Since our last edition went to press, the news in the upstream energy sector seems to have been almost entirely about casualties, one sadly involving a very heavy loss of life. While, as anticipated, the 2011 North Atlantic windstorm season did not produce any losses of consequence to offshore energy underwriters, this was the only positive development and had already been assumed and factored into underwriters’ thinking.
In February 2011, the damage to the Gryphon FPSO vessel, risers and subsea equipment, produced physical damage and business interruption claims which are presently estimated to cost global energy insurance markets, including OIL, Bermuda, approaching USD1bn; this was the largest upstream loss of the year. Consequently, the early December 2011 storm damage to the FPSO Petrojarl Banff, FSO Apollo Spirit and associated risers and umbilicals in the North Sea Banff field, produced a sense of déjà vu, as well as losses that are initially estimated at around USD300m.
However, the real tragedy of December was the storm-related loss of the Russian-owned jack-up drilling unit Kolskaya, which sank in the Sea of Okhotsk while under tow from the Russian eastern peninsula of Kamchatka to Sakhalin Island. Of the 67 persons said to be on board, the death toll is expected to be 53.
Two earlier 2011 incidents have sprung into greater prominence since our last edition and both highlighted potential issues for international oil companies working offshore in emerging deepwater areas.
In November 2011, a relatively modest oil seepage from an appraisal well being drilled in the region of the Frade field in the Campos Basin, offshore Brazil, caused a storm of controversy and criticism with operator Chevron Brazil facing a significant fine and a drilling ban. Meanwhile in China, ConocoPhillips was dealing with the fallout from two leakage oil incidents which occurred at the Peng Lai 19-3 field in Bohai Bay in June 2011, and for which the company has accepted responsibility.
A new pollution incident offshore Nigeria, was the 20th December spillage of some 40,000 barrels of crude oil from an export line between the Shell Nigeria-operated Bonga field FPSO and a marine tanker. The incident is thought to be the largest oil spill offshore Nigeria for thirteen years. However, it is hoped that none of the oil will reach the Nigerian shoreline.
On a broader front, long before the year ended, it was evident that in terms of catastrophe losses, 2011 would be bad, so it was no surprise when in mid December, preliminary estimates from Swiss Re’s sigma team indicated that with some USD108bn in insured catastrophe losses, the year ranks as nearly the most expensive year for the insurance industry, being second only to 2005 (USD123bn). Moderate hurricane losses kept costs lower than in 2005 when Katrina, Wilma and Rita alone produced claims of over USD100bn.
Losses flowing from the October/November flooding in Thailand will not be fully assessable for some time and may have some effect on the downstream energy book, which started the year with the January fire and explosion at a Canadian Oil sands facility which looks set to result in claims totalling well in excess of USD1bn.
However, despite this catalogue of downbeat news, the markets for both upstream and downstream risks have probably had a better year than the headlines would suggest. Against generally unattractive alternatives, insurance and reinsurance markets are not struggling to find capital and indeed some market sectors would opine that there is more capacity available than is ultimately healthy, if rates are to move to a level where profitability is more certain.
Aside from liability rating, which in many areas continues to move upwards, most upstream and downstream classes, particularly property exposures, have varied little over the last year, and at least for the moment, major changes are not anticipated, in the absence of that much discussed ‘market moving’ event - an animal that is hard to describe but you’ll recognise it when it arrives!
For our part we’ve enjoyed the challenges of 2011 and are ready and able to take on those that 2012 produces. We hope this year is good for you and we’ll do our utmost to assist by identifying and implementing cost-effective solutions to your risk management issues.
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