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©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 1 Quantitative Risk Assessment and Mitigation for Onshore and Offshore Assets Paolo Bazzurro, Ph.D. Akshay Gupta, Ph.D., PE 2010 Marine Insurance Seminar Houston, TX September 20, 2010
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 2 What’s Churning in the Atlantic?
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 3 Agenda Hurricane hazard for GoM Exposure –Offshore –Onshore Vulnerability Evaluation of Loss Potential –Example: Energy entity with onshore and offshore assets
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 4 Tropical Storms in the Atlantic
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 5 Historical Major Hurricanes Major Hurricane (V > 110 mph) Tracks in GoM : 83 events
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 6 Average and 2010 Atlantic Hurricane Season TROPICAL STORMS 6.2 (58%) HURRICANES 2.8 (26%) MAJOR HURRICANES May Jun Jul Aug Sep Oct Nov Dec Jan Atlantic Hurricane Season Atlantic Basin Storm Count CSU Projection (as of Aug. 4, 2010, same as Jun 2, 2010) /15/
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 7 Exposure
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 8 Offshore Exposure: Platforms and Rigs ~5500 Platforms/Rigs ~$90B
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 9 Platform TypeCON Code Total CountValue (Million USD) UNKNOWN $ - CAISSON 801 2,186 $ 7,147 COMPLIANT TOWER $ 1,198 FIXED JACKET 803 2,555 $ 34,026 JACKUP $ 6,083 MTLP $ 1,036 DRILL RIG $ 824 SEMISUB $ 8,913 DRILL SHIP $ 2,721 SPAR $ 11,336 SUBMERSIBLE $ 365 SUBSEA EQUIP $ 26 TLP $ 11,624 WELL PROTECTOR $ 1,842 Total 5,423 * $ 87,141 Offshore Exposure: Platforms and Rigs * Platforms in TX state waters not accounted for Source: AIR
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 10 Offshore Exposure: Wells ~27,000 Wells
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 11 Offshore Exposure: Oil Production Volume (2009) 2300 BCF $10B GAS 420 Million BLLS $23B OIL
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 12 Offshore Exposure: Subsea Pipelines ~35,000 miles ~$70B
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 13 Onshore Energy Exposure Image source: National Petrochemical and Refiners Association Platform Fabrication Yards Port Facilities Shipyards and Shipbuilding Yards Support and Transport Facilities Waste Management Facilities Pipe Coating Yards Natural Gas Processing Facilities Natural Gas Storage Facilities Refineries Petrochemical Plants
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 14 Vulnerability
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 15 Risk to Offshore Platforms
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 16 Risk to Offshore Platforms Mean Sea Level (MSL) Topside (Decks and Equipment) Structure and foundations Jacket Platform Mud line Waves Wind Waves dominate
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 17 Risk to Offshore Platforms
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 18 Risk to Offshore Platforms Before Rita After Rita Removing fallen drilling rig Drilling Rig on MARS Tension Leg Platform ~ 150,000 bpd $300M PD loss ~ $10M/day BI loss ~ 10 months to fix
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 19 Risk to Subsea Pipelines, Wells and Equipment Subsea currents Mudslides Damage and Failure of Platforms/Rigs Oscillatory current (Image source: OTC Ref #17734 (Image source : MMS Report # 581“Pipeline Damage Assessment from Hurricanes Katrina and Rita)
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 20 Risk to Onshore Assets Wind Flood (storm surge & precipitation)
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 21 Risk Assessment for an Energy Entity
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 22 Energy Company A: Upstream - Downstream Company A Exposure Two Platforms -1 Fixed Jacket -1 TLP Twenty Wells 7 Natural Gas 13 Oil 75 miles of subsea pipelines $3B onshore refinery $750M storage farm
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 23 Overall Modeling Methodology
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 24 Stochastic Catalog Location Frequency Min. Central Pressure Radius of Max. Winds Forward Speed Landfall Angle Annual Frequency Development of a HUR Stochastic Catalog
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 25 Hazard: Simulation of Cyclone Parameters
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 26 50,000 year event stochastic catalog –50,000 possibilities of next year’s activity in GoM Over 200,000 events in the 50,000 year catalog Validated against historical record Hazard: Stochastic Catalog Event Set for GoM
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 27 1’-sustained Wind (Hurricane) Hazard Curve Category 1Category 2Category 3Category 4Category ’-sustained wind speed (mph)
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 28 Significant Wave Height, H s Wave Crest, H max Wave Duration Gulf of Mexico Wave Model Site A Site B
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 29 Exposure: Platforms Location Type Deck Height # of Decks # of Legs Bracing System Manned/Unmanned TRV % of TRV in topside # of Wells Production Volume 28.91°N 90.13°W
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 30 Exposure: Undersea Pipelines Path Diameter Buried/Unburied Flow Volume Start: 28.91°N 90.13°W End: 29.22°N 90.09°W
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 31 Exposure: Refinery and Storage Farm Location Facility TRV Breakdown of TRV by blocks Breakdown of block TRV by components (e.g., cooling towers, control centers, reactors, etc.) Elevation of blocks and components Product Daily Revenue 29.22°N 90.09°W 29.23°N 90.12°W
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 32 Exposure: System Operations Network Operational connectivity from wells to sales Connectivity between facilities AND within facilities Essential for accurate BI loss est..es System Connectivity VS. Refinery Platform 1 Storage Platform 2 Refinery Connectivity Refinery Platform 1 Storage Platform 2 Sales
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 33 Vulnerability of Platforms to Wave Loading Mean Damage Ratio Wave Height - Deck Height Mean Damage Ratio Wind Speed
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 34 Vulnerability of Pipelines to Currents/Mudslides Damage CauseDamage State(s)Intensity Measure MudslideRuptureMudslide Stability Factor Underwater currentExposureSubsea Oscillatory Current Underwater currentLeak, RuptureOn Bottom Stability Factor Underwater currentDisplacementOn Bottom Stability Factor Platform collapseRupturePlatform Damage Ratio Falling debris from platformDent, LeakPlatform Damage Ratio Anchor dragRupture, DisplacementPlatform Damage Ratio Pipeline Vulnerability defined by fragility functions relating probability of a particular damage state to the appropriate hazard intensity measure
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 35 Vulnerability of Onshore Assets to Wind
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 36 BI Loss Probabilistic Loss Analysis Site-Specific Hazard Curves + Exposure (Assets) and Vulnerability Physical Loss Event Catalog
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 37 Probabilistic Loss Estimates: By Peril Loss by peril: note difference in relative loss between 100 yr and > 1000 yr loss. Helps determine appropriate risk mitigation strategy within portfolio. Total Loss Mean Return Period (years) Waves Wind Surge Current
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 38 Probabilistic Loss Estimates: By Asset Disaggregation of loss (PD and/or BI) into primary components (could be amongst properties in the portfolio, by coverage, etc.). Helps determine where to focus risk mitigation. Portfolio Oil Wells Storage Platform 1 Refinery Platform 2 Gas Wells Pipeline AAL Oil Wells Refinery Pipeline Storage Platform 2 Platform 1 Gas Wells
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 39 Probabilistic Loss Estimates: Network Explicit network analysis leads to realistic BI computation; ignoring network results in markedly erroneous results Total Loss Mean Return Period (years) Network NOT included Network included
©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 40 Conclusions Significant offshore and onshore exposure at risk from tropical cyclones Scientific and engineering approach for probabilistically quantifying the hazard, physical damage, and business interruption Quantitative risk estimate can provide the sound basis for informed decision making related to catastrophe risk mitigation
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