1. The OIL Group of Companies www.oil.bm www.ocil.bm www.senergy.bm “Tools for Risk Transfer” Presentation to University of Houston March 2005

2. U. of Houston - March 2005 2 The OIL Group of Companies Three energy industry mutual insurance companies: Headquartered in Hamilton, Bermuda Established when commercial market: –Ceased to provide adequate coverages/limits. –Priced high risk energy operations at unacceptable levels. The three companies have combined membership of 112. Shareholders/Policyholders who are world-class energy companies headquartered around the world. $2.2 Trillion in Gross Assets Insured globally.

3. U. of Houston - March 2005 3 Why Mutualize? Industry ownership ensures fair treatment of Policyholders. Mutuals provide ‘hedge’ against a frequently volatile commercial insurance market. Shareholders maintain active control of the coverages available to them. Highly cost-effective catastrophe insurance facility. Generates long-term benefits for Shareholders.

4. U. of Houston - March 2005 4 Why “Bermuda”? Bermuda is one of the three largest insurance markets in the world (London and New York being the others.) More than 1,600 international insurers and 1,200 captive insurers are registered in Bermuda. Favorable tax/regulatory/legal environment. Highly developed markets in all lines of insurance coverage. Sophisticated on-Island business infrastructure. In 2003, the top 20 insurance companies (including OIL) had Capital & Surplus and Total Assets of $44 Billion and $173 Billion, respectively. In excess of $13 Billion of new opportunistic capital has flowed into Bermuda since September 11, 2001.

5. U. of Houston - March 2005 5 The OIL Group of Companies “Mutual” Structure Basic structure similar to any other corporations : - Shareholders, Board of Directors, Board Committees, Officers & Staff. Major differences: - Shareholders are the Customers (Insureds.) - Directors are elected from the Shareholder Body. The Investment companies are directed by a separate Board of Directors, which includes senior financial officers from major Shareholder companies. In case of OIL and sEnergy, no “Underwriting” per se - each Policyholder treated equitably; premiums are formula-based.

6. U. of Houston - March 2005 6 The OIL Group of Companies Operational Structure OIL (83 Members) Oil Investment Corp. Ltd. (OICL) Property Damage Well Control, Pollution sEnergy Insurance Ltd. (16 Members) sEnergy Asset Management Ltd. sEnergy Asset Barbados Ltd. Business Interruption Excess Physical Damage OCIL (80 Members) Oil Casualty Investment Corp. Ltd. (OCICL) Excess General Liability D&O Liability Total Membership = 112OIL/OCIL Common Members = 51 Oil Management Services Ltd.

7. OIL INSURANCE LIMITED A Case Study….

8. U. of Houston - March 2005 8 Why was OIL Formed in 1971? Inability of petroleum companies to purchase all-risk property damage coverage at realistic rates and capacity. –Incident – 1967 Explosion and Fire at Cities Service Oil Co. refinery in Lake Charles, Louisiana. Unwillingness of the commercial insurance industry to sell third party pollution liability to petroleum companies at any price. –Incident – 1969 Union Oil Co. oil spill in Santa Barbara Channel, California. Realization on the part of 16 oil companies that the combined capital & surplus of the petroleum industry greatly exceeded that of the insurance industry.

9. U. of Houston - March 2005 9 OIL: An Alternative Insurance Solution Today, OIL continues to be a very real and attractive option to many insurance buyers in the energy industry. OIL’s $250 Million limit is now one of the largest net line currently available. OIL does not buy reinsurance so it is not subject to annual changes in conditions or restrictions on terms offered – in this way full terrorism coverage continued to be offered after September 11 th. Any rate increase in OIL is due to increased losses by the membership - not internal or external pressures - and hence is transparent.

10. U. of Houston - March 2005 10 Who are OIL’s 83 Members? Big Companies, such as: Royal Dutch ShellConocoPhillips TOTALChevronTexaco Small Companies, such as: Tesoro PetroleumLOOP LLC Murphy OilLyondell Chemical Electric Utility/Power Generation Companies, such as: Duke EnergyTXU Corp. Other members of varying sizes and business focus within the broadly-based Energy Industry

11. U. of Houston - March 2005 11 OIL Membership by Headquarter Location Number of Shareholders @ March 1, 2005 = 83

12. U. of Houston - March 2005 12 OIL: Risks Insured Physical damage to first party property. Well Control, including Restoration and Redrilling. Third party Pollution Liability.  Limits = $250 million per occurrence, no annual aggregate.  Single Event Limit = $1 Billion.  Deductibles = $5 Million minimum, increasing in $5 million increments.

13. U. of Houston - March 2005 13 OIL Rating & Premium Plan Formula basis – no traditional “underwriting.” Premiums paid by Policyholders is a function of their Gross Assets. Gross Assets = Gross value (historic cost) of property, plant & equipment before deprecation, depletion, and amortization, plus inventories, materials, and supplies. Gross Assets are then adjusted for operational risk and coverage profile (i.e., sector and deductible weightings) = Weighted Gross Assets.

14. U. of Houston - March 2005 14 Sector Weighting Policyholders’ Gross Assets are adjusted to recognize differences in operational risk between Business Sectors: –Offshore E&P -- Pharmaceuticals –Onshore E&P -- Mining –Pipelines -- Other –Electric Utilities –Refining & Marketing/Chemicals Weighted Gross Assets are used to calculate individual Policyholders premiums.

15. U. of Houston - March 2005 15 OIL “Underwriting” Gross Assets by Business Sector X Weighting Factors = Weighted Gross Assets Gross Assets Offshore E&P = $ 30B Pipelines = $ 10B Total $ 40B Sector Weight Factors Offshore E&P = 1.50 Pipelines = 0.25 Weighted Gross Assets Offshore E&P = $ 45.0B Pipelines = $ 2.5B Total $47.5B Weighted Gross Assets $47.5B X Premium Rate = Annual Premium

16. U. of Houston - March 2005 16 Membership Shareholders’ Equity Assets Gross Assets Insured OIL’s History: 32 Years Inception To Date: Net Premiums Earned Net Losses & Loss Expense Investment Income Dividends Paid 2005 83 $1.0 Billion $4.4 Billion $2.0 Trillion 1972 16 $160 Thousand $ 48 Billion $4.6 Billion $5.4 Billion $3.1 Billion $0.8 Billion

17. U. of Houston - March 2005 17 Insurance Crisis # 2 (1985-86) Oil Casualty Insurance, Ltd. (OCIL) Energy industry-owned company insuring Excess General Liability D&O Liability Formed in 1986 by 14 interested members of OIL. Lack of D&O capacity was key driver in OCIL’s formation. Today - 80 Shareholders headquartered around the world with total gross assets in excess of $2.1 Trillion.

18. U. of Houston - March 2005 18 …and again in 1993 S TOPS (Total Loss Only Platform Structures) Petroleum industry-owned company providing high-level Excess Property Damage coverage for large production structures located in the North Sea. Established in response to commercial insurance market’s overpricing of coverage specifically related to such structures. Formed in 1993 by 16 petroleum companies headquartered in Europe and North America. No losses in entire history of operations. Liquidated in 1999 when rational pricing returned to the commercial market.

19. U. of Houston - March 2005 19 …and once again in 2002! sEnergy Insurance Limited (sEnergy) Energy industry-owned company providing Business Interruption Property Damage (excess of OIL) Lack of affordable, long-term and stable commercial market capacity was key driver in sEnergy’s formation. Formed in 2002 by 12 energy companies. sEnergy operates with an “OIL-like” Rating & Premium Plan. Company has achieved a $850 Million capital structure consisting of founding members’ investments, retained earnings plus $650 Million external funds raised in capital markets.

20. U. of Houston - March 2005 20 The Evolution of Energy Mutuals Traditional Insurance Market EIM 1986 $390 million sEnergy 2002 $600 million AEGIS 1975 $900 million OCIL 1986 $550 million OIL 1972 $1.6 billion NEIL 1980 $3.0 billion Commercial Market Premium Lost Since 1972 some $10 billion

21. U. of Houston - March 2005 21 Why we are different from the Commercial Market… Commercial Market ~30-40% Expense Ratio PREMIUM LOSS PAYMENT Member PREMIUM LOSS PAYMENT OWNERSHIP CONTROL RETURN ON CAPITAL “OIL Group” ~ 5% Expense Ratio Insured (Buyer) The OIL Group: Efficiency & Control

22. Investment Management

23. U. of Houston - March 2005 23 OIL Financial Management Membership comprised of the leading global energy companies. Certainty of loss recovery from membership. Strong financial ratings = A to A+ (S&P.) Access to capital markets to enhance capital structures. Catastrophic insurer, above working layer losses. Investment portfolios are structured with less need for liquidity which allows for greater diversification by major asset classes and potential return.

24. U. of Houston - March 2005 24 Investment Allocations OIL vs. Commercial Insurers Typical Commercial Insurer Asset Allocation OIL Asset Allocation

25. U. of Houston - March 2005 25 OIL Investment Strategy Key Differences from Commercial Markets Broader range across major asset classes (US equities, international equities, hedge funds, and currencies, in addition to fixed income.) Greater opportunities for capital growth through investment returns. Less need for immediate liquidity from portfolio to cover insured losses – i.e., Commercial Paper issued to cover losses. All funds managed by external money managers (as opposed to significant internal management typically used by commercial insurers.) Diversity = Preservation of value in down markets. Substantial upside in rising markets (18.5% return for in 2003 vs. 4% - 7% returns typically for commercial insurers.) Portfolio has qualities more like a pension fund than a typical insurance company.

26. Conclusion

27. U. of Houston - March 2005 27 OIL Business Model Business model that has worked successfully to service the energy industry for over 30 years. Insurance facility is tailored to the needs of the energy industry. Mutualization of losses assures fairness and recovery of losses. Among the largest limits available in the world market. Highest form and reliability of coverage. Strong access to capital markets when necessary. Investment strategy promotes capital growth, as well as, security. Low cost, most efficient vehicle for managing major risk transfer.

28. U. of Houston - March 2005 28 Thank you!