International Maritime Offshore Logistics (IMOL 2011) INSURANCE FOR THE OFFSHORE SECTOR Presented by Prof. A.W.J. (Tony) Fernandez Consulting Average Adjuster, & Risk Management Consultant Formerly Visiting Professor of Maritime Law & Insurance Law – Mumbai University Foreign Associate Member – Association of Average Adjusters of the United States IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 01/30

Presentation Overview 1. Managing Risk in the Energy Industry 2. Offshore Operations 3. Drilling Contracts 4. Energy (Oil & Gas) Insurance IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 02/30

Gumperson’s Law of Probability The probability of anything happening is in inverse proportion to its desirability! IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 03/30

Risk Management 1. Risk Assessment – Planning Phase 2. Risk Treatment – Organizing Phase 3. Risk Financing – Motivating Phase 4. Risk Control – Controlling Phase IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 04/30

Managing Risk – A Model Hazard Peril Risk Loss Risk Assessment Organizational Objectives Risk Control Risk Treatment Risk Financing IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 05/30

Property will be damaged in direct proportion Murphy’s Constant Property will be damaged in direct proportion to its value! IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 06/30

The Organising Phase of RM Hazard Peril Risk Loss Risk Treatment Transfer Reduction Organizational Objectives Residual Risk IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 07/30

The Organising Phase of RM (Continued) Hazard Peril Risk Loss Risk Transfer By Insurance Commercial Insurance Mutual Organizational Objectives Residual Risk IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 08/30 8

The Organising Phase of RM (Continued) Hazard Peril Risk Loss Risk Transfer By Insurance Contract Organizational Objectives Residual Risk IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 09/30

Offshore Life Cycle 1. Exploration Phase 2. Developmental Phase 3. Exploitation Phase 4. Revival Phase 5. Removal Phase IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 10/30

Risk Exposure – Offshore Oil & Gas 1. Causes of Accidents - Acts of God / Perils of the Seas - Human Frailty - Punch-through - Blowout and Cratering 2. Consequences of Accidents - Personnel – Injury / Disability & Death - Physical loss or damage – Partial / Total - Loss of Production / Loss of Profits - Liabilities – Legal and Contractual IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 11/30

The Foolproof Law It is impossible to make anything foolproof because fools are ingenious! IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 12/30

The Offshore Players 1. The Operator (Venturer / Co-Venturer) 2. The Various Contractors & Sub-Contractors 3. The Various Oil Field Service Providers 4. Other Service Providers (Including Insurers) IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 13/30

Fixed Assets – Offshore 1. The Offshore Oil / Gas Field 2. The Reservoir 3. The Well 4. The Platform / Sub-sea Equipment IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 14/30

Movable Assets – Offshore 1. Jack-up Drilling Rig 2. Semi-submersible 3. Drill Ships 4. Other Special Purpose Ships IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 15/30

Offshore Contracts 1. Responsibility Clause 2. Indemnity & Hold Harmless Clause 3. Insurance Clause 4. Waiver of Subrogation Clause IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 16/30

Offshore Insurance For Operations 1. Exploration Drilling 2. Construction 3. Drilling / Production / Work Over 4. Removal of Platforms IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 17/30

Offshore Insurance For Operations 1. “All Risks” Cover For Physical Loss / Damage 2. Control of Well (Blowout / Cratering) 3. Re-drilling Expenses / Pollution / Seepage 4. Liabilities – Marine & General IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 18/30

Insurance of Legal Liabilities 1. Common Law Liabilities - Collision Damage Liabilities - Contact Damage Liabilities - Other Liabilities to Third Parties 2. Admiralty Law Liabilities - Maritime Salvage - General Average 3. Statutory Liabilities - Removal of Wreck Liability - Pollution Liability - Other Statutory Liabilities IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 19/30

Insurance of Contractual Liabilities 1. Under the Drilling Contract - Control of Well Costs - Re-drilling Expenses - Pollution – Seepage & Clean-up 2. Under other Contracts - Down Hole Equipment Contracts - Contracts of Towage - Contracts of Carriage IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 20/30

Express Warranties In Energy Risk Policies Tug, Tow, Towage and Storage Warranty Location Approval for Jack-ups Jack-up Moves on and off Location Blowout Preventers IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 21/30

Piper Alpha Disaster On July 6, 1988, 167 lives perished on the Piper Alpha Platform, located in the icy North Sea. The worst offshore oil accident In history, the Piper Alpha disaster quickly revolutionized the offshore oil industry. Today the offshore oil industry is dramatically different. IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 22/30

Piper Alpha Prior to Disaster Slide 23/30

Piper Alpha What Remained After The Disaster (1988 – 167 Lives Lost) Slide 24/30

Bombay High North Complex Prior to Disaster Slide 25/30

The BHN Disaster Slide 26/30

MSV SAMUDRA SURAKSHA Slide 27/30

BHN Platform What Remained After The Disaster Slide 28/30

Conclusion Highly Technical Highly Volatile Premium Rates & Wordings Highly Dynamic - Need Based Policies & Claims Continuous Learning IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 29/30

Acknowledgement With deep affection and respect, I dedicate this Presentation to Late Mr. Harry Noronha and to Mr. Narender Menon, with whom I surveyed and adjusted India’s first Offshore Insurance Claim of “SAGAR VIKAS” Blowout. IMOL-2011, Insurance For The Offshore Sector © Prof. A.W. J. (Tony) Fernandez, Slide 30/30