Aon’s 11 th Energy Insurance Training Seminar Onshore & Offshore Liabilities David Sayer

2 Why Purchase Liability Insurance? Statutory Obligation e.g. motor, employer’s liability Contractual obligation Protection of the Balance Sheet Regardless, the company should act as if uninsured and adopt risk control and risk management procedures

3 Is the risk overstated ? Since 1997 in Europe only : > 32 Major Accidents in commercial and transport activities within the Oil industry* > 24 Major Accidents in Oil Refineries* Types of accidents : > Leaks from valves / faulty joints / pumps failures > Overspills > Corrosion defects / tightness defect > Bulk storage collapse > Pipeline burst > Fire and Explosion All resulting in pollution from crude oil or refined products, but also from foaming agents

4 Operators Normal Responsibilities Own employees - Employers Liability, WCA Production Unit, Physical Damage, Removal of Wreck (Platforms, FPSO) Control of Well Pollution from the Wells and owned Property Liability to Third Parties

5 Contractors Normal Responsibilities Own employees - Employers Liability, WCA Drilling Vessel Physical Damage, Removal of Wreck, Protection & Indemnity Pollution from the vessel (not the well) Liability to Third Parties Liabilities arising of Gross Negligence or Willful Misconduct

6 Operator / Contractor relationship Liabilities between Operators and Contractors are normally defined in the contract. For example: –Indemnities for people –Indemnities for property –Indemnities for Control of Well –Indemnities for Removal of Wreck –Indemnities for Pollution

7 Upstream Oil Company Upstream Exploration / Production Pipelines to Refinery

8 Deep Water Horizon—Gulf of Mexico The numbers: Release of oil between April 20 and July 13, 2010 Between 25,000 and 30,000 bbls released daily 19,000 personnel deployed Over 1,000 vessels on site 1.9 million feet of boom deployed Over 19,000 claims filed Over $8 Billion spent over 1 st 4 months BP establishing a $20 Billion Trust to pay claims Cost estimated at $40 billion Dividend suspended Share price collapse CEO replaced

9 Risk Assessment Exploration/ Production Operating area Revenues / throughput Number of Employees / wage bill Number of Contractors and who Number of Wells Depth of Wells Contingency Plan/Disaster Plan Contractual Agreements Claims Record Methodology and experience ( differentiation ) P&I entry ( special opps extention ) OIL entry ?

10 Downstream Oil Company Downstream Refining Terminal / Storage Operations Pipelines / Transportation & Distribution Products

11 Fuel Terminal—Bayamon, Puerto Rico An explosion of 11 fuel tanks at a fuel storage complex which shook the ground of Bayamon, a municipality near San Juan, with the force of a 2.8 magnitude earthquake caused the evacuation of about 1,500 residents, school closings and class actions suits.

12 Tank Farm Fire - India

: Buncefield - UK Explosion and fire at a tank farm outside London

: Kallo - Belgium

: Plaine de la Crau - France Underground pipeline burst in Natura 2000 protected site 4000m3 – 5ha- +$25M claim

16 Star Terminal—Suburban Washington DC A petroleum leak from the Pickett Road Tank Farm on a nearby site contaminated the 1,500-home community : Cost in excess of US$ 250m

17 Risk Assessment Refining and petrochemicals Proximity of the public Proximity of neighbours premises ( surrounding third party ) Potential for escape of hazard e.g. Vapour Cloud Release / Pollution Hazard Presence of third parties at the site e.g. Contractors / Vessels ( Terminals ) Measurement of Activity, Turnover or Throughout Nature of operations e.g. Refining, Petrochems, Terminals Products Exposures Moral Hazard – Risk Management and quality of risk in general. Surveys Capex ( capital expenditure on betterment / maintenance ) Details on any construction activity to be insured or otherwise Claim History

18 Risk Assessment Transportation Type Road / Rail / Vessel / Pipeline Size of Vessels / Pipelines / number of wagons / road tankers Frequency Distance Type of Product being transported Contractual Arrangements Surveys including details on pigging / scada protection. Claims Record

19 Risk Assessment Products Type Turnover / volumes Export markets Contractual Sales Agreement Claims Record

20 Types Of Liability Policy Public Liability / Commercial General Liability Products Liability S & A Pollution Liability Environmental liability ( European directive 2004/35/ec) Employers Liability Professional Indemnity Directors & Officers Liability Motor Liability Aviation Liability Marine Liability P & I

21 What will a Liability policy not normally cover Exclusions War / Nuclear Damage to own Property or Property in CCC unless by extension. Punitive / Exemplary Damages unless by extension ( limited markets ) Gradual Pollution Products Guarantee / Recall Damage to Product itself Contractual liability other than for liability that would attach at tort ( ie in absence of the contract ). Statutory Motor Workmens compensation schemes ( strict liability )

22 A Liability Insurance programme Marine & Aviation Comprehensive General Liability Upstream Public Liability Down-stream Employers Liability / Workers Compensation Act Auto Terminal Operators UMBRELLA Excess Difference in Conditions

23 Adequacy of Limits of indemnity

24 What can the insurance market offer : US$ 2,500 m ? Lloyd’s ( US$ 500m ++) –Marine syndicates –Non-Marine syndicates –Combined Companies ( US$ 750m ++ ) –UK –Continental Europe –USA –Rest of the World Bermuda ( US$ 750m ) –OCIL / OIL (Oil Casualty Insurance Ltd & EIM ( Energy Insurance Mutual) –XL, ACE, STAR EXCESS Others ( US$ 1bn) –Berkshire Hathaway.

25 Can you Ignore the Risks Questions ?