Now! - Asia Offshore Energy Conference

Deepwater Oil & Gas
Developments
- Risk Transfer The Challenges and Opportunities
for Insurers
By Paul O’Keefe, Executive Director, Aon Global Energy
Bali, Indonesia 30th September 2010
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Energy Market Update
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Capacity at a 10 year high
Opportunistic capital returning
Lack of natural catastrophe losses
2009 global energy premium US$ 5 billion / losses US$ 3.75 billion
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Market “response” to Deepwater Horizon
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Forecast
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More purchase of BI coverage resulting from pollution
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Increased liability limits purchased (voluntary and / or statutory)
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Pressure on OEE rates and limits
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Increased reinsurance costs?
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Reduction in affordable XOL reinsurance
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Some withdrawal of quota share capacity
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Stricter reinsurance security requirements
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New capacity attracted by hardening rates
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Closely watching outcomes GoM hurricane season 1 June – 30
Nov
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Tropical Storm Risk predicts a 92% - 97% probability that activity
will be in the top one-third of years historically
Source: Aon Energy / Global Reinsurance June 29, 2009 / Wall Street Journal May 2010 / Credit
Suisse Research Note May 2010 . TSR Forecast July 2010
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Key Point No.1
More volatile market – need for a risk
approach to differentiate risks
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What does an Underwriter Not want to Provide!?
Examples include:•
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Cover for Normal Operational Risks / Business Risks
Cover for Consequential Losses
Wilful misconduct
Guarantees
Cover for inevitable incidents
Underwriting technology development
Deep water developments are perceived by Underwriters
to push the boundaries of technology and the
capabilities of the industry…
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Technology - Barriers to Change!
• Maturity of technology ?
• Demonstration of reliability ?
• Sufficient priority and focus ?
• Business risk ?
• Mental barriers – perceptions ?
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Key Point No.2
Technology Challenge……….
Common aspects of a deepwater risk
– Manufacture – greater QA/QC needs
– Economics = All subsea development
with Greater tie back lengths to shore
– Subsea Processing
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Nyhamna
Offshore – subsea to shore concept
-250m
Storegga slide edge
Control umbilicals
and MEG lines
Template A
Template B
2x30" multiphase lines
-500m
-850m
Pipeline End Termination (PLET)
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Key Point No.3
Repair Capability in Deepwater:
• Pipeline Repair tool
• Well Cap tool development
• Anchoring systems
• Riser production
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Key Point No.4
Well Control Insurance & Increased
limits:
• Needs to be an annualised approach
– marked change, limits available
(ExcEED)
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Key Point No.5
Drive towards specialist liability
underwriting:
Increasing government financial
guarantee funds
– OPOL increased to US$250million a.o.a.o.
– US looking at US$10billion?
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OPOL – Increase Limits
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Key Points No.6
Construction Risks:
• CAR memories blighted by rising
CAPEX index
• CAR – good loss history in Deepwater
• Question the Justification of rate rises?
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IHS CERA UCCI
0.2 Percent Increase in First Quarter 2010
Up 0.2%
Source: IHS CERA.
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IHS_CERA_CCAF-U_RT_Houston_0510
Recent Loss Situation (Offshore Construction)
North Sea
Damage to risers
$200m
Middle East
Topside damage
$20m
Taiwan
Pipeline damage
$110m
Malaysia / Thailand
Pipeline damage
$75m
Indonesia
Pipeline damage
$100m
Malaysia
Mooring shackle damage
$60m (res. $164m)
Malaysia
Subsea tree damage
$6m
Malaysia
Mooring line
$12m
GOM
Mooring shackle damage
$100+m?
India
Pipeline damage
$60m
North Sea
Pipeline damage
$60m
South China Sea
Pipeline damage
$5.5m
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Are rate rises justified?
• The recent losses were operational losses, not
construction losses
• CAR insurers increased rates and reduced
coverage in 2008/2009 following a poor
construction loss record in 2008. There is no
justification for a further increase
• In 2008/2009 operational insurers did not
increase operational rates as a consequence of
the construction losses.
• Competition remains strong with increases in
capacity from a number of new entrants and a
wider choice of leaders.
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Deep Water - Conclusions
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Need for a risk approach to differentiate risks
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Greater QA/QC needs for manufacture
Potential for significant tie back lengths to shore
Driver for Subsea Processing
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Repair Capability in Deepwater is part proven
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Increased cover for COW and associated pollution clean up needs a
new approach
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Liability insurance market growth with increasing government financial
guarantee funds and drive towards specialist underwriting
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There is no justification for an increase in CAR rates, particularly for
deepwater developments
– CAR memories were blighted by rising CAPEX costs
– CAR risks have a good loss history in Deepwater
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