Intro Energy Insurance Gard

Introduction
to Energy Insurance
Gard AS, Arendal,

21 October 2010
What are the main differences between
marine and energy insurance?
o Drilling into unknown underground conditions (Wildcats)
– High pressures
– Uncertainty when pressured zones are reached
o High Risk Operations – release of hydrocarbons

o Resourceful Assureds
o Insured objects are stationary whilst operating
o Tailor made items and parts with long lead time
o High values and significant retention/deductible levels
o ”Tailor made” insurance policies – manuscript wordings
o Low frequency but large and complex losses
o Limited case law and market practice
Contents
o About oil and gas operations

o The Energy Insurance Market
o Offshore Oil and Gas Exploration and Drilling Operations
o Offshore Field Development
o Offshore Production and Transport of oil and gas
o Claims handling
o Piper Alpha – a case study
About oil and gas operations
History, Players, Regulation Regimes and Offshore Oil & Gas

Theatres
Oil and Gas – the core activities
o Oil, Gas and Condensates = Petroleum

– Petra (rock) + oleum (oil) = petroleum (rock oil)
– Fossil fuel
o Three main activity categories

– Upstream activities (prospecting, exploration, development and
extracting/production)
– Midstream activities (transport from offshore field to marine terminal/

refinery/petrochemical plant/gas processing & transmission)
– Downstream activities (refining, petrochemical, processing,

marketing & distribution)
Oil and Gas exploration and production players
o Oil and gas companies (Operator and other license holders)

o Rig owners – mobile offshore drilling and accommodation units
o Ship-owners – owners of floating units of production, storage
units, shuttle tankers, stand-by and supply vessels or heavy
lift vessels
o Contractors, sub-contractors and suppliers
– Service companies
– Helicopter companies
– Construction and repair yards/facilities
– Equipment vendors and suppliers
Phases in the oil and gas industry
Exploration
Field Development
Production
Downstream
Decommissioning
E&P
Exploration
&
Production
Oil Field Operating Arrangements
o Joint Venture (JV)

– Licensees or Lease Holders
o Joint Operating Agreement (JOA)

o Operator
o Operating Committee
– Sub-Committees
o Unitization Agreement
o Capital Expenditure (Capex)
o Operational Expenditure (Opex)
o Authorization for Expenditure (AFE)
The role of the Field Operator
o Usually the license holder with the largest participating interest

o Duties
– Obligations and commitments to the government agencies
– Management, co-ordination and conduct of JV activities
– Standards of care
 Hold harmless agreement – willful misconduct and gross negligence
excepted
– Value of agreements before need to obtain non-operators approval
– Special circumstances where approval must be obtained
o Contracting with service providers and vendors

– ”Knock for Knock” agreements
Joint Venture Management Organisation
Chart
Operating
Committee
Development Field Technical Exploration Financial/Legal

Sub-Committee Sub-Committee Sub-Committee Sub-Committee
Field Reservoir
Field Satellite
Engineer/Geological Field Commercial
Development
& Geophysical/Drilling Work Group
Work Group
Work Group
The early years of
the Oil & Gas
Industry
First “drilling” oil well
o 1859 – ”Colonel” Edwin Drake’s first ”drilling well” in

Titusville, Pennsylvania, USA
The beginning of the modern oil industry
o 1870 - John D. Rockefeller and Standard Oil Company

– Transport monopoly and refineries – the start of modern oil industry
– In 1911, the US Supreme Court finds the Standard Oil in violation of
the 1890 Sherman Antitrust Act
– Broken up into 34 separate state oil companies
1875 – Ludvig & Robert Nobel
o The Nobel Brothers' oil wells in Balakhani, a suburb of Baku.
Photo: Asbrink Collection

The Lucas Gusher 1901, Beaumont, Texas
Drilling in water
o 1900 – 1920’s - California, Lake Maracaibo and Louisiana

Kermac 16 – First “offshore” well
Sedco 135F – Ixtoc 1 well blowout
3 June 1979
Source: Oil Rig Disasters

Norwegian Oil & Gas history
Bishop Eric Pontoppidan of Bergen - 1752
Source: Norwegian Petroleum Museum

The Ministry of Foreign Affairs initiative
Norwegian offshore activity – the beginning
Initial studies and political highlights
o Autumn 1962 - Phillips Petroleum started geological studies
o May 1963 - Norwegian sovereignty to submarine natural

resources proclaimed
o 1965 - Agreement with Great Britain and Denmark about the

center line principle
Central North Sea National Sectors and centre lines
First Norwegian licenses and exploration
o The area south of 62nd latitude divided into 37 squares, which

again were divided into 12 blocks of 15 minutes longitude and
20 minutes of latitude
o 13 April 1965 – First license round, 22 licenses for 78 blocks
offered
o Summer 1966 - First exploration well in Norwegian sector
o July 1968 – Cod field (block 7/11)
proven gas/condensate
o December 1969 – Ekofisk field
(block 2/4) discovered
Ocean Viking
Christmas Day 1969 – The Ekofisk discovery

First Norwegian oil production
o 9 June 1971 - J/U Gulftide at Ekofisk Field

OPEC’s production cuts – ban on Sunday driving

Norwegian oil and gas activity milestones
o 1975 - Norway net exporter of petroleum, Norpipe oil pipeline

Ekofisk – Teeside in operation
o 1977 - Gas pipelines from Ekofisk to Emden and from Frigg to
St. Fergus
o 1980 - Production licenses north of 62nd latitude
– Norwegian Sea
o 1984 - The Snøhvit field
discovered in the Barents Sea
o 2007 - Start-up of the Snøhvit
LNG production
Major Accidents in the Norwegian
Offshore sector
Deep Sea Driller – grounded at Fedje
1 March 1976
21 April 1977 – Well Blowout Ekofisk Bravo
27 March 1980 – Alexander L. Kielland
23 August 1991 – Sleipner ”A”
GBS collapse
Norwegian Oil and Gas facts and
figures
Norwegian petroleum production statistics
Total Norwegian production

300,000
250,000
Mill Sm 3 oil equiv alents
200,000
150,000
100,000
50,000
0
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
Oil Gas Condensate NGL Source: Facts 2008 NPD
Production forecast
400
Undiscovered resources
Discoveries
Improved recovery
300
Reserves
Mill.scm o.e./year
200
100
0
2005 2010 2015 2020 2025 2030
Source: NPD/MPE
Production trends for the Ekofisk, Varg, Oseberg
and Ula fields
25
Ekofisk 2,5 Varg
Oil rate (mill. scm per year)

Oil rate (mill. scm per year)
20 2
15 1,5
10 1
5 0,5
0 0
1970 1980 1990 2000 1998 2000 2002 2004
Oseberg Ula
35 8
Oil rate (m ill. scm per year)
30 Oil rate (m ill. scm per year)

25 6
20
4
15
10 2
5
0 0
1986 1991 1996 2001 1985 1995 2005
Source: Norwegian Petroleum Directorate
Prognosis at PDO Actual production
Top World oil producers & net exporters
2008
Oil Production Oil Net Exports
Saudi Arabia Saudi Arabia

Russia Russia
USA U.A.E.
Iran Iran
China Kuwait
Canada Norway
Mexico Angola
U.A.E. Venezuela
Kuwait Nigeria
Venezuela Algaria
Norway Iraq
Brazil Libya
Iraq Kazakhstan
Algeria Canada
Nigeria Qatar
0 5 10 15 0 2 4 6 8 10
Million of barrels of oil per day
Source: International Petroleum Monthly
Macroeconomic indicators for the petroleum sector
Crude oil prices since 1861
Source: BP Statistical Review of World Energy 2009

Is oil expensive?
A comparison with some other commodities

Product US$/Barrel
Crude Oil 84.58

Coca Cola 126.45
Milk 163.45
Perrier 300.61
Tropicana Orange Juice 307.44
Budweiser Beer 447.45
Pinot Grigio Wine 2,117.75
Bertoli Olive Oil 2,370.71
Visine Eye Drops 39,728.60
Flonase Nasal Spray 902,304.00
Chanel No. 5 Perfume 1,666,650.00
National organisation of the petroleum sector
o National ownership of the natural resources on the country’s

continental shelf
o Parliament
o Government
o Department of Energy
– Directorates or other delegated bodies
o Other Government Departments

– Maritime, Aviation, Transportation, Coastal affairs
– Environment
– Health and Safety, Labour
– Finance
o Federal and State/Province/Territory

National organisation of the petroleum sector
The Energy Insurance Market
History, Markets, Market forums & Placing of Insurance

Early 1960’s
o Drilling contractors with rigs in the
Gulf of Mexico
o Lloyd’s the only market
– Rig Committee
– Drilling Rig Memorandum
Lloyd’s 1958 building
o September 1965 – Hurricane Betsy

Photo: NOAA – Hurricane Betsy eye
o 1966 – London Master Drilling Rig Contract (L.M.D.R.C.)
o August 1969 – Hurricane Camille
o 1972 – Oil Insurance Limited

Photo: NOAA - Ships beached in Gulfport, Mississippi.
– Oil Industry Mutual
– Capacity for:
 Windstorm in the Gulf of Mexico
 Gradual Pollution
o 1986 – Oil Casualty Insurance Limited

– Excess General Liability
The Norwegian Energy Insurance Market
1973
o Norwegian Oil Risk Pool
– 7 Insurance companies
– 4 Mutual Hull Clubs
– Drivers: Storebrand, Vesta and Polaris
o P&I – Assuranceforeningen Gard & Skuld
o First Policy: Smedvig’s ”West Venture”

Photo: Smedvig ASA
The Norwegian Energy Insurance Market
o 1970’s – Norwegian Contractors (Aker)

– Concrete Gravity Base Structures
– ”Condeep” platforms
Source: The Norwegian Museum of Science and Technology
o 1974 ”Beryl A” – Mobil (operator) &

”Brent A” – Shell (operator)
– Storebrand – Leading Underwriter
– Sedgwick Forbes – the Broker
The Energy Insurance Market forums
o 1980’s – Nordic Offshore Market Association (NOMA)

– 24 Member companies in Norway, Sweden, Denmark & Finland
– International Energy business
o Forum for Oil & Gas (FOG)
o CEFOR – Energy Committee
o European Energy Insurance forum (EUROFOR)
o IUMI – Offshore and energy committee
o 1996 – Lillehammer Energy Claims Conference

The Energy Insurance Market – its peak and turn
o 1990 – Peak of the market
– London - Lloyd’s and Institute of London Underwriters (ILU)
– Scandinavia & Finland
– North America (New York, Houston & Vancouver)
– Paris
– The Middle East
o 1992 – The turn of the market

– Lloyd’s Market Excess of Loss spiral
– August - Hurricane Andrew
– Company withdrawals and bankruptcies
o 30 August 1996 – Lloyd’s Reconstruction and Renewal Plan

– Equitas
Today – The Home Market
o Scandinavia
– Gard the only Underwriter for International Energy Risks
– Other players:
 Only mobile offshore units

 Mainly Scandinavian Clients
Latest local start-ups
o Vega (Amlin)
o ScanIns (Chaucer)
o Energy Insurance Oslo (International General Insurance)
o If Property & Casualty Limited
o Beazley Norwegian Branch

Today – One International Market Place
o Lloyd’s of London
– Catlin, Watkins, QBE, Hiscox, Ascot, XL, Talbot, Kiln, Chaucer, Aegis,
Beazley, Travelers, Amlin
o Company Market
– Chartis (AIG), ACE, Allianz, Zurich, Paris Re, SCOR, Munich Re, Swiss
Re, Axis, Berkley Offshore, Torus, Lancashire and Gard
o Lloyd’s in Singapore
– Branches of Lloyd’s of London offshore energy syndicates
Norwegian Brokers in Energy Insurance
o Aon Grieg
o Marsh
o Parisco
o Willis
Insurance Brokers – The Distribution Channel
Oil Company
Captive Insurance Company
Oslo Broker
London Broker Leading Underwriter Houston Broker Singapore Broker
• Lloyds • Scandianvian Companies • US Market • Asian Markets

• London Companies • European Companies
MOU Owner
Oslo Broker Retail / Producer
London Broker Leading Underwriter Houston Broker Wholesale / Placer
• Lloyds • Scandinavia Markets • US Market

• London Companies • European Markets
MOU Owner
Oslo Broker London Broker Both Retail
• Scandinavian Market • Lloyds

• European Market • London Companies
• Houston Broker – US Market
• Singapore Broker – Asian Market
Placing insurance in the energy market
o Quote tenders
o Selection of broker
o Selection of lead underwriter
– Leader’s indication of terms
o Broker’s placing slip

– Subscription agreement
– Facultative participation
o Authorizing a line
o Closing and final signing
o Final Policy wording
Gross premium by geographic location
As at 20.11.2009
Insurance type split
As at 20.11.2009
Energy lead
As at 20.11.2009
Worldwide Offshore Capacity (Ex Gulf Of Mexico Wind)
Source: Willis
Capacity Challenge
Component Values (USD)
FPSO Field Development FPSO Hull & moorings 2,320,600,000
- West Africa
Risers and umbilicals 1,297,600,000
connected to the FPSO(1)
Export line(2) 50,000,000
Crude oil in store(3) 153,000,000
Sue and labour(4) 100,000,000
Removal of wreck(5) 100,000,000
TOTAL EML: 4,021,200,000

Market cycles
The only really relevant factor when it comes to

market cycles is not attritional losses but capacity.
Today the market needs new capacity like the Titanic

needed ice machines.
All’s fair in love, war and energy
underwriting!
Jim Bannister
Insurance Day, 4 December 1996
Offshore Oil and Gas Exploration
Search, seismic surveys, drilling for oil and gas and associated
insurance needs and solutions
Offshore oil and gas in perspective
o 75% of the earth surface is covered by ocean
o Onshore oil and gas resources are found and being depleted
o About 60% of world oil and gas production is offshore
o Moving to frontier areas and deeper waters

– New solutions and technology needed
Main World Offshore Oil and Gas
activity areas
Oil prospecting - Seismic surveys
Source: PGS
Marine Seismic survey
Drilling equipment
Blowout Preventer stack
Jack-up Drilling Rig
Jack-up drilling rig over a wellhead platform
Source: Offshore
pictures
West Atlas – Montara well blowout 21 August 2009
GSF Adriatic IV blowout and fire August 2004
Special risks associated with Jack-Ups
o Towing
– Low redundant stability & low freeboard
– Leg fatigue
o On/off location West Gamma
– Low swell/weather tolerance

– Soil foundation, punch through or extreme
penetration
o Operational
– Air gap (freak waves/hurricanes)
– Blowout
– Abandonment of personnel
Ocean Warwick
Semi-Submersible Drilling Rig
Semi-submersible with marine drilling riser
6 October 1985 – West Vanguard blowout
Drillship
Petromar V – 27 August 1981 gas blowout
The insurance needs of MODU owners
Newbuilding and Upgrade
o Builders Risks (New units)

o Upgrades (Existing and old units)
o Coverage:
– All risks of physical loss and damage at yard and sea trials
– Third Party liability, P&I Insurance
– Delay in delivery
o Conditions:
– Norwegian Marine Insurance Plan, chapter 19
– Institute Builders Risks Clauses
Rig upgrade
Built 1974 Upgrade 2008

600 ft WD 7,000 ft WD
USD 580m
New Units built/on order
120
MODU New Builds
100
Oil Price
80
60
40
20
0
1970 1975 1980 1985 1990 1995 2000 2005 2010
The insurance needs of MOU owners –
Operating units
o Hull & Machinery incl. Collision liability and Sue & Labour
o Hull Interest incl. Collision liability
o Freight Interest
o Loss of Hire (excl. Total Loss)
o Cancellation of contract
o Protection & Indemnity Insurance
o Contingent Operator’s Extra Expense
o War & Terrorist
Risk evaluation – underwriter considerations
o Mobile offshore units (MOUs)

– Owner
– Type of rigs
– Classification
– Operational area
– Age of unit (including upgrade) and sum insured
– Scope of cover/terms
 NMIP (Norwegian Marine Insurance Plan – chapter 18)
 London Standard Drilling Rig Form/London Market Offshore Unit Form
 American Institute Hull Insurance Clauses
– Deductible/retention level
– Loss record
– American rig owners often insure P&I in conjunction with H&M
Norwegian Marine Insurance Plan,
Chapter 18
o Objects Insured §18-1
– the structure,
– machinery, equipment and spare parts owned and not owned on
board, above water, under water or in the drilling hole,
– bunkers and lubricating oil on board
o Excluded objects:
– stores, engine and deck accessories and other articles intended for
consumption,
– helicopters,
– blueprints, plans, specifications, logs, etc.,
– mini-submarines and remote operated vehicles during operation.
o Objects temporarily removed from the structure §18-3

Other important clauses
o §18-4 Relief well exclusion

– Buy back at additional premium
o §18-6 Safety regulations

– Blowout preventer (BOP)
– Rig Moves
o §18-7 Measures to avert blowouts exclusion
o §18-9 Waiver of subrogation and co-insurance of third parties
o §18-11 Damage to drill string limitations

Other insurance clauses specifics
o Valuations
– Agreed value
– Co-Insurance Clause
o Navigational Limits
o Survey Warranties
– Towage and rig moves
– Drilling location
– Lay-up
o 25% Wreck/debris removal

Loss of Hire insurance
o Norwegian Marine Insurance Plan – chapter 16
o Daily amount = contract rate
o Deductibles 45 – 60 days
o 180 indemnity days coverage

Insurance Needs – an Assured’s view
o Clear and easily understood insurance conditions

o Proper risk assessment and a fair rate being charged
o Prompt handling of claims
o A long-term relationship with first class security
Rolf Westfal-Larsen
(Cefor Conference Sept 2002)
Oil & Gas Wells and associated risks
Well and reservoir conditions
Directional drilling
Source: Accutech technology

Specific drilling hazards
o Shallow gas pockets

o Gas release – explosion and fire
o Blowout
o Underground blowout
o Formation collapse – cratering Ocean Odyssey blowout
o High Pressure High Temperature

reservoir
o Oil pollution
– OPA 1990
– OPOL
Actinia, Lan Tay 6 well, Vietnam,
18 February 1993
Operator & JVs insurance needs associated with oil
and gas wells from drilling until plug and abandon
o Energy Exploration & Development Insurance (EED)

– Control of Well Insurance
– Redrilling/Extra Expense Insurance
– Seepage and Pollution, Cleanup and Contamination Insurance
o Additional coverage by endorsement

– Underground Blowout
– Making wells safe
– Care, custody & control
– Evacuation Expenses
– Extended redrilling and restoration cost
Rating Principle
Area 1 Land areas in USA (except Texas, Louisiana, Alaska etc) and
Canada
Area 2 All land areas worldwide
Area 3 Gulf of Mexico
Area 4 Offshore worldwide
Area 5 North of the Arctic Circle and South of the Antarctic Circle
Depth A 0-9,999 feet
Depth B 10,000 – 17,499 feet
Depth C 17,500 and deeper

Rating in the future?
o Probably as a percentage of ”Autorization for Expenditure”

(AFE)
(the drilling budget)
EED Insurance - General conditions
o Insured
– Named Assured
– Co-venturers if assured has agreed to insure such interest
o Exclusions
– Fines, penalties & punitive/exemplary damages
– War, nuclear weapons and hostile and governmental acts
– Earthquake and volcano eruptions except specified areas
– Infidelity of the assured
– Loss/damage/expense i.r.o. any well being drilled etc. at policy
inception
o Subrogation
– Permission to contractually waive underwriters rights of subrogation
EED Insurance - General conditions
o Limits and deductibles for 100% interest
– scales to partial interest insured
o Definitions
– Wells
– Occurrence
– Defense costs
o Policy warranties
o Attachment and expiry of coverage

– Spud in date
– Extended Expiry
Control of well insurance
o Insuring clause
– reimburse actual costs and/or expenses incurred in regaining or
attempting to regain control of any and all well(s) insured which
get(s) out of control.
– Relief wells automatically held covered subject to notice asap
o Definitions
– Well out of control
– Well brought under control
– Expenses
o Exclusions
– Loss/damage to drilling or production equipment
– Loss/damage to wells or holes
– Delay, loss of use or loss/damage to reservoir/ reservoir pressure
Montara well blowout – relief well drilling
Redrilling/Extra Expense Insurance
o Coverage
– reimburse for actual costs and/or expenses reasonably incurred to
restore or redrill a well insured hereunder, or any part thereof,
which has been lost or otherwise damaged as a result of a covered
control of well occurrence, provided:
 most prudent and economical methods been employed
 no coverage if well flow can be safely diverted into production
 same depth as original well
 limited to 130% of original well costs, plus 10% p.a. for existing wells
subject to a maximum of 250%
 redrilling commenced within 540 days (18 months) of the occurrence
o Exclusions
– Same as for Cost of control insurance
– Solely as a result of making wells safe
– Relief wells and plugged and abandoned wells
Seepage and Pollution, Cleanup & Contamination
o Coverage
– all sums which the Assured shall by law or under the terms of any
oil and/or gas and/or thermal energy lease and/or license be liable
to pay for the cost of remedial measures and/or as damages for
bodily injury (fatal or nonfatal) and/or loss of, damage to or loss of
use of property caused directly by seepage, pollution or
contamination arising from wells insured
– Cleanup costs
– Defense costs
o Exclusions
– Any loss of or damage to any drilling or production equipment
– Any claim solely by reason of the addition or attachment of the
Underground Control of Well Endorsement
– Deliberate pollution or violation of regulation/law
– Any claim for mental injury, anguish or shock unless same results
from physical injury to the claimant.
Underground control of well endorsement
o Coverage
– reimbursement for the actual costs and/or expenses incurred in
regaining or attempting to regain control of an unintended subsurface
flow of oil, gas, water and/or other fluid from one subsurface zone to
another subsurface zone via the bore of a well insured hereunder,
which unless controlled prevents continuation of any operations or
status set forth in subparagraphs (2) or (3) of this endorsement.
– No claim if the flow
 promptly is or can be stopped or safely diverted into production
 within a reasonable period of time can be circulated out or bled off through
the surface controls.
– Coverage ceases when
 The flow is stopped
 Original operations can resume
 The flow is diverted into production
Making wells safe endorsement
o Coverage
– reimbursement for the actual costs and expenses incurred in
preventing the occurrence of a loss insured hereunder when the
drilling and/or workover and/or production equipment has been
directly lost or damaged by “named perils” and only when, in
accordance with all regulations, requirements and normal and
customary practices in the industry, it is necessary to re-enter the
original well(s) in order to continue operations or restore production
from or plug and abandon such well(s).
– Coverage ceases when:

 operations or production can be safely resumed, or
 the well is or can be safely plugged and abandoned,
whichever shall first occur.
Care, Custody & Control endorsement
o Coverage
– legal or contractual liability for physical loss or damage to, or expenses
of salvage of, oil field equipment leased or rented by the Operator or in
its care, custody and control at the site of any well insured
– In hole salvage/fishing costs limited to 25% of equipment value
o Exclusions
– Owned equipment and Drilling/workover rigs or any components
thereof
– diamond bits and/or diamond bit core barrels, mud, chemicals,
cement, the well or casing installed therein
– in hole equipment whilst in the hole unless as a result of a covered well
control incident, fire, windstorm, or total loss of drilling or workover rig
– Delay, loss of use, wear & tear etc.
– Turnkey or completed wells contracts
Evacuation Expenses Endorsement
o Coverage
– reasonable costs and/or expenses which the Assured incurs in the
evacuation of people (other than the Assured's employees or those of
contractors or subcontractors of the Assured), animals and/or
property (other than the Assured's property or that of contractors or
subcontractors of the Assured), but only where and to the extent that
the evacuation has taken place by order of any local, state or federal
governmental or regulatory authority or public emergency service,
and only following a well out of control, fire, or escape of oil and/or
gas or the imminent threat thereof, which has resulted, or would
result, in a claim recoverable elsewhere under this insurance
o Exclusion
– loss of use of evacuated property and loss of earnings or any other
income by any evacuated persons
Extended redrill & restoration costs endorsement
o Coverage
– reimbursement for actual costs and expenses reasonably incurred to
restore or redrill a well insured, or any part thereof, which has been
lost or otherwise damaged as a direct result of physical loss of or
damage to the drilling and/or workover and/or production equipment
and/or platform by:
 lightning, fire, explosion or implosion above the surface of the ground or
water bottom
 collision with land, sea or air conveyance or vehicle
 windstorm
 collapse of derrick or mast
 flood
 Strikes, riots, civil commotions or malicious damage
 where covered under the Control of well insurance, earthquake, volcanic
eruption or tidal wave
 in respect of offshore wells only, collision or impact of anchors, chains,
trawlboards or fishing nets.
Offshore Field Development
Offshore development solutions, project organisation and

insurance
Development phases
o Selection of development concept

o Conceptual design
o Tender phase
o Contract signing
o Detailed design
o Building and assembling of modules
o Transport, offshore installation and hook-up
o Tie-in to existing infrastructure
o Testing, commissioning and handing over to production
Offshore production facilities
Source: Minerals Management Services

Development concepts
o Traditional stationary platforms

– Steel jackets
– Concrete - Gravity Base Structures (Condeep/GBS)
– Integrated or individual platforms (wellhead, process, accommodation)
o Floating platforms
– Tension Leg Platform (TLP)
– Floating Production Unit/System (FPU/FPS)
– Floating Production Storage and Offloading Unit (FPSO)
– SPAR platform
o Transport solutions
– Pipeline
– Storage on location, offloading systems and
Shuttle tankers
Subsea completions
o Remotely controlled from shore or offshore platform

o Templates
– Manifold (sub-sea gathering template)
– Wellhead
o Satellite wells
o Pipelines – flexible
o Hydraulic/electronic controls
Offshore Construction Risk evaluation
o General consideration
– Operator
 Experience and loss record
– Main contractors
– Geographical location
 Area to be developed
 Pipeline routes
 Yards of main components
– Concept of development
– Values involved
Alve development
– New or well-known technology
– Leading underwriter
– Terms of cover – broker wording or Welcar
– Premium rates
CAR – differences from other insurances
o The operator arranges insurance for 100% of the partnership
o Insurance is placed for the whole construction period

(sometimes 5 years) plus 12 (or 24) months
maintenance/discovery period(s)
o Biggest challenge for underwriters: ”waiving and naming”
– underwriters waive their rights of subrogation
– all contractors, sub-contractors, suppliers are named in the policy as

addtional assureds
Gard Energy
o First construction (and international) risk in 1974:

Mobil’s ”Beryl A” Storebrand: L/U
Main contractor:
Aker
shipyards
concrete (cement)
deep water
”Condeep” platforms
Construction All Risks Policy – Market clauses
o Offshore field development projects

– Manuscript policy wording
 Incorporating Institute Builders Risks Clauses 1 June 1988
– London Offshore Construction Clauses (L.O.C.C. 1985)
– Cefor Wording (Mid 1980’s)
– Munich Re wording
– Welcar 2001
o Floating Production & Mobile offshore units newbuilds or

conversions
– NMIP chapter 19
– Institute Builders Risks Clauses 1 June 1988
– MARCAR 2007
Offshore Construction Insurance Policy
(Welcar)
o Policy declaration/specification
– Assured
 Name of field operator and Joint Venturers
– Period of insurance
 From date of letting of the first contract until completion
 Maintenance & discovery period(s)
 Including liabilities from signing of contracts/letters of intent
– Sums insured
 Estimated contract value
 Limit for Third Party Legal or Contractual liability
– Project specification
– Policy deductibles
– Schedules A & B
Construction Policy General Conditions
o Assureds
– Principal Assureds
 Field Operator and Joint Venturerers
 Parent or subsidiary, associated, affiliated, or inter-related companies
– Other Assureds
 Project Managers
 Contractors
 Sub-contractors
 Suppliers
under contract with Principal Assureds in connection with the project
– Quality Assurance/Quality Control requirement
– Loss Payee
 Field Operator or order
o Waiver of Subrogation
Construction Policy – All Risks of Physical Damage
o Property Insured
– Works executed in performance of all contracts of the entire project
– Materials, components, parts, machinery etc destined to become a
part of the project
– Site preparatory work
– Temporary works
Included in declared project values or specifically declared
o Policy Limit
– 125% of applicable schedule B value, incl. Sue & Labor, additional
works and wreck/debris removal
– Maximum liability, schedule A values in the aggregate
o Escalation clause
– Allows 25% value increase from Estimated Contracts Values
Construction Policy – Physical Damage coverage
o Basis of recovery
– Repairs replacement on ”New for Old” basis
– Redesign/new design on estimated original design ”New for Old”
– Unrepaired/unreplaced
 Total Loss on costs incurred on item up to the time of loss
 Partial loss on reasonable depreciation deemed to be cost of repairs on
new for old basis plus, if repairs/replacement prevented by reasons beyond
assured’s control, towage, installation and similar costs incurred, incl.
Prepaid or committed costs which are irrevocable
– Prehired vessels/equipment on pre-agreed hire or rates
– Betterment/alteration in design increases excluded
– Additional Insurance costs and re-certification costs
Construction Policy – Physical Damage
o Defective Part endorsement

– The insurance afforded by Section I covers physical loss and/or
physical damage to the property insured herein occurring during the
Policy Period and resulting from a Defective Part, faulty design, faulty
materials, faulty or defective workmanship or latent defect even
though the fault in design may have occurred prior to the attachment
date of the Policy.
– Section I, however, does not provide coverage for loss or damage to
(including the cost of modifying, replacing or repairing) any Defective
Part itself, unless all of the following are satisfied:
 such Defective Part has suffered physical loss or physical damage during
the Policy Period;
 such physical loss or physical damage was caused by an insured peril
external to that part; and
 the defect did not cause or contribute to the physical loss or physical
damage.
– No coverage for alteration or betterment in design
– Definition of ”Defective Part”
o Additional Work
o Tests, leak or damage search costs (sub-limit)
o Stand-by charges (sub-limit)
o Claims Surveying/adjustment clause
o Warranty Surveys
– Conceptual survey and certification (Operational procedures)
– Physical survey and certification (High risk operations)
o Terrorist Buy-back
o Forwarding charges (sub-limit)
o Maintenance coverage (12 months)
o Definitions
Construction Policy – Physical Damage exclusions
o Vessels or other watercraft, except part of project

o Aircraft and/or helicopters
o Temporary works, site preparatory works, property and/or
equipment that are not owned by the Principal Assureds
o Penalties for non-completion of or delay
o Platforms and/or structures placed in the wrong locations
o Loss of use or delay in "start up"
o Liability assumed for suppliers "Performance Guarantees"
o Infidelity
o Costs of repairing wear and tear etc.
o Dumping of rocks etc placed in the wrong position or location
exclusions
o Operations, temporary or permanent works, assets or

equipment not included within the latest agreed Schedule B
o Repairing, renewing or replacing faulty welds
o Loss, damage, liability or expense directly or indirectly caused
by or contributed to by or arising from radioactive/nuclear
source
o War perils, except derelict weapons
Construction Policy – Defective Part
exclusion buy-back endorsement
o Cost of repair or replacement of defective parts which have

suffered physical loss and or physical damage during the Policy
Period
o Separate deductible applicable to each defective part
o Aggregate limit for whole policy period, incl. Maintenance
o Subject to an additional premium
o Cancellation charges, stand-by costs or consequential costs or
expenses not covered
Construction Policy – Liability coverage
o Legal liability
o Express Contractual liability
o Bodily Injury or Property Damage caused by an occurrence
during the project period
o Exclusions
– Violation of laws
– War & Terrorist
– Employer’s liability or liability in connection with any persons
representing any assured in any capacity
– Loss of well or hole and control of well costs
– Seepage and pollution unless an identifiable event
– Subsidence or damage to subsurface substance
Construction Policy – Liability coverage
o Exclusions continued
– Fines, penalties, punitive and exemplary damages
– Product’s and completed operations liability
– Damage to or loss of use of assured’s owned or used properties, or in
his care, custody or control
– removal, recovery, repair, alteration or replacement of any product
(or any part thereof) which fails to perform its intended function
– Professional errors or omissions
– Asbestos or other hazardous substances
– Radioactive or nuclear exposure
– Products and workmanship warranties
Offshore Production and Transport of
oil and gas
Offshore production/operating risks and insurance

Exploration & Production (E&P)
o Physical damage to offshore installations
o Business Interruption
o Cost of Well Control
o Seepage & Pollution
o Cost of Redrilling
o Marine Liabilities
o Offshore Terrorism
Risk evaluation – oil and gas production operations
o Operational risks for oil and gas companies
– Package insurance – manuscript wordings:
 Location and type of operations/installations insured
 Properties insured
 Insurance covers – PD/BI/EED/TPL??
 Sums insured/policy limits
 Rates/Premium level
 Deductible/Self insured retention/underlying covers
 Lead Underwriter
 Direct or reinsurance of captive/local insurance company
– Cover capacity available
 Accumulation of multiple policyholders on single platforms
– OIL member - insurance
 PD, Well control and pollution responsibility (USD 250 mill)
 Excess, wrap around, OIL deductible buy back, corridor insurance
Risk evalution – oil and gas production operations
o Area
o Jurisdiction
o Capacity
Brazil
West Africa
South China Sea
Australia
New Zealand
East Coast Canada
Greenland
West of Shetland / Faroe Islands
Snorre field - Licensees
ExxonMobil Exploration & Production Norway AS 11,58 %

Hess Norge AS 1,04 %
Idemitsu Petroleum Norge AS 9,60 %
Petoro AS 30,00 %
RWE Dea Norge AS 8,28 %
StatoilHydro ASA 15,55 %
StatoilHydro Petroleum AS 17,77 %
Total E&P Norge AS 6,18 %
Exposure Summary Snorre A
RWE DEA
Installa tion Slip Intere st Inte rest Code 100% Gross Gross FAC Tre aty Ne t
SNORRE A 207987/09 Excess Removal of Debris XSROD 0 0 0 0 0
SNORRE A 207987/09 Control Of W ell COW 4 153 600 623 040 0 0 623 040
SNORRE A 207987/09 Seepage & Pollution S&P 50 000 000 7 500 000 0 0 7 500 000
SNORRE A 207987/09 Sue & Labour S&L 5 074 366 761 155 0 0 761 155
SNORRE A 30519/09/3 Business Interruption (LOP) BI 30 000 000 1 500 000 0 0 1 500 000
SNORRE A 207987/09 Physical Damage PD 32 617 627 4 892 644 0 0 4 892 644
SNORRE A 207987/09 Removal Of Debris ROD 8 154 407 1 223 161 0 0 1 223 161
SNORRE A 30519/09 Control Of W ell COW 95 191 143 475 956 0 0 475 956
SNORRE A 30519/09 Removal Of Debris ROD 190 477 477 952 387 0 0 952 387
SNORRE A 30519/09 OPOL OPOL 39 980 280 199 901 0 0 199 901
SNORRE A 30519/09 Total Loss Only (ICR) TLO 356 052 951 1 780 265 0 0 1 780 265
SNORRE A 30519/09 Extended Redrill XRDR 1 186 272 022 5 931 360 0 0 5 931 360
SNORRE A 30519/09 Business Interruption (LOP) BI 334 300 000 1 671 500 0 0 1 671 500
SNORRE A 30519/09 Contingent Business Interruption CBI 99 300 000 496 500 0 0 496 500
SNORRE A 30519/09 Oil In Store OIS 0 0 0 0 0
SNORRE A 208569/09 Extended Redrill XRDR 23 748 781 2 849 854 0 0 2 849 854
SNORRE A 30519/09/2 Physical Damage PD 1 610 526 591 80 526 330 17 000 000 0 63 526 330
SNORRE A 30519/09/2 Business Interruption (LOP) BI 100 240 000 5 012 000 0 0 5 012 000
SNORRE A 208569/09 Third Party Liability TPL 17 811 586 2 137 390 0 0 2 137 390
SNORRE A 208569/09 Excess Removal of Debris XSROD 167 429 20 091 0 0 20 091
SNORRE A 208569/09 Control Of W ell COW 23 748 781 2 849 854 0 0 2 849 854
SNORRE A 208569/09 Sue & Labour S&L 45 691 468 5 482 976 0 0 5 482 976
SNORRE A 208569/09 Total Loss Only (ICR) TLO 78 328 230 9 399 388 0 0 9 399 388
Operational Risks – Physical Loss or damage
o Insures all of the assureds scheduled Offshore and Onshore oil

& Gas exploration, production, early processing and
transportation properties
– fixed or floating offshore platforms/production units
– sub-sea production systems and pipelines
– loading systems
– Other specified upstream properties whether owned, leased or chartered
o Sums insured as scheduled

– 25% of scheduled values for Sue and Labor and Removal of Wreck each.
o Covers on an “all risks” basis

o Normally 12 months period with annual renewal
o Standard exclusions
Operational Risks – Loss of Production Income
o Indemnifies for
– loss of production income
– increased costs/expenses following interruption
directly resulting from physical loss of or physical damage to

property or well out of control
o Recovery Period
– Time to repair damage and restore operations (due diligence)
o maximum period of indemnity as scheduled (can be up to 36

months but policy period is 12 months plus odd time.
o 45 to 60 days waiting period (accumulative, not consecutive)
o Dependencies (contingent LOPI)
o Measure of Recovery
– Lost production quantum X agreed Unit Price (USD/bbl of oil)
Operational Risks – Loss of Production Income
o Exclusions
– Strikes, lockout etc, civil unrest or political/governmental interference
– Suspension, lapse or cancellation of license
– Fines, liquidated damages, penalties etc.
– Infidelity, dishonesty or fraud
– Loss of market or contract
– Non-completed wells (buy-back available)
o Denial of access
– Access denied because of damage to other properties within 1KM
– Max 4 weeks excess of waiting period
Operational Risks - Third Party Liability
o Covers general third party liabilities and legal and contractual

liabilities arising out of the assureds worldwide operations
o ”Occurrence form” for offshore and marine operations
o ”Claims made” basis for onshore exposures
o Sudden and accidental Seepage and Pollution buy-back
o Product liability (buy-back)
o Additional Excess coverage available
– employers liability
– Automobile liability
– Aviation liability
Third Party Oil exclusions – “Occurrence”
o Employees
o Employee benefits
o Loss of hole
o In-hole equipment
o Cost of Control
o Wreck Removal
o Seepage, Pollution and Contamination
o Waste/disposal operations
o Sub-surface operations
o Underground resources
Third Party Oil exclusions – “Occurrence”
o Co-owner
o Fines, Penalties, Punitive or exemplary damages
o Insolvency
o Products liability & Completed Operations
o Care, Custody & Control
o Failure to perform
o Failure to supply
o Directors & Officers and Errors & Omissions
o Asbestos, Polychlorinated Biphenyl (PCB) & Silica
o Health Hazard (continued, intermittent or repeated
exposure etc.)
Operational Risks – Limited terrorist cover
o Addenda 42b
Terrorist risk buy-back
– Detonation of an explosive
– Any weapons of war
Caused by any person acting maliciously or from a political motive
Any act for political or terrorist purposes
o Exclusions
– War, Civil war, seizure, etc
– Arrest, restraint, detainment etc.
o Notice of cancellation and automatic termination

o http://www.youtube.com/watch?v=J7fuUKETPtI
Claims
Typical claims, large claims,

adjusting issues and claims
handling procedures
Energy claims (Offshore)
o Construction projects
– Design, performance- or material defects
– Transport damage, handling and lifting accidents
o Drilling operations
– Well blow-outs with or without fire/explosion
– Collapse of drilling hole/seabed (cratering)
– Subsea gaseous emission with loss of the rig uplift/stability
– Collision against drilling rig/platform
– Other damage on/loss of rig
Energy claims (Offshore)
o Production operations
– Gas leakage with explosion/fire
– Hurricane/weather damages
– Mechanical failure/overload/fatigue fracture
– Electrical failure
– Well blow-out
– Helicopter accident
– Lifting accident
– Pipeline breakage
– Excessive corrosion damage (Sulphur Reducing Bacteria)
– Collision with supply vessels/shuttle tankers
– Anchor or fishing equipment damage on pipelines/subsea
– Business interruption as a consequence of damage on other
installation
Operators Co-operative Emergency Services
o Mutual Aid Agreement

o Emergency Assistance Code
o North West European Continental Shelf
o National associations of operating oil and gas companies
– United Kingdom (UKOOA)
– Norway (OLF)
– Denmark (NSOC-D)
– The Netherlands (NOGEPA)
– Ireland (IOOA)
– Germany (WEG)
Petrobras P-36 - 15 March 2001
Source: Matthews Daniel

Hurricane Ivan – Petronius platform
Source: CTa
Loss of stability – Thunderhorse,
Hurricane Dennis 2005
Hurricane Rita and Katrina,
August-September 2005
2004 – 2005 Offshore US hurricane losses
Loss/damage type Hurricane Ivan Hurricane Katrina Hurricane Rita
Destroyed Platforms 5 Fixed Platforms 36 Fixed Platforms 52 Fixed Platforms

2 Caissons 10 Caissons 14 Caissons
1 Deepwater TLP
Platforms with 1 Fixed Platform 14 Fixed Platforms 30 Fixed Platforms

Extensive Damage 2 SPAR Platforms 2 Caissons
2 Deepwater Platforms 4 Deepwater Platforms
1 Deepwater TLP
Destroyed Rigs 1 Platform Rig 1 Jack-Up 1 Jack-Up

3 Platform Rigs 3 Rigs Disappeared
Rigs Adrift 5 MODUS 1 Jack-Up 3 Jack-Ups

5 Semi-Submersibles 10 Semi-Submersibles
Rigs Damaged 1 Platform Rig 2 Platform Rigs 7 Jack-Ups

1 MODU 2 Jack-Ups 2 Semi-Submersibles
5 Semi-Submersibles 1 Submersible
Chevron Empire Terminal, Contingent BI
27 September 2005
West Delta 94 G platform leaning
Typhoon TLP
Eugene Island 330 S & C Platforms
Eugene Island 330 S & C Platforms
post Rita
South Marsh Island 128A Complex
South Marsh Island 128A Complex
post Rita
Platform deck washed away and gas leak
Katrina Storm Surge at Entergy
Power Utility
Hurricane Ivan versus Katrina, Rita and Ike
Ivan Katrina Rita Ike
Saffir Simpson Cat 4 Cat 5 Cat 4 Cat 2
Hurricane Severity Index 33 47 42 36
Integrated Kinetic Energy 4.4 5.1 4.3 5.2
No. of Platforms Destroyed 7 46 69 54
No. of Platforms Damaged 24 20 32 95
Commercial Market Loss USD1,250m USD3,000m USD3,500m USD3,000m
Source: Watkins Syndicate

West Triton West Atlas
Claims handling in general – Claims management
o Notification of damage
– Who, what, where and when?
o Assureds involved
– Operator/non-operators w/ownership interests
– Contractors/other parties involved – insured/not insured
– Lead/Non-lead role
o Types of immediate and potential losses

o Policies involved
– Scope of cover
– Potential coverage issues
– Claims related clauses
– Applicable Law and jurisdiction
Claims handling in general – External Specialists
o Appointment of Loss Adjuster (pre-agreed panel of adjusters)

– Survey of damage and cause investigation
– Reporting
– Scope of cover
o Use of specialist expertise

– Lawyer
– Forensic accountant
– Forensic engineer
– Causation specialist
Claims handling in general
o Loss adjustment
– Partial payment
– Final settlement
o Proof of Loss
– Sworn Statement of loss and acceptance of settlement
– Notarised by Notary Public
o Payment authority
– Authorise payment via brokers
– Release agreement
Claims handling – Subrogation/Contribution
o Contractual relationship between the parties involved
– ”Knock for knock” (hold harmless and indemnity) agreement

 each part takes responsibility for own equipment and personnel
– Co-insured in policies
– Policy waivers of subrogation
o Double insurance
– Same interests insured against same risks
– Other insurance clause
Lillehammer Energy Claims Conference
o Annual conference in February since 1996
o Insurance and claims representatives of Energy Clients,

Brokers, Insurers and Loss Adjusters (209 attendees in 2009)
o Lillehammer claims handling protocol
o Terms of engagement
www.energyclaims.net
We have ridden out many storms
what does the future hold?

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Introduction

Gard AS, Arendal,

o High Risk Operations – release of hydrocarbons

o About oil and gas operations

History, Players, Regulation Regimes and Offshore Oil & Gas

o Oil, Gas and Condensates = Petroleum

o Three main activity categories

– Midstream activities (transport from offshore field to marine terminal/

– Downstream activities (refining, petrochemical, processing,

o Oil and gas companies (Operator and other license holders)

o Joint Venture (JV)

o Joint Operating Agreement (JOA)

o Usually the license holder with the largest participating interest

o Contracting with service providers and vendors

Development Field Technical Exploration Financial/Legal

o 1859 – ”Colonel” Edwin Drake’s first ”drilling well” in

o 1870 - John D. Rockefeller and Standard Oil Company

o The Nobel Brothers' oil wells in Balakhani, a suburb of Baku.

Photo: Asbrink Collection

o 1900 – 1920’s - California, Lake Maracaibo and Louisiana

Source: Oil Rig Disasters

Source: Norwegian Petroleum Museum

o Autumn 1962 - Phillips Petroleum started geological studies

o May 1963 - Norwegian sovereignty to submarine natural

o 1965 - Agreement with Great Britain and Denmark about the

o The area south of 62nd latitude divided into 37 squares, which

Source: Norwegian Petroleum Museum

o 9 June 1971 - J/U Gulftide at Ekofisk Field

Source: Norwegian Petroleum Museum

o 1975 - Norway net exporter of petroleum, Norpipe oil pipeline

Total Norwegian production

Oil rate (mill. scm per year)

30 Oil rate (m ill. scm per year)

Oil Production Oil Net Exports

Saudi Arabia Saudi Arabia

Source: BP Statistical Review of World Energy 2009

A comparison with some other commodities

Crude Oil 84.58

o National ownership of the natural resources on the country’s

o Other Government Departments

o Federal and State/Province/Territory

History, Markets, Market forums & Placing of Insurance

o September 1965 – Hurricane Betsy

o 1966 – London Master Drilling Rig Contract (L.M.D.R.C.)

o August 1969 – Hurricane Camille

o 1972 – Oil Insurance Limited

o 1986 – Oil Casualty Insurance Limited

o P&I – Assuranceforeningen Gard & Skuld

o First Policy: Smedvig’s ”West Venture”

o 1970’s – Norwegian Contractors (Aker)

Source: The Norwegian Museum of Science and Technology

o 1974 ”Beryl A” – Mobil (operator) &

o 1980’s – Nordic Offshore Market Association (NOMA)

o Forum for Oil & Gas (FOG)

o CEFOR – Energy Committee

o European Energy Insurance forum (EUROFOR)

o IUMI – Offshore and energy committee

o 1996 – Lillehammer Energy Claims Conference

o 1992 – The turn of the market

o 30 August 1996 – Lloyd’s Reconstruction and Renewal Plan

– Gard the only Underwriter for International Energy Risks

 Only mobile offshore units

o Energy Insurance Oslo (International General Insurance)

o If Property & Casualty Limited