New Worry For U.S. Oil Investors: Growing Human Toll And Litigation Costs

New Worry For U.S. Oil Investors: Growing Human Toll And Litigation Costs  | Aug 10, 2018 08:19

US oil prices have fallen below $70 a barrel since the record high production of 11 million barrels per day announced in July. But price drop aside, investors in the country’s shale crude sector have another thing to worry about: the growing human casualty in an industry that is expanding faster than safety measures can cope with.

Accidents are becoming more common at US oil drilling sites, affecting not just workers but also shareholders as litigation grows at a rapid clip against the companies involved.

In the world of energy markets, headlines are often dominated by the price, supply and demand for oil. While huge environmental disasters tend to stay in public memory, isolated human tragedies quickly move on in the booming industry. But the growing financial impact from the human toll demands investors pay more attention to them now.

The US Department of Labor's Occupational Safety and Health Administration (OSHA) last week cited three shale industry companies – Patterson-UTI Drilling LLC (NASDAQ:PTEN), Crescent Consulting LLC and Skyline Directional Drilling LLC – for a January rig explosion that killed five people at a drilling rig near Quinton, Oklahoma. It was the deadliest US drilling accident since BP (NYSE:BP)'s Deepwater Horizon rig explosion of 2010.

According to a release from the administration, Patterson-UTI and Crescent Consulting failed to maintain proper controls while drilling the well, inspect slow descent devices and implement emergency response plans. All three companies were cited for using heat lamps that weren't approved for hazardous locations.

The release added that the three firms faced penalties totaling $118,643, the maximum possible fines. A representative for Patterson-UTI said the firm plans to contest the citation.

While the penalties cited may seem modest by the astronomical settlement standards of the oil industry – BP sold off $75 billion of assets to cover the Deepwater Horizon disaster – the question for investors in the three companies, of course, is what other lawsuits and damages could be coming.

Patterson-UTI, the contractor at the center of Oklahoma blast in January, holds the second worst worker fatality rate among its peers, according to a Reuters review of OSHA data. At least 13 workers have died at the company’s drilling sites in the past decade, the review showed.

On Tuesday, another Oklahoma-based drilling company, Helmerich & Payne Inc (NYSE:HP), had a lawsuit for $150 million brought against it in Harris County District Court, Texas, by representatives of Timothy Lewing, an employee hit by a falling object while working on a H&P land rig near Midland, Texas on January 4.

The Lewing case came after H&P settled in 2016 a $72 million negligence lawsuit brought by Joshua Keel, a worker injured while working on a rig in New Mexico in July 2014. Keel had initially sought damages in excess of $100 million. H&P estimated its exposure from that payout at $22 million after taking into account the amounts to be paid by its various insurers.

Like Patterson-UTI, H&P has a history of rig accidents.

OSHA data shows the company faced 112 legal claims totaling $3.2 million between 2008 and 2012 for injuries, and reported three fatalities. At the time of the Keel accident, H&P reported operating 177 rigs on average. That had grown to 213, while the number of fatalities had risen to five by the time Lewing was injured.

The growth in US drilling operations comes amid decreasing governmental oversight and regulation of the energy industry.

Historically, as oil production increases, so do injuries and deaths at rigs. And land-based rigs were more dangerous than offshore operations, The Houston Chronicle reported back in 2013. “Nearly six times as many oil patch workers were killed in Texas in 2012 than when the Deepwater Horizon rig exploded, killing 11,” it observed.

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