Upstream Risks. 18 th September 2013, Oslo, Norway. June 15, 2009 PAGE 1

Transcription

1 Upstream Risks 18 th September 2013, Oslo, Norway PAGE 1

2 Agenda Hess Upstream Risks Commercial/Political Exploration/Technical Construction Operations Pollution Insurability Decommissioning Risk Allocation Operator v Non-Operator Outlining Risk Allocation - Indemnity Regimes Problematic Risk Allocations PAGE 2

3 Hess Corporation Hess Corporation is an integrated energy company with operations in over 15 countries. It is in the process of transforming itself into a pure play E&P company. E&P comprises exploration, production, development and exploration Onshore USA, Algeria, Indonesia, Libya, Thailand, Australia, France, Kurdistan, China Offshore US Gulf of Mexico, Brazil, Denmark, Equatorial Guinea, Malaysia, Norway, Thailand, UK, Australia, Brunei, Ghana, Libya Marketing in US East Coast and Virgin Islands Retail Marketing 1360 filling stations Energy Marketing Heating Oil, Electricity and Natural Gas Supply & Terminals 21 terminals 2012 average daily production was 406,000 BOEPD 2012 post-tax profit was $2 billion net, on total sales of $38 billion Market Cap is $26 billion (as at 5 th Seoptember 2013) PAGE 3

4 Hess E&P Global Production Portfolio Valhall Bakken South Arne Utica Seminole Llano Conger Shenzi GEA Waha Sinphuhorm Pailin Okume / Ceiba Natuna A JDA Pangkah PAGE 4 4

5 Upstream Risks Commercial and Political Access to new acreage political issues Corruption US Foreign Corrupt Practices Act/UK Bribery Act Political stability in countries for life of field? Sequestration of assets Security of staff, contractors, vessels piracy and bunkering offshore Cost of acquiring licences and obligations seismic work, exploration wells, appraisal drilling, development plans etc. Cost of exploration up to $200 million per well for sub-salt Offshore Brazil, Gulf of Mexico, Arctic Chance of success 20-25% for deep water wildcat wells? PAGE 5

6 Upstream Risks - Exploration/Technical Water depth Ice / Extreme Weather - Hurricanes, Typhoons Well Design, horizontal drilling, casing strength, blowout protection Cementing Technologies Geological Conditions rock characteristics Support infrastructure Back-up Rigs Supply Boats & Helicopter operations Shore Base proximity PAGE 6

7 Upstream Risks - Construction Technology Developments steel and concrete gravity platforms, semi-submersibles, TLPs, FPSOs Asset costs co-venturer cost and revenue sharing Delays in completion very costly! Heavy Lift vessel availability Ever deeper water Subsea completions more common, harder to install and maintain? Values at risk increasing beyond insurance market capacity e.g. FLNG vessels PAGE 7

8 Upstream Risks - Operational Ageing assets higher maintenance costs, less recoverable oil, higher water cut Age profile of offshore workers Workovers - well de-sanding, acid stimulation, fracturing Force Majeure weather, pipeline availability/access Support infrastructure Back-up Rigs Supply Boats & Helicopter operations Shore Base proximity PAGE 8

9 Onshore operations safer!? No lifeboats required PAGE 9

10 Upstream Risks - Pollution Proximity to coastline - tourism/aquaculture Control of Well availability of rigs Pollution control and clean-up capability Litigation number of claimants, legal process, insurance policy limits and policy conditions Unlimited strict liability in Norway UK OPOL requires $250 million of financial capacity for pollution clean-up & compensation EU new Offshore Safety Directive will likely include Financial Responsibility requirements USA MMS requirements Macondo has cost BP around $42.2 billion to date Insurance Market Capacity - $1 Billion for TPL? - $1 Billion for OEE? PAGE 10

11 Insurability Hess largest Estimated Maximum Loss calculation Property Damage/Control of Well Valhall Hess Working Interest = % $ million Property Damage 1,100 ROD (25% of PD) 275 Well Control (WI x $200mm) 128 No of Wells to redrill 20 Re-drill per producing well + P&A 85 Redrill 1,143 Total Hess Insured value $2,646,000,000 PAGE 11

12 Upstream Risks - Decommissioning Platforms weren t all designed with removal at end of life considerations Plugging and Abandonment of Wells integrity of casing and/or cement job OSPAR Convention governs decommissioning in North Sea essentially all platforms and subsea infrastructure must be removed to leave a clean seabed. Exception is (massive) concrete Gravity Based structures such as Beryl A US Gulf of Mexico has wrecks to reef programme as an alternative to removal PAGE 12

13 Commercial Risks and Management PAGE 13

14 Outlining Risk Allocation - Indemnity Regimes and risks Big Family versus Small Family Simply does the Company Group include all other contractors (excluding the one we re contracting with)? If so then this is a Big Family indemnity regime which arguably removes need for Field Indemnity Agreement Mutual Hold Harmless (MHH) is the standard in LOGIC in the UK and similar in Norwegian indemnity regime offshore MHH includes Personnel employees, If not then the regime is small Family and each contractor must indemnify each other contractor for injury to their own people and damage to their own property, consequential losses, and pollution. Big Family simplifies claims situations as each party pays their own losses for people and property. Third Party claims are rare as most parties are included in the Company Big Family group or Contractor group PAGE 14

15 Indemnity Regimes and risks - Rigs Rig operators nowadays often want to exclude Supply Boats and Helicopters from the Company Group MHH for property damage Rationale rig is static, so helicopters and boats can only collide with it and not the other way around Company must then ensure that MHH indemnity regimes with Supply Boat contractors and Helicopter contractors are modified to make them liable for negligent damage to rig through their operations, even though pure Big Family would exclude this risk PAGE 15

16 Problematic Risk Allocations - Construction Check indemnity language and insurance clauses, plus statutory requirements in main contractor contracts Identify legal requirements relating to insurance Admitted versus non-admitted policies Credit Ratings for insurers, premium & claims cut through? Contractor issues Named Insured status or Indemnity from Company Group Deductibles versus risk caps Crossing Agreements Tie-in agreements Proximity Agreements Choice negotiate a fixed cap in return for strict liability or go at law (common law in UK uncapped liability including financial losses?) PAGE 16

17 Problematic Risk Allocations - Operational Risks Who insures what? Refer to JOA/PSC Normally all legally required insurance is provided by the Operator on a 100% basis. What is legally required? Workmen s Compensation/Employers Liability P&I for FPSOs/FSOs Other insurances Property Damage, Operator s Extra Expense etc. Normally at the choice of each co-venturer Co-venturers have the option to self-insure too Contractors normally indemnified by Operator for damage to Company Group assets/company Group Personnel except for Wilful Misconduct acts Contractor demands on Operator/Company Group Post Macondo some drilling rig operators are starting to ask about Company Group OEE and CGL Insurance (Operator s Extra Expense and Commercial General Liability, including pollution risks). Named insured status? Impact more on smaller/medium size operators PAGE 17

18 Thank You! PAGE 18