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
National Occupational Research Agenda (NORA)
Oil & Gas Extraction Council
Permian STEPS Meeting
12 February 2013
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
Permian STEPS Meeting
12 February 2013
Introduction from NIOSH Research
 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
O&G Extraction Fatality Rates by COMPANY SIZE
Company Size1
(No. of workers)
Small (<20)
Medium (20-99)
Large (100)
Total
Fatality Rate per
100,000 workers
60.2
21.7
12.1
27.0
Source: BLS CFOI (Census of Fatal Occupational Injuries).
1Company size is from the field “establishment size” in the CFOI dataset.
Permian STEPS Meeting
12 February 2013
45
40
O&G Extraction Fatality Rates
by COMPANY TYPE & SIZE
40x
35
RATE RATIO
30
25
20
15
14x
9x
10
4x
5x
3x
5x
2x
5
Benchmark
0
Drilling Contractors
Permian STEPS Meeting
Well Servicing
Operators
12 February 2013
CAUSES of O&G Fatalities 2003-2009
(Source: BLS CFOI Database)
250
30% = Motor vehicle / highway crash
27% = Struck by or Caught in or between
RAW # OF EVENTS
200
150
14% = Explosions and/or Fires
100
6% = Falls 5% = Elec
50
0
3% =Aircraft
15% = Other
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
INDIRECT
costs are
estimated
to be 5-7x
GREATER
than the
DIRECT
costs.
Permian STEPS Meeting
12 February 2013
Direct Costs of Injuries
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
Permian STEPS Meeting
12 February 2013
Indirect Costs of Workplace Injuries
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
Permian STEPS Meeting
12 February 2013
Indirect Costs of Workplace Injuries
(continued)
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 ($,$$$,$$$)
Permian STEPS Meeting
12 February 2013
OSHA Recordable (MTC or RWC)
Permian STEPS Meeting
12 February 2013
OSHA Recordable (MTC or RWC)
DIRECT Cost
INDIRECT Cost (X5)
TOTAL Cost
Permian STEPS Meeting
$12,500 per event
+ $62,500 per event
$75,000 per event
12 February 2013
Lost Time / Lost Workday Case
Permian STEPS Meeting
12 February 2013
Lost Time / Lost Workday Case
DIRECT Cost
INDIRECT Cost (X5)
TOTAL Cost
Permian STEPS Meeting
$ 200,000 per event
+ $1,000,000 per event
$1,200,000 per event
12 February 2013
Positive Cashflow / Margins (in an up market)
Revenue (Dayrate)
Operating Costs
Positive Cashflow =
$25,000 per day
- $15,000 per day
$10,000 per day
(up market)
Permian STEPS Meeting
12 February 2013
Positive Cashflow / Margins (in a down market)
Revenue (Dayrate)
Operating Costs
Positive Cashflow =
$16,000 per day
- $15,000 per day
$ 1,000 per day
(down market)
Permian STEPS Meeting
12 February 2013
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
Answer in Zero Margin Days
with no contribution to profits
Up mkt
Down mkt
MTC / RWC
7.5 days
LTI / LWC
120 days 1,200 days
Permian STEPS Meeting
75 days
12 February 2013
Answer in Downtime Days
off the payroll at ZERO Dayrate
Up mkt
MTC / RWC
LTI / LWC
Permian STEPS Meeting
Down mkt
3 days
4.6 days
48 days
75 days
12 February 2013
Dropped Blocks Incident
Permian STEPS Meeting
12 February 2013
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
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
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
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
Case Study #2 – Small Contractor
Permian STEPS Meeting
12 February 2013
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
Case Study #3 – Case Mismanagement
Permian STEPS Meeting
12 February 2013
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 =
(Potential LOSS OF CONTRACT)
$16 MM
Permian STEPS Meeting
12 February 2013
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
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
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
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
Conclusions
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.
Permian STEPS Meeting
12 February 2013
Actual Cost Per Man Hour Worked
U.S. Land & Offshore Operations
The Proof …
$2.50
$2.50
EMR
FY12 = .38
FY11 = .34
FY10 = .34
FY09 = .35
FY08 = .34
FY07 = .33
FY06 = .30
FY05 = .32
FY04 = .32
FY03 = .34
COST/MAN HOUR
$2.00
$1.50
$2.00
$1.50
$1.00
$0.50
$1.00
$1.50 per Manhour less
X 16 MM Manhours more
$24 MM Saved per year
$0.50
$0.00
$0.00
1986
1988
1990
Permian STEPS Meeting
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
12 February 2013
Defining Moment
Permian STEPS Meeting
12 February 2013