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Offshore Energy Insurance

Marine Insurance WP 　 18 September, 2013 Sydney

Hiroaki KobayashiMelbourne Chief Representative,

Tokio Marine & Nichido Fire Insurance Co., Ltd.

General Manager – Southern Region,

Tokio Marine Management (Australasia) Pty. Ltd.

Risks in AustraliaFrom an underwriter’s

perspective

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Self Introduction 1993-97 Graduated from Keio University – Law & Political Science 2003-04 Tokio Marine sponsored Chinese Language Trainee Course at Fudan University in

Shanghai 2008-10 Obtained Finance MBA at Graduate School of Waseda University

1997 - Tokio Marine Fire Insurance Co., Ltd. 1997 - Introduction to aviation insurance

2000 - Marine Industry Production Dept responsible for offshore energy insurance for regions including North Sea, Vietnam,

Sakhalin, Gulf of Mexico, Azerbaijian, Australia

2004 - Tokio Marine & Nichido Fire Insurance Co., Ltd. Shanghai Representative

in charge of Chinese territories Suzhou, Beijing, and Qingtao for all classes of insurance business

2007 - Marine Industry Production Deptin charge of offshore energy insurance for regions including Australia, North Sea,

Gulf of Mexico, Sakhalin, Middle East, Egypt, Brazil.You will be familiar with major projects such as Pluto CAR and Gorgon CAR which I

underwrote.

2012 - Melbourne Chief Representative General Manager – Southern Region, Tokio Marine Management

(Australasia) Pty LtdResponsibility for Victoria, South Australia, Western Australia, Northern Territory and

Tasmania Management responsibility for major Japanese corporations operating in Australia

such as Toyota, Mitsubishi Motor, Mitsubishi Corporation and so on.I am also engaged in various offshore energy projects including Ichthys,

Wheatstone, Pluto, Gorgon, Bayu-Undan and North West Shelf Project.Specialized Interest : Offshore Energy Insurance, Environmental Law,

International Law

(1) Australia has three existing LNG projects with a total capacity of 24.3 million tonnes per annum (mtpa).

・ North West Shelf・ Bayu Undan・ Pluto

(2) Seven LNG projects are under construction in Australia, with capacity approaching 90 mtpa by the end of the decade.

・ Gorgon ・ Wheatstone

・ QC LNG・ Gladstone LNG・ Prelude 　→　 FLNG・ AP LNG・ Ichthys

(3) Other proposal projects may developwith Floating LNG technology.

・ Browse 　→　 FLNG ?・ Sunrise 　→　 FLNG・ Bonaparte 　→　 FLNG ?・ Scarborough 　→　 FLNG ?

1. Floating LNG - Australia’s LNG Project

Insurance Arrangement for Floating LNG is under pressure – Limited Capacity

<Hot Issue in Australia>

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Source : JOGMEC

Source : Shell

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Development Stage

Operator's Extra Expense (Cost of Control)Operator's Extra Expense (Cost of Control)

Physical Damage 　① F-LNG ②subseaPhysical Damage 　① F-LNG ②subsea

Business InterruptionBusiness Interruption

Third Party LiabilityThird Party Liability

Construction All Risk① F-LNG 　② SubseaConstruction All Risk① F-LNG 　② Subsea

Delay-in Start-upDelay-in Start-up

MaintenancePeriod

MaintenancePeriod

Wells

Third Party Liability for drilling activityThird Party Liability for drilling activity Third Party Liability for site operationThird Party Liability for site operation

Contra

ctor

Third Party Liability / Protection & IndemnityThird Party Liability / Protection & Indemnity

Physical DamagePhysical Damage

Marine CargoMarine Cargo

Operation Stage

F-LNG

/ SU

RF

1. Floating LNG - Insurance Products for Floating LNG

(1) Offshore Energy Insurance is usually placed in the international insurance market, such as Lloyd’s or major continental underwriters.

(2) Accepted, Specialized policy wordings are utilized in the Offshore Energy Insurance Market with limited number of underwriters participating.

(3) Current capacity of Energy Insurance Market is considered to be around $3.5 billion, which is low compared with the exposures / sums insured of hull and topsides etc..

(4) Advent of new and unproven technology has created difficulties for the underwriting markets. Current trend is to support proven and validated technology.

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Market Capacity

1. Floating LNG - Offshore Energy Insurance

Maintenance

Hull+Tanks

Topsides

Subsea

3rd Excess

Layer

2nd Excess

Layer

1st Excess Layer

Primary Layer

Beggining of Construction Work

Construction Period Peiod

Fablication at yard、Transportation

Pipelaying、Tie-in

TowTank Test

PAC FAC

IntegrationInstallationCommissioning

Fablication at yard、Transportation

Fablication at yard

- Integration of Hull and Topsides etc. will constitute the time to procure a higher layer.

- Therefore, a detailed schedule containing the milestone dates is critical to build up a layered program.

- Energy Insurance Market

Depending on capacity required:-

- Special Capacity from investment company

- Non-Marine (Excess of loss) / Pro-Re

- Captive

- Oil Insurance Limited (Mutual for oil companies)

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Layered Program

1. Floating LNG - Offshore Energy Insurance

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Source ; Standard PI

Protection & Indemnity Insurance from PI Club can be obtained in order to achieveincreased capacity for Construction All Risks Insurance.

Protection & Indemnity Insurance

1. Floating LNG - Offshore Energy Insurance

Construction

Entry into yard Exit from Yard Commencement of Production

Navigation to field Operation

Standard Poolable P&I Cover Standard Offshore Rules Offshore liabilities extension clause

・ crew・ pollution from the entered ship・ wreck removal of the entered

ship・ collision/dock damage・ carbon/property on board

・ stand alone fixed premium cover

・ P&I risks・ wreck removal of the unit・ pollution from the unit・ personal injury・ contractual (with prior approval

of the managers)

・ arise by reason of the member’s

interest in the unit・ property・ personal injury・ chartered ships・ pollution (subsea)・ clean-up・ sue and labour/legal costs

★ The unit must move to Standard Offshore Rules cover at “Commencement of Production” however it is recommended that this should take place on arriving at the field

★

Early on 21 August 2009

Timor Sea some 690km west of Darwin and 250km from the Western Australian coast.

The H1 well kicked, subsided for two hours, then began flowing uncontrollably with a plume of gas, condensate, water and oil venting into the air above the rig.The rate of discharge was initially estimated at 400 barrels a day, though it may have reached 1500 barrels. Estimates of the resulting surface sheen ranged from 6000 – 25000 square kilometres. The discharge was finally stopped in Nov 2009.

Establishing an adequate limit of liability for Seepage & Pollution Coverage

<Hot Issue in Australia>

Date :

Location :

Incident:

Source : PTTEP

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2. Seepage & Pollution Cover after Montara

Montara Incident

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Category

1. Oil Pollution Liability from wells

(1) Clean up cost(2) Liability(3) Cost of control

ResponsibleParty

Oil Company

Insurance

Operator’s Extra Expense

(1) Cost of Control (2) Redrilling Expense (3) Seepage & Pollution

3. Damage to the Rig(1) Rig itself(2) Sue & Labour(3) Wreck of Removal

Rig Contractor

Hull & Machinery

4. Death / Injury of workers on board

Employer Worker’s Compensation

Responsible Party and Insurance

2. Seepage & Pollution Cover after Montara

http://www.nopsema.gov.au/

2. Oil Pollution Liability from Rig’s fuel

Rig Contractor Protection & Indemnity (Third Party Liability)

Injury free offshore evacuation of all 69 personnel onboard the drilling rig

Source : PTTEP

5. Fines / Penalties / Punitive Damage Oil CompanyContractor

No Insurance

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① Blowout Risk Screening

② Blowout Risk Analysis

Source ; DNV

Limit of Liability

(1) It is difficult to determine the exact exposure from a blowout incident to an environmental pollution event. However, rule of thumb is that you cannot buy enough coverage for those exposures.

(2) Many oil companies decide limit of liability considering OPOL limit or OPA limit or OIL limit.

(3) Following is example how to proceed with a Blowout Risk Analysis.

2. Seepage & Pollution Cover after Montara

OPOL : Offshore Pollution Liability Agreement OPA : Oil Pollution Act of 1990 OIL : Oil Insurance Limited

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Mobile : +61 (0)459 257 740

E-Mail : h.kobayashi@tokiomarine.com.au

TMNF at a Glance Established in 1879, the first P&C Insurance

Company in Japan

Net Premiums written JPY1,869bn (Approx USD20bn)

Total Assets JPY9,708bn (Approx USD90bn)

Number of Employees

17,284

Highest Ratings in Japanese market

S&P : AA-

Moody's : Aa3

AM Best : A++

Fitch : AA-

TMNF at a Glance Established in 1879, the first P&C Insurance

Company in Japan

Net Premiums written JPY1,869bn (Approx USD20bn)

Total Assets JPY9,708bn (Approx USD90bn)

Number of Employees

17,284

Highest Ratings in Japanese market

S&P : AA-

Moody's : Aa3

AM Best : A++

Fitch : AA-

Thank you for attention!

Hiroaki KobayashiMelbourne Chief Representative,Tokio Marine & Nichido Fire Insurance Co., Ltd.

General Manager – Southern Region,Tokio Marine Management (Australasia) Pty. Ltd.

<Address>

Tokio Marine Management (Australasia)

Level 13, North Tower,

459 Collins Street,

Melbourne, VIC 3000

AUSTRALIA