Group Work Offshore Energy Case Study The Nordic Association of Marine Insurers 1

Details of the insured interests UNIT: FPSO “Offshore Producer 1” Owner: Nilssen Offshore AS Field: Lovely field – UK sector of the North Sea Operator: Hammer Oil & Gas Limited Tied in fields: Friend, East Lovely and Heartbreak Operator: Hammer Oil & Gas Ltd, but different joint venturers The Nordic Association of Marine Insurers 2

FPSO “Offshore Producer 1” The Nordic Association of Marine Insurers 3

FPSO Specifics Built: 2007 Contract duration: (2025) Oil production capacity: 80,000 bbls/d Water injection capacity: 100,000 bbls/d Gas compression capacity: 10 mmscfd Storage capacity: 1,800,000 bbls Mooring: Turret The Nordic Association of Marine Insurers 4

Hull, Hull Interest and Loss of Hire insurances FPSO: USD 625,000,000 (USD 500,000,000 Hull & Machinery + USD 125,000,000 Hull interest), Mooring system and subsea equipment owned by Nilssen Offshore AS (4 Risers, riser bases and flowlines, 2 umbilicals on Lovely Field) USD 100,000,000 separate insurance H&M + USD 25,000,000 H.I. (Other 6 risers and 3 umbilicals and all further subsea infrastructures were owned by the other field joint ventures, riser/umbilicals value USD 150,000,000, other subsea equipment value USD 500,000,000) Deductible USD 10 million per casualty under H&M insurance. Loss of Hire insured for USD 250,000 per day with 360 days indemnity per accident and in the aggregate in excess of a 120 day deductible. Term of Insurance: 1 January 2013 – 31 December 2013 Insured on the basis of the Nordic marine Insurance Plan 2013, Chapter 18, Sections 1 – 4. Lead Insurer H&M, H.I. and LOH: Academy Insurance Limited, Oslo, Norway The Nordic Association of Marine Insurers 5

P&I and CGL entry P&I insured for a limit of USD 750,000,000, deductible USD 250,000 per incident (Gard Rules for MOUs) CGL insurance for a limit of USD 25,000,000, deductible USD 50,000, but if incident involves the P&I insurance the combined deductibles not to exceed USD 250,000. (Extract of coverage attached) Entered with Solid P&I Club, Oslo, Norway, for the term: 12 months from 20 February 2013 Hammer Oil & Gas Ltd was a named co-insured under the H&M and H.I. insurances and Protective Co-Insured under the P&I and CGL insurances. The Nordic Association of Marine Insurers 6

The incident On 22 February 2013, during hurricane conditions, the FPSO, due to operator error, lost its heading against the weather and waves. This caused first one anchor line to break and further four more of the 10 anchor chains breaking within the space of 3 hours. This caused the FPSO to drift 250 meters away from its station with consequential destruction of the attached risers and umbilicals and damage to connected subsea flowlines. Production had been stopped, wellheads closed and risers depressurised at the onset of the hurricane. The FPSO had 800,000 barrels of produced oil in the storage tanks on board. Sales value USD100 per barrel. The Nordic Association of Marine Insurers 7

The Nordic Association of Marine Insurers 8

Immediate actions Tugs and anchor handlers were called in to assist in holding the FPSO on station and attempt to reconnect the broker anchor chains. Due to the threat of further bad weather the decision was taken to cut the risers, umbilicals and remaining anchor chains to move the FPSO to port. The Nordic Association of Marine Insurers 9

Heads of claims Salvage/Loss mitigation costs : USD 15,000,000 Removal of mooring/anchor system:USD 5,000,000 Removal of Lovely Risers/Umbilicals etc:USD 10,000,000 Removal of other fields’ risers etc.USD 15,000,000 FPSO turret damage repairs:USD 12,000,000 Mooring system (enhanced 12 anchor legs)USD 18,000,000 Lovely Risers/Umbilicals replacementUSD 80,000,000 Lovely Risers/Umbilical installationUSD 25,000,000 Other fields’ risers etc. repairs/replacement, incl. installationUSD 180,000,000 Total costs:USD 360,000,000 It is estimated that repairs will be completed and production to resume on 22 November 2014 The Nordic Association of Marine Insurers 10

Group Work Group 1 & 2 Consider the Salvage/Loss Mitigation costs claim Group 3 & 4 Consider the removal costs claim Group 5 & 6 Consider the repair/replacement costs claim All Groups Consider the Loss of Hire claim The Nordic Association of Marine Insurers 11