Graham Copland

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Petrochemical Valuations - Avoiding Under-Insurance

    Graham Copland CEng MIMechE

    Managing Director

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

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    Sums Insured

    Key Issue :Who is responsible for determining Your Sums insured?

    Lack of insurance valuation knowledge

    Concept of insuring assets at book value

    In-frequent sums insured review

    Under insurance only becomes and

    issue after a loss

    Difficulty in recovering after a substantial loss

    http://images.google.com.sg/imgres?imgurl=http://www.championsway.com/Products/man-thinking.gif&imgrefurl=http://www.championsway.com/learning.html&h=258&w=240&sz=25&tbnid=0JQJ4HITlnEJ:&tbnh=106&tbnw=99&start=16&prev=/images?q=man+thinking&hl=en&lr=
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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Why do Insurance Values Change?

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Why do Insurance Values Change?

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Why is there Under-Insurance?

    Businesses are unaware their insurance cover is inadequate

    Inaccurate valuations due to methodology used to assess Sums Insured, such as:

    Information from internal engineers

    Financial system generated asset list

    Elements not allowed for in the Sums Insured:

    Major loss inflation omitted

    Extra costs of reinstatement omitted

    Perceived affordability

    POWER

    GENERATION

    PreJFA J

    FA

    42%

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Site Layout PlanPartial Loss Scenario

    Wrong split of values/plant identificationproblems in partial loss

    *Importance of correct plant identification and reporting by area

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Under Insurance/Application of Average:

    Full value of the property at the time of the fire = US$1,000,000

    Sums insured at the time of the fire were insured for = US$500,000

    Partial loss sustained as agreed betweenthe Insured & Insurers = US$400,000

    A Hypothetical ScenarioAverage

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    AverageApplied

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Case Study - Large Petrochemical FacilityBuilt In 2003

    Construction cost (2003) US$2B

    Depreciated Cost (book value) US$1.2B

    Replacement Cost US$2.7B

    *Assuming no change in technology and it is a total rebuild

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Case Study - Typical Small 4 Leg RigBuilt In 2001

    Difference in values:

    Construction cost (2001) US$ 70M

    Depreciated Cost (book value) US$ 40M

    Replacement Cost US$140M

    *Assuming no change in technology and it is a total rebuild

    http://upload.wikimedia.org/wikipedia/commons/a/a1/Oil_platform.jpeg
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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Case StudyOil RefineryKorea

    Replacement for New Valuation Refinery - Top 5 in world Client approached local valuation company Use of Asset Indiceswrong.

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Case StudyLNGDifferent Years Of Construction

    Construction @ 1983

    - 3 X 2,800,000 tpa trains

    Construction @ 1995

    - 3 X 2,600,000 tpa trains

    Construction @ 2004

    - 2 X 3,900,000 tpa trains

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Valuers Approach Methodology & Research

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    The Valuers Approach

    On Site Surveys Physically Inspecting the assets and estimating thereplacement cost on sitesite values

    Calculations Calculations build up of value by functional units

    Market Research Making contact with the original contractors

    Benchmarking Database Accessing research sources to review cost activitiesfor similar assets across the world

    Benchmarking International Making direct comparisons between the assetsbeing valued and previous similar assets

    Analysis of List Costs Cost Indexing/Computer Modeling

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Current Prices Of Equipment, Commodities & ConstructionMaterial Due To World Demand

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Commodity & Construction Cost Tracking

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    Nelson Farrar Refinery Index

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Commodity & Construction Cost Tracking

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Costing

    Modular Section Material cost

    Weights

    On shore off shore costs

    Rig Configuration Installation costs

    Vessel costs

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    To Summarise

    Regular review of sums insured

    Be informed about insurance coverage and how it works

    Ensure all elements are included in the replacement value

    Be aware of supply and demand - material, labour, construction costs vary withdemand

    Valuationsassist all parties in reducing time to settlement/contentious claims

    Regular health checks are important

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    John Foord

    Beijing Office/ Representation

    Market Respect

    Experience LevelValuers and Researchers

    Detailed and Factual Reports Independent

    Industry Specialist Recognition

    Support from the Lead Markets

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    JOHN FOORDESTABLISHED 1828International Valuers of Industrial Plant and Property

    Thank You