Upstream and Offshore Energy Insurance (eBook)

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November 2008

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Upstream and Offshore Energy Insurance (eBook)

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This publication is a comprehensive study on offshore energy insurance. It provides understanding of the products that have been developed by the insurance industry to provide financial support.

Offshore energy insurance has, to a large degree, been based upon the traditional principles and practices established in the marine insurance market. However, it has, in time, evolved into a distinct brand offering products that are unique to the insurance industry and tailor-made to the energy industry. Exploration and production of hydrocarbons in a marine environment is a risky business. It requires significant capital expenditure and highly specialised equipment, techniques and manpower and, for all the skills and expertise that have collectively been acquired within the industry.

Chapter 1 History and Development of the Offshore Insurance Market

1.1.0 Background and Introduction

1.2.0 Brief History of Offshore Drilling and Production

1.3.0 Evolution of the Offshore Energy Insurance Product

1.4.0 Development of the Marine Offshore Insurance Market

1.5.0 The Petroleum Community

1.6.0 Organisation of the Energy Insurance Market

1.7.0 Offshore Insurance Law and Jurisdiction

Chapter 2 Exploration 1 – Background

2.1.0 Introduction

2.2.0 Mobile Offshore Drilling Units (MODUs or Rigs)

2.3.0 Risk Factors Associated with MODUs

2.4.0 The Drilling Operation

2.5.0 The Drilling Contract – the Daywork Contract

2.6.0 Responsibility for Loss or Damage Under Daywork Contract

2.7.0 Footage and Turnkey Contracts

Chapter 3 Exploration 2 – Insurances on Mobile Offshore Drilling Units (MODUs)

3.1.0 Introduction

3.2.0 The London Standard Drilling Barge Form (9th March, 1972) (LSDBF)

3.3.0 Adapted Conventional Hull Policy Wordings

3.4.0 The Norwegian Marine Insurance Plan of 1996 (the Norwegian Plan, or the ‘Plan’)

3.5.0 London Market Offshore Mobile Unit Form (LMOMUF)

3.6.0 Overview Summary of the Forms

3.7.0 Liabilities

3.8.0 Liability Coverage in the Conventional Market

3.9.0 Market Practice for Mobile Drilling Rigs

Photo Gallery

Chapter 4 Exploration 3 – Control of Well Insurance

4.1.0 Introduction – Blowout

4.2.0 Risk Considerations

4.3.0 Evolution of the Coverage Form

4.4.0 The EED 8/86 Wording (EED) – Overview

4.5.0 EED Control of Well – Section A

4.6.0 EED Redrilling/Extra Expense (Section B)

4.7.0 EED Seepage and Pollution, Clean-up and Contamination – Section C

4.8.0 EED Form General Conditions

4.9.0 Additional Optional Coverages

4.10.0 Overview of LSW 614A (Comparison with EED)

4.11.0 Control of Well Premium Rating

4.12.0 Market Practice

Chapter 5 Offshore Construction (1)

5.1.0 Background and Introduction

5.2.0 Construction Methods and Phases

5.3.0 The Marine Warranty Surveyor (MWS)

5.4.0 Contractual Issues and Arrangements

5.5.0 Responsibility for Insurance

Photo Gallery

Chapter 6 Offshore Construction (2) – Essential Principles

6.1.0 Introduction to Scope of CAR Policy

6.2.0 Assured

6.3.0 Period

6.4.0 The Insured Works

6.5.0 Valuation

6.6.0 Coverage Scope

6.7.0 Third Party Liabilities

Chapter 7 Offshore Construction 3 – The WELCAR 2001 Policyform – General Conditions and Physical Damage

7.1.0 Historic Background

7.2.0 WELCAR – Policy Construction

7.3.0 Scope

7.4.0 General Terms and Conditions

7.5.0 Section 1 – Physical Damage

Chapter 8 Offshore Construction (4) – The WELCAR 2001 Policy Form – Terms and Conditions for Section 1

8.1.0 Terms and Conditions (Section 1 only)

8.2.0 Basis of Recovery

8.3.0 Incorporated Clauses

8.4.0 Project Alterations and Amendments

8.5.0 Defective Parts

8.6.0 Additional Expenditures under Section 1

8.7.0 Maintenance

8.8.0 Other Aspects

8.9.0 Definitions for Section 1

8.10.0 Exclusions for Section 1

Chapter 9 Offshore Construction 5

WELCAR Form – Section II (Liabilities) and Marketing Practice for CAR insurance

WELCAR FORM Section II (Liabilites)

9.1.0 Introduction

9.2.0 WELCAR Section II Third Party Liability – Insuring Agreement

9.3.0 Terms and Conditions for Section II

9.4.0 Exclusions

9.5.0 Coverage Buy-Backs

9.6.0 Marketing Practice for CAR Insurance

Photo Gallery

Chapter 10 Operating Insurance 1 – Principal Considerations

10.1.0 Introduction

10.2.0 Offshore Structures

10.3.0 Risk Hazards

10.4.0 Certification Requirements for Offshore Installations

10.5.0 Essential Insurance Considerations

Chapter 11 Operating Insurance 2 – Physical Damage Wordings

11.1.0 Introduction

11.2.0 Issues Normally Forming Part of Declarations or Schedules

11.3.0 Coverage

11.4.0 Exclusions

11.5.0 Limit of Liability (Basis of Recovery)

11.6.0 Other Clauses

11.7.0 Other Clauses Customarily Included in Manuscript Policies

Chapter 12 Operating Insurance –

(A) FPSO and Contractors’ Vessels, Pipelines and Onshore Land Rigs and Equipment

(B) General Market Practice

12.1.0 Introduction – FPSOs and Contractors Vessels

12.2.0 FPSOs and FSUs – War Risks Cover

12.3.0 FPSOs and FSUs – Crude Oil in Store

12.4.0 Pipeline Operating Forms

12.5.0 Land Rigs and Onshore Equipment

B. General Market Practice – Operational Risks

12.6.0 Introduction

Photo Gallery

Chapter 13 Business Interruption, Delay in Start-up and Loss of Hire

13.1.0 Introduction

13.2.0 Essential Principles and Practice – Business

Interruption Coverage

13.3.0 Loss of Production Income Wording (Production Loss Sustained) JR 2005/003A) (LOPIW)

13.4.0 Insuring Clauses

13.5.0 Exclusions

13.6.0 Delay in Start Up (DSU)

13.7.0 DSU Underwriting Practice

13.8.0 Loss of Charter Hire and Loss of Hire

Chapter 14 Offshore Liability Risks

14.1.0 Introduction

14.2.0 Synopsis of Liability Exposures

14.3.0 Liability Policy Forms (Generically)

14.4.0 Excess Liability Claims Made Policy – LSW 244

14.5.0 Endorsement Containing Energy Exclusions – LSW 245 4

14.6.0 The LPO 418 (B) – London CGL Wording

14.7.0 Other Manuscript Policies

14.8.0 Market Practice

14.9.0 The Piper Alpha Litigation

Chapter 15 Pollution Insurance

15.1.0 Introduction and Background

15.2.0 Spillage, Clean-up and Containment

15.3.0 International Legislative and Voluntary Agreements

15.4.0 The Offshore Pollution Liability Agreement (Hereinafter Referred to as OPOL or the Agreement)

15.5.0 The Outer Continental Shelf Lands Act (OCSLA) and 1978 Amendments (the Amendments)

15.6.0 Oil Pollution Act 1990 (OPA)

15.7.0 Position in Respect of FPSOs/FSUs

15.8.0 Insurance Coverage for Pollution Risks

Chapter 16 The Mutual Entities – Oiland Ocil513

16.1.0 Introduction

16.2.0 Overview of Coverage and Limits Provided by OIL

16.3.0 Rating Formula

16.4.0 OIL Coverage – Construction of the Policy

16.5.0 Insuring Agreement 1 – Physical Damage

16.6.0 Insuring Agreement 2 – Sue and Labour, Control of Well, Removal of Debris, Restoration and Redrilling Expense

16.7.0 Insuring Agreement 3 – Seepage, Pollution and Contamination – Coverage

16.8.0 Other Main Conditions

16.9.0 OIL Coverage as Vehicle for Construction

16.10.0 Oil Casualty Insurance Limited (OCIL)

Photo Gallery

Chapter 17 War, Terrorists and Political Risk

17.1.0 Introduction

17.2.0 Drilling Barges – The Institute War and Strikes Clauses – Hulls – Time 1.11. 95 (War and Strikes policy)

17.3.0 Mobile Offshore Units – Norwegian Practice under Norwegian Marine Insurance Plan (the NMIP or the Plan)

17.4.0 Fixed Offshore Facilities

17.5.0 Onshore Terrorism

17.6.0 Other Political Risk Exposures and Coverages

Chapter 18 Decommissioning and Abandonment

18.1.0 Introduction

18.2.0 International Legislative Background

18.3.0 National Enactments

18.4.0 Abandonment Options

18.5.0 Insurance Products

18.6.0 Post Abandonment Liabilities

18.7.0 Provision of Decommissioning Security

Appendix A WELCAR 2001

Appendix B Energy Exploration and Development Insurance

Appendix C London Standard Platform Form

Appendix D London Market Offshore Mobile Unit Form

Appendix E Loss of Production Income

Appendix F Excess Liability Claims Made Policy – LSW 244

Appendix G Oil and Gas Well Drilling Tools Floater Form (All Risks)

Appendix H Offshore Facilities Limited Terrorist Cover, Form 2

Photograph Credits


David Sharp has been in the marine and offshore insurance industry for 45 years. Starting at 16, he joined Willis Faber and Dumas Ltd in the marine claims area, moving onto the placement side after a few years. In 1973 David joined the Cunard Steam-Ship Company Ltd in Southampton, as Deputy Risk Manager, but returned to London after two years to resume his career at Willis Faber. This was followed by a short spell as a hull technician with C.E Health (Marine) Ltd, and thence in 1982 David joined Sedgwick Offshore Resources Ltd as an offshore energy technician. This was the start of his association with the offshore oil and gas industry.

David became a director of the Offshore Resources division in 1987, and remained in this capacity until his semi-retirement from Marsh Marine and Energy Ltd at the end of 2002. The first edition of this book was published during his tenure at Sedgwick, and led to David establishing a number of specific energy related training courses. One of these, the Advanced Oil workshop, run by the Face to Face Training Centre of the United Kingdom Chartered Insurance Institute, still continues, with the author as tutor.

Post 2002 David joined Taylor Risk Consulting (now renamed INDECS), but then being the specialized consulting arm of the Charles Taylor Group. After a year David returned to his natural “home”, being the broking sector, joining the newly established AAA Insurance and Reinsurance Brokers Ltd, where he still works.

Within the upstream energy insurance environment David is most well known for his involvement in Construction All Risk Insurance (CAR), which is given a high profile in this edition. David has worked upon some of the largest and most complex insurance placements, including the Australian North West Shelf project, the Canadian Hibernia project, and numerous others, particularly in the North Sea, Caspian Sea and the Gulf of Mexico. In his current role at AAA the author specializes in upstream risk insurance in West Africa and Russia.

Title: Upstream and Offshore Energy Insurance (eBook)
Number of Pages: 773
Product Code: WN1000EA
Published Date: November 2008
Author: David Sharp

Customer Reviews

Upstream & Offshore Energy Insurance Review by Oddvar
I am truly greatly impressed with the quality and wealth of information contained in this book. I have rarely seen a more thorough analysis and description of any area of marine or energy insurance.

It must be an obligatory textbook of this subject for any present and future student of this topic - a truly remarkable and monumental work worthy of the highest praise from all parties involved in this subject."

(Posted on 01/11/2008)

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