MAJOR LOSSES IN THE HYDROCARBON INDUSTRY 03 JULY 2014

Jonathan Carter, Global Energy Risk Engineering London

MARSH 1 08 July 2014

• Introduction to Marsh

• Introduction to Insurance Risk Engineering

• Marsh 100 Largest Losses 23rd Edition

– What’s in it?

– The 10 Largest Losses

– What’s not in the document?

– Recent losses

– Trends in the losses

• Uses for the document

• Any Question?

MARSH 08/07/2014

Marsh & McLennan Companies

Marsh & McLennan Companies

Marsh

A world leader in

delivering risk and

insurance services and

solutions to clients

Mercer

A leading global

provider of consulting,

outsourcing, and

investment services

Guy Carpenter

A leading risk and

reinsurance specialist

Oliver Wyman

Delivering advisory

services to clients

Lippincott

Corporate

branding, identity,

and image

Oliver Wyman

A top-tier global

management

consulting firm

NERA Economic

Consulting

Competition,

regulation, public

policy, finance,

and litigation

MARSH 08/07/2014

Marsh Global Over 24,000 Colleagues and 400 Offices in 130 countries

Marsh Owned/Controlled Office

Affiliate

Correspondent

No Marsh Office

MARSH 4

Marsh: A Leader in Scale and Scope

• Marsh serves 87% of the Fortune Global 500 and manages three or more lines of coverage for 92% of the Fortune 100.

• Circa USD 40 billion in premium placed.

• Extensive global footprint with operations in more than 130 countries.

• Over 24,000 employees and 400 offices worldwide.

48%

U.S. and Canada

6% Latin

America

35% EMEA

11% Asia

Pacific

Presence: Marsh Owned/Controlled Office Affiliate Correspondent

2010 Revenue:

USD 4.8 billion

MARSH 08/07/2014

Energy

Value Proposition Capabilities

Marsh’s Energy Practice is at the forefront of advising energy

companies on risk and insurance issues impacting operational success.

Our network of over 350 energy specialists is globally coordinated from

ten strategic hubs. We manage over USD 2 billion of insurance premiums

in the energy markets for over 1,000 clients.

• Our leverage with global markets enables us to

reduce the cost of a client’s risk by identifying

opportunities in existing programs.

• Access to our market-leading claims team ensures

you benefit from our worldwide experience in

maximizing policy indemnity and swift recovery.

• Our market-leading risk engineering team provides

quality risk assessment and improvement advice,

benchmarking data, and adaptability to new

industry technologies.

• Our powerful analytics and benchmarking

capabilities allow us to support clients through all

phases of investment.

• Negotiating ability

• Market knowledge

• Contract review

• Risk consulting

• Engineering

• Ability to access key international markets

• Energy insurance training courses

• Crisis management

• Claims management

• Strong benchmarking data

MARSH 6 08 July 2014

Insurance Risk Engineering

Supporting the communication between insured and insurers

Making judgements on the quality of risk management practices

Making estimates of the magnitude of potential insured losses

Making recommendations on good loss control standards

Promoting improvements in process safety standards

Acting and technical resources for brokers and underwriters

Ensuring lessons from energy industry losses are shared across the

industry

MARSH 7 08 July 2014

Marsh’s 100 Largest Losses

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• From a database maintained by Marsh for nearly 40 years

• Now has nearly 10,000 entries

• Latest edition – the 23rd – published in March 2014

• 100 Largest Losses based on the estimate of a “Ground Up” property

damage loss

– Adjusted to equivalent of 2013 value

• No Business Interruption / Liability / Cost of Well Control etc.

• Covers the period 1974 to 2013

MARSH 9 08 July 2014

Categories

• Refining

• Petrochemicals

• Gas Processing

• Terminals and Distribution

• Upstream

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Included in the 23rd Edition

• Forward by Professor Sam Mannan

• New losses added since the 22nd edition – published in 2011

• Up-dating of losses with up-to-date information on loss values and causes

• Summary of other recent major losses

• Summary of recent Natural Catastrophe losses

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Ten Largest Losses

Location Country Date Incident Type Property Loss

(USD million –

2013)

Piper Alpha, North Sea UK 1988 Explosion / Fire 1,810

Pasadena USA 1989 Explosion 1,400

Skikda Algeria 2004 Explosion / Fire 940

Ekofisk, North Sea Norway 2009 Collision 840

Gulf of Mexico USA 1989 Explosion / Fire 830

Mina Al-Ahmadi Kuwait 2000 Explosion / Fire 820

Campos Basin Brazil 2001 Explosion / Sinking 790

Longford Australia 1998 Explosion 750

Campos Basin Brazil 1988 Blowout 700

Toulouse France 2001 Explosion 680

11 08 July 2014

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What isn’t in the publication?

• Bhopal Limited Property Damage loss

• Mexico City, Pemex Limited Property Damage Loss

• Feyzin Prior to 1974

• Buncefield Limited Property Damage to the first insured

12 08 July 2014

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Where are they?

Macondo / Deepwater Horizon

14th USD 600 million (2013 USD value)

Loss of the drilling rig only

Flixborough

40th Estimated Loss Value inflated to 2013 – USD 270 million

13 08 July 2014

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New Incidents Since 2011

14 08 July 2014

2012 Explosion and Fire at Petrochemical Site

Map Ta Phut, Thailand

2012 Explosion and Fire at Oil Refinery

Bangkok, Thailand

2012 Explosion at oil refinery olefins storage plant

Falcon State, Venezuela

2013 Refinery fire following major flooding

La Plata, Argentina

2013 Explosion and fire on an ethylene cracker

Louisiana, USA

2013 Sinking of a jack-up rig

Off-shore Angola

2013 Blow-out on a drilling rig

Gulf of Mexico, USA

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Recent incidents not included

• West, Texas Ammonium Nitrate Explosion

• Elgin Platform Gas Leak, North Sea

• Lac Megantic, Quebec, Canada oil train explosion

15 08 July 2014

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Recent Natural Catastrophe Losses

• Superstorm Sandy

• Flooding in Thailand

• Typhoon Haiyen in the Philippines

16 08 July 2014

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Distribution of Losses

17 08 July 2014

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• Losses over USD 130 million (2013 value)

• Increase in activity in the sector

– Average daily production of crude oil

1980 – 64 million barrels

2012 – 89.3 million barrels

• Concentration of major losses in 1980s (Piper Alpha, Philips Pasadena,

Gulf of Mexico)

• More frequent large losses (over USD 130 million) in last 15 years

18 08 July 2014

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Distribution by Sectors

19 08 July 2014

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• Dominated by upstream and refining

• Upstream

– High value

– High pressures and temperatures

– Unknowns of natural reservoirs

– Corrosion and erosion risks

• Refining

– High value

– Heating / cooling / reacting

– Corrosion risks

– Large inventories

20 08 July 2014

MARSH

• Petrochemicals

– High value (and value concentration)

– High pressures / temperatures / reactions

– “Refined” feedstocks

– Lower inventories of flammable and explosive materials

• Gas Processing

– Lower value concentration (in general, but some exceptions)

– Less high temperature processing (more low temperature processing)

• Distribution

– Lower value concentration

– No heating / cooling / reacting

– Generally pre-processed

21 08 July 2014

MARSH

Use of the document

• “It can’t happen here”

• “I’ve never heard of that happening”

• “That couldn’t happen in a company like ours”

• Black Swans

22 08 July 2014

MARSH

What is a Black Swan?

• Hard-to-predict, rare events beyond the realm of normal expectations

“an outlier, as it lies outside the realm of regular expectations, because

nothing in the past can convincingly point to its possibility.

“it carries an extreme impact.

“in spite of its outlier status, explanations after the event make it

explainable and predictable.”

Are these losses Black Swans?

23 08 July 2014

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• Reminders for HAZOP teams

• Starting points for Process Safety meetings

• Reminders of the importance of process safety barriers

• A reminder to finance and risk managers of the potential impact of process

safety failures

24 08 July 2014

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• Judith Hackett – June 2014

“One of the biggest challenges in the world of real health and safety – and

preventing catastrophes – is getting people to recognise what could

happen, and to learn from past events even if they have never been close

to such a disaster themselves.”

25 08 July 2014

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Link to the document

https://uk.marsh.com/NewsInsights/Articles/ID/37406/The-100-Largest-

Losses-in-the-Hydrocarbon-Industry-1974-2013.aspx.

Or type

“Marsh 100 Largest Losses”

Into a search engine

26 08 July 2014

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ANY QUESTIONS?

27 08 July 2014

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To carry on the discussion

Follow the link to a Linkedin discussion group

https://www.linkedin.com/groups?mostRecent=&gid=4030631&trk=my_group

s-tile-flipgrp

28 08 July 2014

MARSH

Safety & Loss Prevention SIG – Confirmed Q3 Events

• High reliability organisations: one day seminar, London 24 July 2014

• Committee meeting and AGM combined with workshop on “Integrating SIL

into safety management” 11 September 2014, Portland Place London

• 2015 programme underdevelopment

– Regionally based committee meetings & evening talk

– Webinars

– One day seminars

29 08 July 2014

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