Overview of Operational Risk / Liability U.S. Maritime and Offshore Oil & Gas Industries

RISK = PROBABILITY x CONSEQUENCE What is risk? Set of All Possible Hazards – what can go wrong? Likelihood of Occurrence of Hazards – how possible is it? Consequence of each Hazard – how bad can it get? RISK = PROBABILITY x CONSEQUENCE Provide definition of risk. Talk briefly about how risk is managed by reducing probability of occurrence and reducing a hazard’s consequence. Next slide shifts focus to the Audience’s services.

Hazards of Business Operational: Legal / Financial: Scope of Work Indefinite Beyond capabilities Project management Resources Planning and logistics Execution Delays, productivity, competing projects Reliance on third parties Deliverables Time Quality Changing expectations Accidents Property or equipment People Acts of God and Nature Legal / Financial: Pricing risks Payment risks Delay costs Claims for defective deliverables Termination risks Discuss various ways the Audience faces risks in its business activities – use examples from audience or on presenter’s own. Relate back to Probability x Consequence, then proceed to next slide for specifics.

Offshore Oil & Gas Activities Exploration Seismology Seafloor surveying / Mapping Drilling Transporting supplies, equipment or personnel Development Construction Wells Structures / facilities Pipelines Pipe-laying Transporting supplies, equipment, or personnel Production Operating structures / facilities On-site processing Transporting oil, gas, & gas condensates

Maritime & Shipping Activities Logistics Managing inventory on-shore Loading Transporting, navigation, & pilotage Off-loading Customs Vessels / Assets Newbuilding/commissioning Operation and Maintenance Salvage Cargo Bulk Container Human transport (Cruise ships) Special purpose (FPSO, LNG, Tenders, Tugs, etc.) Port Navigation Stevedoring Cranes Drydocking

Probabilities & Consequences For Example: Late arrival at designated location: Probability: medium to high Consequence: - no material delay to others: no impact - delays overall project: $$ impact Employee Error: Probability: low to medium Consequence: - not material error: no impact - material error: $$ impact - critical error: impact to life, property, or project viability Collision at Sea – Our negligence: Probability: low Consequence: - injury to customer personnel & property - injury to third parties or 3rd party property Start talking in $ terms: (1) Late arrival = delay in project - lost revenues from delayed start; or extra costs for expediting to maintain schedule after our late delivery . . . Etc.

U.S. General Common Law concepts Intentional Acts Assault, Battery, Trespass, False Imprisonment, Defamation Fraud, Wrongful Interference with Contract or Business Relationship Intentional Infliction of Emotional Distress Negligence Acts that a person exercising ordinary care would not do under similar circumstances; or Fails to do what a person exercising ordinary care would do under similar circumstances. Negligence per se Violation of a statute or ordinance that provides criminal penalty and that violation causes injury to another Strict Liability in Tort Abnormally Dangerous Activities Product Liability

More Specific Law concepts Unseaworthiness Ship owner’s duty to maintain its vessel in a seaworthy manner Vessel’s equipment, masters, and members of the crew can render a vessel unseaworthy Jones Act Vessel owners’ liability for injuries to seamen Oil Pollution Act Responsible party liability for response costs to oil spills U.S. Admiralty Law Affect ship owners, cargo owners, marine insurers, and crew Pertain to salvage claims, marine pollution, and collisions at sea Anti-Indemnity Statutes of TX, LA, NM, & WY

Risk Management - Key principles Risk Quantification Likelihood Consequence Risk Mitigation Measures Risk acceptance criteria Barrier identification and monitoring What can go wrong? How big? How often? Is that OK? What can be done? Is it being done? This is not a lesson in Risk Management, but it may help people see why effectively managing EACH contract is so very important to enterprises of substantial size. Smaller companies can get away with no focusing to the same extent, because their daily viability relies more on growing the opportunities than managing the existing opportunities. Smaller companies that do not grow (capture enough contracts) early on will simply fail – an acceptable risk. Once a company is large enough, it is no longer acceptable to allow one contract to be the end of the enterprise. Hence, the introduction of Risk Mitigation Measures to control Risk.

Mechanisms for Controlling Risk Shift Risk to someone else Buy Insurance Seek Contractual Protections Employ operational excellence Employ the best people Maintain state of the art operations Provide best on-going training, and Keep highly motivated