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FPSO Contractual and Insurance arrangements - Lillehammer

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					Contractual Allocation Of Risks /
Insurance Requirement FPSO
Projects

Presentation
Lillehammer Energy Claims Conference
2012
                                                    Homyar Jilla
                            Head of Construction Risk Management
                                           Shell Risk & Insurance
                                                28 February 2012
DISCLAIMER STATEMENT

This presentation contains forward-looking statements concerning the financial condition, results of operations and
businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be,
forward-looking statements. Forward-looking statements are statements of future expectations that are based on
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These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’,
‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’, ‘‘target’’, ‘‘risks’’,
‘‘goals’’, ‘‘should’’ and similar terms and phrases. There are a number of factors that could affect the future operations of
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included in this Report, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand
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and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential
acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing
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developments including potential litigation and regulatory effects arising from recategorisation of reserves; (k) economic and
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                                                                                                                                                              2
forward-looking statement as a result of new information, future events or other information. In light of these risks, results
Agenda


  Owned and Leased FPSO
  Hazard Risks in Oil & Gas Operations
  Liability , Indemnity & Insurance
  Standard Risk Allocation in an Offshore Contract
  Typical Risk Allocation Matrix
      Owned FPSO
      Leased FPSO
  Typical Insurance Requirements
  Q & As


                                                     3
Trivia (2)

Correct Answer is B


There are about 220 vessels out there, combination of
Leased and Owned FSOs - FPSOs.


We believe there are around 184 FPSOs currently
operating around the World.




                                                        5
    Trivia (3)

.


How may of them are Leased by the Operator, i.e. in care
custody and control of the Contractor, who would operate
it on behalf of the Principal?
A. + or - 25%?
B. + or – 50%?
C. + or – 75%?




                                                       6
Bonga Main Infrastructure - Nigeria


                                      120 Kms off the
                                      coast of Niger Delta


                                      Water depth >
                                      1000m


                                      FPSO supplied by
                                      32 subsea wells


                                      Oil 225 Mbbl/d
                                      Gas 150 MMscf/d

                                                             8
Bonga Main Infrastructure - Nigeria




                                      9
BC – 10 Development - Brazil

                               110 kms off South East Coast
                               of Brazil


                               Moored in 1,780 m of water,
                               placing it in some of the
                               deepest waters for a FPSOs
                               in the World.


                               Multiple field; 10 subsea
                               wells, tied back to a centrally
                               located FPSO


                               Oil 100 Mbbl/d
                               Gas 50 MMscf/d



                                                                 10
 Prelude FLNG




•Combining the FPSO and LNG experience and Technologies to build a
FLNG.
•FLNG Size 489m x 74 m
• Production Rate 3.8MTPA of LNG plus associated condensate and LPG   11
 FPSO Owned or Leased

Why do Operator/s lease a FPSO? Why not own it?

It’s probably more cost effective to own a vessel rather than to lease it in the long
run, nonetheless, there may be a good Business Case for leasing one:
    Initial Capital investment

   Speed and efficiency - Short time delivery.

   Life of the field

   Maximise the use of available resource / manpower

   Near cost certainty

   Option to “buy out” during the leased period

   Typically small to medium FPSOs are often leased; refit and or conversion of an
   existing vessel could be done more economically and within a very short period

   Large FPSOs are often purpose built; they are likely to be owned rather then
   leased.
                                                                                        12
Hazard Risks in Oil & Gas Operations

  Risk of Owner/Operator and Contractor/Subcontractor for own people
  and own property damage (including damage to Permanent Work)
  Risk of liability to the Third Parties for:
     Personal injury, property damage, consequential losses, pollution
  Risk of pollution of contamination from the parties’ equipment/assets
  or the reservoir
  Risk of consequential losses
  Who is responsible for what and how much?
   Depends    on the applicable law and

   Contract   terms (Liability, Indemnity and Insurance provisions)


                                                                          13
Liability, Indemnity & Insurance

 Liability & Indemnity = legal and Financial responsibility
  Who     is responsible to pay if damage / injury occurs?
         Absence of a contract: Applicable law; negligence based; strict liability

         As per contractual risk allocation (L&I provisions); an indemnity is a contractual
          obligation to hold the other party harmless (pay compensation)




 Insurance:
  Provides     the financial means to support the liability / indemnity
  obligations

  Does    not allocate responsibility for the loss/damage

  Risk   Allocation must drive insurance not the other way around

                                                                                               14
Standard Risk Allocation in Offshore Contracts


  Risk of injury to own personnel and own property is allocated on a
  knock for knock / mutual hold harmless basis
  Risk of liability to third parties as a result of the operator’s or
  contractor’s conduct is allocated on a fault/negligence basis
  Consequential losses are usually mutually excluded
  Pollution Risk is often allocated on a knock for knock basis with
  each party assuming the risk of pollution emanating from its
  property and owner taking responsibility for pollution from the Well




                                                                         15
Advantages of Knock for Knock

Why K-4-K?
Why not make the party negligent be responsible for the loss?
   Clear and predictable risk allocation
   Driven by sphere of control: Each party best positioned to manage
    the risk of injury to its people and damage to its property
   Reduces insurance costs
   Encourages open exchange of information
   Enables disputes to be resolved and compensation paid
    (relatively!) quickly
   Reduces blame culture

                                                                    16
       Typical Risk Allocation Matrix – (Owned FPSO)
                                                                         Contractor Group
                                                         Company         (includes Contractor’s other
                          Risk
                                                          Group             contractors, agents and
                                                                               representatives)

Injury to Company Group employees                             X

Injury to Contractor Group employees                                                  X
Damage to Company Group Property including
                                                              X
wreck & debris removal
Damage to Contractor Group Property including
                                                                                      X
wreck & debris removal
                                                         Following the
Damage to the FPSO                                                        Up to the Handover
                                                          Handover
Pollution emanating from Company Group Property
                                                              X
including FPSO and Reservoir
Pollution emanating from Contractor Group
                                                                                      X
Property
Company Group Consequential Loss                              X

Contractor Group Consequential Loss                                                   X

Third Party Liability (other than pollution liability)              Negligence based


                                                                                                        17
      Typical Risk Allocation Matrix – (Leased FPSO)
                                                                           Contractor Group
                                                          Company         (includes Contractor’s other
                         Risk
                                                           Group             contractors, agents and
                                                                                representatives)

Injury to Company Group employees                             X

Injury to Contractor Group employees                                                   X
Damage to Company Group Property including
                                                              X
wreck & debris removal
Damage to Contractor Group Property including
                                                                                       X
wreck & debris removal
Damage to the FPSO                                                                     X
Pollution emanating from Company Group Property
                                                              X
and Reservoir
                                                           Excess of       Upto Contractor’s per
Pollution emanating from hydrocarbons stored in
                                                          Contractor’s   occurrence P&I insurance
the FPSO
                                                         P&I insurance      limit for the FPSO
Pollution emanating from Contractor Group
                                                                                       X
Property
Company Group Consequential Loss                              X

Contractor Group Consequential Loss                                                    X

Third Party Liability (other than pollution liability)              Negligence based                     18
Insurance

Can all Construction Projects and/or Operations be fully insured?
 May   be not!

Current Value of some of the major Offshore Projects / Assets are
estimated to be > USD 5b


Current Offshore insurance market capacity using S&P “A” or better
(without Captives)
 Construction:   approx USD 2.5bln

 Operational:    approx USD 3bln

Deployment of insurance capacity based on EML
 Onshore:    EML significantly lower than total Project value

 Offshore:   Market generally considers Estimated Value of a single asset as the EML

                                                                                    19
 Typical Insurance Coverage (1)


         Coverage                                   Insurance Requirements

Employers’ Liability              Employers Liability and/or (the jurisdiction of where scope of work is to
                                  be supplied or under which the employees are employed).
                                  Statutory Workers’ Compensation insurance.

Motor Third Party Liability       Third party and passenger liability insurance as may be required by
                                  applicable law in the Countries for the use of motor vehicles used in
                                  connection with the execution of the Project..

General Third Party Liability     General Third Party Liability insurance (including coverage for sudden
                                  and accidental pollution) for any incident or series of incidents arising
                                  out of Construction and/or Operational activities.

Construction All Risk (CAR)       CAR insurance for loss or damage to the FPSO, “Work”, Materials and
                                  Company Provided Items to be incorporated in the FPSO and Work


Operational All Risks Insurance   Operational All Risks insurance for loss or damage to the FPSO as a
                                  result of the Operational activities.


                                                                                                          20
 Typical Insurance Coverage (2)

         Coverage                                   Insurance Requirements
Property Insurance                Property insurance for loss or damage to other owned, leased or hired
                                  property of Contractor Group


Hull & Machinery for vessels H & M insurance, including, but not limited to, war risk and, to the
used and/or hired by Contractor extent not covered by the P&I policy, collision liability insuring loss or
Group                           damage to the vessels used by Contractor Group.

Protection & Indemnity (P&I)     P&I insurance with an International Group P&I Club including but not
“FPSO”                           limited to, coverage for injury to master and crew, wreck and debris
                                 removal, collision liability not covered by H & M insurance, excess
                                 collision liability, third party liability and pollution liability.
P&I -“Other Vessels” or floating P&I insurance with an International Group P&I Club or Commercial
equipment used or hired by insurers, as above.
Contractor Group

Aircraft Liability used or hired by Aircraft Liability insurance insuring injury, loss or damage to persons
Contractor Group                    and property arising from aircraft operations.


Such further insurance as may
be required by law.
                                                                                                          21
Typical Insurance Coverage (3)

  For an Owned FPSOs, the Owners are likely to procure a Contractors’ All Risks and/or
  Operational All Risks Insurance.

  For a Leased FPSO, the Contractors are more likely to procure a limited Perils H & M
  type Insurance

  The Operator Owned insurance arrangements, would in most cases carry a high
  Deductibles, USD 5m a.o.o is not uncommon

  For Leased FPSOs, under the Contractors arranged insurance programme, the
  Deductibles are likely to be low, around USD 1m a.o.o.

  P&I insurance for the Owned FPSO, the Owners may seek a limit > than USD 500m.

  For Leased FPSO, the contractor is more likely to arrange limited P&I insurance;
  sufficient to cover it’s Liability to the Third Parties and to it’s crew

  Ideally for Leased FPSOs, it would be favorable to all parties, if a single P&I insurance
  could be arranged to cover all liabilities and pollution exposures

                                                                                              22
Additional Contractor Insurance Requirement


Required Clauses on Insurance Policies
  Company Group to be included as an additional insured under the General Liability,
  Auto Liability and Aircraft Liability policies to the extent of the liabilities and
  obligations assumed by Contractor under the Contract.

  For Leased FPSO Company Group to be included as a Co-insured under the CAR
  and/or H & M policies.

  Company Group to be a co-insured under the P&I policies.

  To the maximum extent permitted by Applicable Law, all insurances required will be
  endorsed to provide that underwriters waive any rights of subrogation against the
  Company Group to the extent of the liabilities and obligations assumed by
  Contractor under the Contract




                                                                                        23
FPSO Presentation




                    Q&A?

                           24

				
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