2010 Rims Session Ind909.Final

to the Energy Resources,

Oil & Gas Industry Session

Monday, April 26th, 2010 1:45pm – 4:15pm

SESSION COORDINATOR:

Gabriel Lugo

Charles Taylor Risk Consulting

SPEAKERS: Mike AmadorTotal American Services, Inc

Jan MumenthalerThe World Bank

Reed WykesParker Drilling Company

Gabriel LugoCharles Taylor Risk Consulting

Session Overview

Issues/Methods Related to Asset Valuations During Development and Production

Energy Project Financing – A Focus on Emerging Markets

A Systematic Approach To Understanding Risk Allocation In Your Drilling Contract

Risk Management Services and Web-based Procurement

“Roundtable” Discussion of Current Issues

Survey: Top 10 Texas Country and Western Songs from Texas Risk Managers

10. It's Hard To Kiss The Lips At Night That Chewed Your Ass Out All Day Long9. If I Can't Be Number One In Your Life, Then Number Two On You8. If The Phone Don't Ring, You'll Know It's Me7. How Can I Miss You If You Won't Go Away?6. I Liked You Better Before I Got to Know You So Well5. I'm So Miserable Without You, It's Like You're Still Here4. My Wife Ran Off With My Best Friend And I Sure Do Miss Him3. She Got The Ring And I Got The Finger2. I Still Miss You Baby, But My Aim's Gettin' Better

And the # 1 song is . . .

1. If I Had Shot You When I First Wanted To, I'd Be Out Of Prison By Now

Today’s Agenda:Strategies / Options for Physical Damage Insurance

Valuations

Particularly –

• For Declaring and Evolving the Insurable Value for an Offshore Operational /Producing Facility

• Presenting Insurable Value Options to Management

And What About Those Budget Exercises ?

Revise Again & Again– Version #73 Please !

Can He Balance the Insurance Options Management Is Looking For While Protecting the Company ?

And Then Enter The Risk Manager ….

Insurance Valuations Seem Simple…

Enzo Ferrari0-60: 3.2 Seconds

Purchase Price: $643,000

http://wikicars.org/en/Image:Ferrari-enzo-big.jpg

Enzo

Ferrari: Totaled in Street Race0-60: 3.2 Months

Insurance Settlement Basis: KBB, N.A.D.A, Retail, Wholesale, Trade-In, Comparables, Consumer Reports, Edmunds, GAP

Insurance –

Who Knows ?!

Until it All Hits the Fan and a Claim is Made…

http://www.wreckedexotics.com/enzo/enzo_20060809_006.shtml

Bases of Indemnity to Consider :

1. Replacement Cost Value –

R.C.V, N.O.V, M.R.V

2.

Agreed Value

3. Combined or Single Limit of Liability

1. Replacement Cost Value (R.C.V)

• Represents the required investment to reconstruct the existing facilities in case of total loss, or part of it in the event of partial damage.

•

New for Old (N.O.V.) –

represents the amount of capital required to replace a lost item by a facility of the same type capacity & dedicated to fulfill the same functions. Costs savings are driving the technical evolution & are increasing the capacity of Heavy Lift vessels, etc. This creates the need to value facilities with new technology replacement cost.

1. Replacement Cost Value (RCV)

• Modified Replacement Value (M.R.V.) – The MRV represents the amount of capital required to replace a lost facility with a rebuilt facility dedicated to produce (only) the remaining reserves of a given field.

2. Agreed Value (A.V.)

3. Other Limit of Coverage -

Combined Single Limit (C.S.L.)

•

The C.S.L. represents a single limit of indemnity applicable to one event affecting one or more facilities, and is limited to one guaranty amount even in the case when the individual losses exceed the C.S.L. limit.

Evolution of Insurance Values During Life of Field…

•

In order to take into account the evolution of reserves in place from start-up, thru the decline period and until field abandonment, several alternative approaches to insurance valuations should be considered.

•

3 major periods should be considered during the life of the field:•

The

“plateau”

production period

•

The “decline”

period•

The

“end of field life”

up to the field

abandonment

• A properly prepared independent insurance appraisal can be a useful tool that benefits the insurance underwriter, the insurance agent, and the insured.

• While each will view the document from a different perspective, the end result will be a high level of confidence that appropriate values are being utilized in the insurance contract.

3rd Party Appraisal Company Services

Case Study – “Aquarius Facility”

But first….an Important CAV (Conference Added Value)

Top Ten Useful Work Phrases

1. Thank you. We're all refreshed and challenged by your unique point of view.

2. I don't know what your problem is, but I'll bet it's hard to pronounce.

3. I'm already visualizing the duct tape over your mouth.

4. I will always cherish the initial misconceptions I had about you.

5. Yes, I am an agent of Satan, but my duties are largely ceremonial.

6. No, my powers can only be used for good.

7. How about never? Is never good for you?

8. You sound reasonable...Time to up my medication.

9. It might look like I'm doing nothing, but at the cellular level I'm really quite busy.

10. Someday, we'll look back on this, laugh nervously and change the subject.

Case Study – “Aquarius Facility”

General Insurable Value Assumptions:

• Insurance costs within OPEX are subject to cost savings actions

• The production profile of a field is evolving

Operating Declaration Values –

Case Study

“Aquarius”

Topsides

3 Level deck @ 100’ x 200’ ea. level

6 Leg deck with legs transitioningfrom 54”

Estimated lift/installation weight of 4,400 ton.

3rd Party Processing Equipment

Jacket

4 Leg jacket with legs from 60” dia.to 120” dia.

14 Conductor Slots

25,000 tons

Final Constructive Capex

$250,000,000 USD @ 100%

1st Oil 5/1/10

What is the Optimum Risk Transfer Value for Aquarius

?

Aquarius

Specific Insurable Value Considerations :

•

The insurance values are economically tied to each period of production of the field

•

The amount of capital required to satisfy legal liabilities such as removal of wreck (ROW)

Plateau Production -

RCV

Aquarius Facility Evolution of Facility Values

Block Insured Interest

(%)

R.C.V. (100%) 1st Oil 5/10

Aquarius Facility 100% 250,000,000$

Facility Type Jacket & Deck 14 slots

PD Insurance Opex @100% 2,500,000$

Annual Production - BOE's 10,000,000

Plateau Production – RCV – Management Network

Risk Management

Project Mgt Team Finance / Cost

Control

Production Decline (10 Yrs Prod) -

MRV



(%)

M.R.V. (100%) Declining Production

1/20


Facility Type SS 4 Wells W/ Tieback

PD Insurance Opex @100% 1,500,000$

Annual Production - BOE's 6,000,000$

Production Decline –

MRV –

Management Network

Risk Management

Operations

Engineer (MRV Concept)

Finance / Cost Control (NFCF)Reservoir

(Reserves)

End of Field Life –

Agreed Value



(%)

A.V. (100%) End of Field Life


Facility Type No Re-Build - Abandon

PD Insurance Opex @100% 400,000$

Annual Production - BOE's 1,600,000$

End of Field Life –

Agreed Value –

Management Network

Legal / Land

Regulatory

Risk Management

Operations Finance & Cost Control (NFCF)

Reservoir (Reserves)

Evolution of Insurable Values



(%)

R.C.V. (100%) 1st Oil 5/10

M.R.V. (100%) Declining Production

1/20

A.V. (100%) End of Field Life

Aquarius Facility 100% 250,000,000$ 150,000,000$ 40,000,000$

Facility Type Jacket & Deck 14 slots SS 4 Wells W/ Tieback No Re-Build - Abandon

PD Insurance Opex @100% 2,500,000$ 1,500,000$ 400,000$

Annual Production - BOE's 10,000,000 6,000,000$ 1,600,000$

Insurance Opex Sensitivity to Field Economics

10,000,000

6,000,000

1,600,000

$2,500,000

$1,500,000

$400,000

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

5/1/2010 1/1/2020 End of Field Life

Production ‐ BOE's

Insurance Opex

Thank-You

Energy Project FinancingA Focus on Emerging Markets

Jan P. MumenthalerPrincipal Insurance Officer

International Finance Corporation

Boston, April 26, 2010

IFC – Over $87 Billion Invested in Emerging Markets Since 1956

• Largest multilateral source of loan/equity

financing for the emerging markets private

sector

• Founded in 1956 with 182 member countries

• AAA rated by S&P and Moody’s

• Equity, quasi‐equity, loans, risk management

and local currency products

• Takes market risk with no sovereign

guarantees

• Promoter of environmental, social, and

corporate governance standards

• Resources and know‐how of a global

development bank + flexibility of a merchant

bank

• Holds equity in over 800 companies

worldwide

IFC FY09 Highlights

Portfolio $42.5 billionCommitted $12.4 billionMobilized $2.2 billion# of companies 1,579# of countries 103

Turkey/Romania

Oman

Pakistan/Egypt

Peru

Bolivia/Brazil

Global Expertise: Selected Transactions

Argentina

Venezuela

India

Russia

Argentina/Chile

Yemen/VietnamColombia

Chad/Cameroon

BTC Pipeline

Kazakhstan

Egypt/Bulgaria

Nigeria/Sao Tome

Pakistan

India

PeruENH

Mozambique

Emerging Markets:Who is Emerging?

Choosing a Business Friendly Region?

Source: Doing Business database

The Top 10 Reformers

Source: Doing Business database

Reforms Pay Off …

Risk & Insurance Management Challenges

Insurance Issues in Emerging Markets

• Admitted insurance

• Lack of rated insurers• Retention requirements

• Lack of sophisticated products• Slow claims process

• Exposure (infrastructure, natural hazards)

• Volatility

The Role of Sustainability

Sustainable Financing“Equator Principles”

adopted by 60+ of the world’s leading

banks and based on IFC’s

Performance Standards

Apply to 85% of project financing worldwide

52

E&S Risk Management ‐

IFC’s

ApproachAss

essm

ent

and Management

System

53

What does this mean for the Insurer?

•

Sustainable project

•

Client with Risk Management understanding

•

Improved performance

‐

Monitored environmental performance

‐

Fire & Life Safety focus

‐

Social license to operate

•

Operating in line with best practice

The Challenge to Insurers

What can the Insurance Market do?

Reward good risk management

Offer sustainable terms and

conditions, long‐term partnership

Pay claims; in a timely fashion

Promote new products

Be transparent with clients

Talk the client’s language

Be flexible in policy wordings

Thank you for your Interest

A Systematic Approach To Understanding Risk Allocation In Your Drilling Contract

Reed Wykes

Director, Risk Management

Parker Drilling Company

Boston, April 26, 2010

• The risk allocation matrix concept

• Application of the allocation matrix to offshore drilling contracts

• Use of insurance as a means of transferring legal and contractual risk

A Systematic Approach to Understanding Risk Allocation In Your Drilling Contract

The Risk Allocation Matrix

• Two dimensions: loss and legal fault

– Loss:• Property damage and personal injury

• By cause (example blowout losses)

• By exception (example inhole

tools)

– Legal Fault:• Parties to the contract• Persons at the work site• Persons not associated with the work

Loss Type Party A Party B Person C Person D Person ELoss ALoss BLoss C


Loss Type Contractor OperatorOther Contractors Boat Owners

Helicopter Owners Third Party

Contractor's property

Inhole equipment

Subsea equipment

Corrosion damage

Damage caused by boats

Operating BOP out of vertical




Operator's property

Other contractor property

Inhole property

Third party property at the well site

Third party property away from the well site




Hole

Wreck removal

Pollution from the rig

Pollution from the resevoir

Other pollution




Injury to contractor's personnel

Injury to operator's personnel

Injury to other contractors

Injury to third parties




Underground damage

Control of well


USE OF INSURANCE TO TRANSFER RISK

The First Law Of Risk Management (Islip’s Law)

This is an expression of the principle of conversation of loss, which states that losses can be transferred

(moved from one person to another), but once created cannot be destroyed.

USE OF INSURANCE TO TRANSFER RISK

Match Policy to Risk

Understand How the Risk Arises– Direct legal risk– Risk assumed under contract

Claims Risk– Commercial environment

– Legal environment

Example: London Energy Market

Capital structure in the London Market

Impact of the FSA

Use of outside counsel to run claims

Thank You

10 Minute Break

Risk Management Services and Risk Management Services and WebWeb--based Procurementbased Procurement

Gabriel LugoPresident

Charles Taylor Risk Consulting

April 26, 2010

ProcurementIt helps companies to find solutions in requisitioning, procurement, and expense management. No matter what you are purchasing, from office supplies, direct materials, or more in-depth services, a web-based product can help quickly locate and request the goods and services needed.

Procurement

The procurement department has become an increasingly important part of many corporations.

They are able to unify purchasing tactics for all departments and lower company costs for most types of services and commodities.

Risk Management Services• The risk management department is responsible for many purchases which the organization heavily rely upon.

• Traditional risk management services purchased through RFPs (Request for Proposal) are done through a paper media.

• Historically the purchases made by the risk department have had little input from purchasing divisions

The Future of Risk Management Services

• As many as 50% of large companies now use procurement department in the RFP process.

• Procurement departments are becoming increasingly involved in many aspects of risk management including the acquisition of insurance products, TPAs, Brokers, underwriter inspections and property surveys.

Benefits of Procurement in Risk Management

• Ensure objective competition and evaluation of bids.

• Uniform procedures ensure compliance with company and government regulations.

• Reduce costs.• Regularly deals with

contracts, vendors and large purchases.

Drawbacks

• Potential for bidders to decline to participate in RFPs if they feel the price is the only determining factor.

• Purchasing department needs to understand how insurance services are different than other products.

• Understanding the organization’s appetite (or lack thereof) for risk.

Web Based Procurement• Web-based procurement provides solutions

that are uniquely positioned to capture all types of spending, ensure compliance, and drive savings and efficiencies for companies of any size or industry.

• Many companies offer web-based RFP services/products, which can eliminate time spent creating and managing a process.

Traditional RFP process• Collection of data• Arrive at a bidder short list• Send tender to the bidders, this should include

a confidentiality agreement and state the terms and conditions of the RFP

• Questions & Answers• Bidders respond with written

submissions• Submissions evaluated• Oral presentations if necessary• Vendor is selected

Web-based Procurement Process

• Web-based procurement should follow all the same steps as traditional procurement with some notable differences, namely through the web as opposed to paper.

• Documents are available online via download.• Bidders submit their data into a provided template.• The Q&As can be posted for everyone to see.• A ready made report is available for viewing online

or in print due to the template.• The buyer is more detached from the process,

making evaluation more objective.

Advantages

• Streamlined and paperless.

• Better organization and efficiency.

• Comparisons are easier due to the template format.

• Improved documentation & transparency.

Pitfalls• Difficult for the service

provider to show creativity or “out of the box” solutions in addition to direct answers.

• Web platform may impact the types of answers received (ie: small response boxes may influence shorter answers)

• Text answer character limits and restricted visual examples

Web‐based Procurement…a value added service?

• Including procurement in risk management can reap great benefits but it needs to be

incorporated in such a way to avoid a tunnel vision approach and encourage creativity to

solve solutions.

• The procurement department of a company deals with negotiating contracts and vendors on a daily basis.

Web-based Procurement…a value added service?

• Company saves money• Reports and comparison charts are easily

accessible• Less paper and less time

Questions and Comments

Round Table Discussion