 1,200 days

Answer in Zero Margin Days with no contribution to profits

December 4 -5, 2012

Up mkt Down mkt

MTC / RWC 3 days 4.6 days

LTI / LWC 48 days 75 days

Answer in Downtime Days off the payroll at ZERO Dayrate

December 4 -5, 2012

Dropped Blocks Incident

December 4 -5, 2012

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

Cost of Parted Drill Line / Dropped Block

December 4 -5, 2012

How many rigs can you operate

at ZERO margin and still remain

a profitable business?

Bottom Line Question

December 4 -5, 2012

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)

December 4 -5, 2012

• 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

Case Study #2 – Small Contractor

December 4 -5, 2012

Case Study #2 – Small Contractor

December 4 -5, 2012

• 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.

Case Study #3 – Case Mismanagement

December 4 -5, 2012

Case Study #3 – Case Mismanagement

December 4 -5, 2012

• 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)

Case Study #3 – Skyrocketing Cost of Unreported / Mismanaged Injuries

December 4 -5, 2012

• 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”

Case Study #3 – Conclusions

December 4 -5, 2012

• 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 !!!

…

Case Study #4 – Lost Future Income

December 4 -5, 2012

• 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.

Case Study #5 – The Human Cost

December 4 -5, 2012

While an employer will likely

overcome the tragic loss of an

employee, the effects on the

immediate family lasts FOREVER.

Case Study #5 – The Human Cost

December 4 -5, 2012

Strong investment in TIME … EFFORT … $$$ …

1. Prevents harm or death to O&G Extraction workers

2. Protects families from devastation

3. Improves your company’s overall performance

4. Improves the Upstream O&G industry’s image

Safety is good busine$$ and a worthwhile investment.

Conclusions

December 4 -5, 2012

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

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0.5

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1.5

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2.5

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

CO

ST/M

AN H

OU

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Actual Cost Per Man Hour Worked U.S. Land & Offshore Operations

EMR

FY11 = .34 FY10 = .34 FY09 = .35 FY08 = .34 FY07 = .33 FY06 = .30 FY05 = .32 FY04 = .32 FY03 = .34

The Proof …

December 4 -5, 2012

Defining Moment