OIL AND ENERGY INSURANCE

The Insurance of oil and gas involves both the upstream and downstream activities. The upstream activities involve explorations and production both onshore and offshore. Associated with these are control well, pollution and cleanup, containment, Blowout of well, removal of wreckage or debris, loss of life, injury to operators and contractors personnel, General Third Party Liabilities, etc. Downstream activities include refining, distribution and storage in addition to Human activities and the general liabilities associated with the business.

The significant areas of risk exposure can therefore be summarized as   follows:

1. Property damage (including the hole itself)
2. Loss of life and injury to operator’s and contractor’s personnel
3. Third Party Liabilities
4. Pollution, clean-up and containment
5. Blow out
6. Removal of wreckage (i.e. consequential loss of income)
7. War and political perils

The risk is traditionally placed into the insurance market by means of a broker ‘Slip’ which set out the essential details of the risk being offered in a standard format. The following information is commonly requested:

*        Name of the company and address of their registered office.

*        Type of business registered for: e.g. exploration, engineering, contractors, ancillary services etc.

*        Company experience in Oil Business registered (i.e. how long has the company been in this business)

*        Level of manpower and experience.

*        Names of other parties with interest in the risk e.g. co-owners, contractors, sub-contractors etc.

*        Geographical area of operation.

It must be noted here that since oil and gas insurance business is

International in nature, government policy on it is that at least 5% retention

of the business must be placed with local insurance market.

 The Main Energy Policy:

1. Physical Damage Coverage

Here we ensure that the exposure in respect of damage to or loss of owned property is adequately insured against providing all risks cover to all offshore exploration units, offshore platforms/pipelines and land rigs.

• Exploration Units:

These are specialized units developed for the purposes of drilling operations. There are four basic types; jack-up rigs, semi-submersible rigs, submersible rigs and drill ships.    

• Offshore Platforms/Pipelines:

Platforms include external equipment such as cat walks and landing ramps. All items which are firmly attached to the platform as part of the permanent works, including properties leased or rented or in care, custody and control are covered. The platform whether a drilling or an accommodation for personnel.

Pipelines include offshore and onshore pipelines.

• Land rigs: Even though they are operating on land, they are classified as marine risks and generally insured in the offshore energy market.

2. Operator’s Extra Expense

          The following cover exists:

• Control of well
• Re-drilling
• Sewage and pollution
• Clean-up and contamination.

This related to the risks from exploration, discovery and extraction of oil and gas and their treatment, transportation and delivery to designated export terminals or otherwise to processing plants such as refineries and deports.

Cover is provided for the following:

• Cost of controlling blow-out
• Cost of containing and cleaning up substances emanating from wells.
• Liability to third parties arising from sewage and pollution.
• The re-drilling/recompletion expense of the well
• Evacuation expenses
• Cost of drilling units to drill relief wells.