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Tuesday, March 5, 2013Houston, TX

1:15–2:30 p.m.

INSURING OFFSHORE OPERATIONS

Presented by

Gris BowdenManaging Director

Wortham Insurance & Risk Management

Michael RuehmanManaging Director

Wortham Insurance & Risk Management

Ryan SmithManaging Director

Wortham Insurance & Risk Management

Not every accident is as big as the BP oil spill. However, the unexpected can always occur,and it may seriously disrupt exploration operations and business finances. The risks associ-ated with offshore operations are unique and can be hard to manage, and the insurancemarket is growing increasingly complicated and expensive. This session will explore the risksin offshore operations, the liabilities associated with those risks, and the coverages custom-arily purchased to cover the risks.

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opyright © 2013 International Risk Management stitute, Inc.

www.IRMI.com

Energy and Marine Risk Management

• Wortham has a substantial client base in the energy sector covering worldwide operations. Our long and impressive client list includes many who have been associated with Wortham for more than 20 years.

• More than 50% of the $1 billion annual premium we place into the

insurance marketplace is energy, marine or energy related. Our experience in negotiating client insurance programs sharpens our skills constantly so client satisfaction on wordings and premiums becomes a self-fulfilling prophecy.

• We handle insurance for some of the largest energy companies in the

country. We also handle some very acquisition minded energy companies, which means we are constantly modifying and renegotiating insurance programs to develop creative and cost efficient solutions.

• Claims advocacy - the Wortham team that markets and negotiates

manuscript policy wording for energy and property placements also handles the claims. This team approach provides a better result in claim recovery and knowledge on how to negotiate policy forms.

• Wortham’s seasoned energy team has experienced both soft and hard

insurance market cycles and knows how to utilize worldwide insurance markets to meet client needs.

Expertise in handling insurance for the full spectrum of energy companies including:

For more information visit our website at www.worthaminsurance.com

Operators and Non-OperatorsDrilling Contractors

Well Service ContractorsIntegrated Energy Companies

RefineriesMidstream Operations

Gas Processing & Storage

Pipeline CompaniesTerminal OperatorsVessel Operations

Independent Power ProducersGas and Electric Utilities

Explosive OperationsChemical Industries

J. Wortham, L.L.C., General PartnerJohn L. Wortham & Son, L.P.

Gris BowdenManaging Director

Wortham Insurance & Risk Management

Mr. Bowden is a managing director at Wortham Insurance and Risk Management in Houston,Texas. For nearly 100 years, Wortham has managed the insurance needs of its clients with a com-prehensive portfolio of services, including insurance brokerage, risk management, and employeebenefits consulting. As the largest privately held insurance firm in Texas and with a team of morethan 500 insurance professionals, it serves local, regional, and global companies and brings di-verse industry experience and a strong conviction for outstanding service.

Mr. Bowden has been a member of Wortham’s Houston practice since 1991. He previouslyworked at Wortham in 1982–1984 and then returned 7 years later. He primarily serves clients inupstream energy but brings extensive experience in guiding clients in all lines of energy insur-ance.

Prior to joining Wortham, Mr. Bowden worked in the marine division of the Continental Insur-ance Company, which transferred him from New York to Texas in 1980.

Mr. Bowden holds a B.A. degree from Vanderbilt University and Diplome de Langue et LettresFrancaises from L’Universite D’Aix-Marseille. He is a former lecturer for Petroleum Extension Ser-vice of the University of Texas on insurance for offshore operations.

Michael RuehmanManaging Director

Wortham Insurance & Risk Management

Mr. Ruehman is a managing director at Wortham Insurance and Risk Management in Houston,Texas. For nearly 100 years, Wortham has managed the insurance needs of its clients with a com-prehensive portfolio of services, including insurance brokerage, risk management, and employeebenefits consulting. As the largest privately held insurance firm in Texas and with a team of morethan 500 insurance professionals, it serves local, regional, and global companies and brings di-verse industry experience and a strong conviction for outstanding service.

Mr. Ruehman has been a member of Wortham’s Houston practice since 1996, serving clientsthrough his considerable expertise as Marine and Energy Department manager. Prior to joiningWortham, he was with Soriero & Company, Inc., for 8 years in Energy Marketing and Account Ser-vicing. He also worked in the Lloyd’s market in London in 1989.

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Mr. Ruehman’s areas of expertise include international marine and energy marketing, physicaldamage, political and war risks, business interruption, excess liability, control of well, and con-struction.

Mr. Ruehman holds a degree from Rice University in managerial studies and political science. Hewas named a Power Broker by Risk & Insurance in 2009.

Ryan O. SmithManaging Director

Wortham Insurance & Risk Management

Mr. Smith is a managing director at Wortham Insurance and Risk Management in Houston, Texas.For nearly 100 years, Wortham has managed the insurance needs of its clients with a comprehen-sive portfolio of services, including insurance brokerage, risk management, and employee bene-fits consulting. As the largest privately held insurance firm in Texas and with a team of more than500 insurance professionals, it serves local, regional, and global companies and brings diverse in-dustry experience and a strong conviction for outstanding service.

Mr. Smith has been a member of Wortham’s Houston practice since 2004. He was marketing andplacing a wide variety of accounts before he moved into an account executive role. He currentlyserves clients in energy, commercial real estate, and law firm industries.

Mr. Smith holds a B.B.A. and an M.B.A. from Texas Tech University Rawls College of Business andthe Commercial Lines Coverage Specialist certification.

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Insurance for Offshore Operations

March 5, 2013

This document contains confidential and proprietary information and is not to be released to a third party, in whole or in part.

J. Wortham, L.L.C., General PartnerJohn L. Wortham & Son, L.P.

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Wortham Insurance & Risk Management

• Placing over $1 Billion in premiums annually

• Texas based since 1915, currently over 500 associates

• Wortham is the largest insurance agency headquartered in Texas, with offices in Houston, Fort Worth, Austin, San Antonio and Dallas

• A Limited Partnership owned by 125 Managing Directors with average tenure of 20 years. Employee tenure is over 12 years

• Approximately half of our Managing Directors are technical staff

• Transparent and open communication especially on compensation

Seasoned Experts ~ Comprehensive Solutions

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Panel Discussion

• Ryan Smith – Managing Director at Wortham Insurance & Risk Management

• Michael Ruehman - Managing Director at Wortham Insurance & Risk Management

• Gris Bowden – Managing Director at Wortham Insurance & Risk Management

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What is Oil and Gas?

Upstream Midstream Downstream

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Overview of Energy Insurance Coverages

• Offshore Property (Platforms & Pipelines)– Loss Of Production Income– Named Windstorm aggregate limit– Removal of Debris and Wreck– Operator’s Extra Expense

• Drilling Rig & Support Vessel Insurance– Hull & Machinery– Protection & Indemnity– Named Windstorm aggregate limit– Removal of Debris and Wreck– Contingent Operator’s Extra Expense

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Insurance Placement Diagram

Insured(Assured)

Insurer(Assurer)

Insurer(Assurer)

Insurer(Assurer)

Insurer(Assurer)

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Insurance Placement Diagram

Retail Broker(Agent)Insured

(Assured)

Insurer(Assurer)

Insurer(Assurer)

Insurer(Assurer)

Insurer(Assurer)

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Insurance Placement Diagram

WholesaleBroker

Coverholder(Lloyd’s)

Lloyd’sBroker

ManagingGeneral

Agent

Retail Broker(Agent)Insured

(Assured)

Insurer(Assurer)

Insurer(Assurer)

Insurer(Assurer)

Insurer(Assurer)

Wholesale Brokers

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Insurance Placement Diagram

WholesaleBroker

Coverholder(Lloyd’s)

Lloyd’sBroker

ManagingGeneral

Agent

Retail Broker(Agent)Insured

(Assured)

Insurers(Assurers)

Insurer(Assurer)

Insurers(Assurers)

Insurer(Assurer)

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2 (60%)

4 (30%)

3 (10%)

Wholesale Brokers

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Control of Well Coverageor Operator’s Extra Expense (OEE)• Operator’s Extra Expense which includes:

– Cost of controlling a blowout / well out of control (above or below water bottom)

– Redrill or restoration of well following an out of control– Pollution following a blowout above water bottom

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Sample Rate Schedule($ per foot)

• Drilling Rates Area 3 Area 4– A Depth (0'–10,000') 8.29 11.61– B Depth (10,001'–17,500') 12.43 17.40– C Depth (17,501' and over) 18.64 26.11

• Workover Rates (per foot Worked-Over)– A Depth (0'–10,000') 4.15 5.81– B Depth (10,001'–17,500') 6.22 8.70– C Depth (17,501' and over) 9.32 13.06

• Producing & Shut-in Rates (per foot Producing or Shut-in)– A Depth (0'–10,000') 0.83 1.16– B Depth (10,001'–17,500') 1.24 1.74– C Depth (17,501' and over) 1.86 2.61

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Rating Areas

• Area 1—Land areas in the United States of America and Canada, excluding:– Alabama, Alaska, Arizona, Colorado, Florida, Louisiana, Mississippi, Montana,

New Mexico, Texas Railroad Commission Districts 1–4 inclusive, Utah, Wyoming;

– North of 60 degrees North Latitude, South of 24 degrees North Latitude, West of 140 degrees West Longitude, and East of 53 degrees West Longitude; and

– Texas Railroad Commission Districts 5–10 inclusive and Oklahoma, but only as respects those wells 10,000 feet or more in depth measured through the hole from the surface of the ground to the bottom of the well.

• Area 2—Land areas worldwide, excluding:– Area 1 as defined above; and– North of the Arctic Circle and South of the Antarctic Circle.

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Rating Areas, continued

• Area 2—(Wet) Inland waters of the United States of America and Canada, Lake Maracaibo and territorial waters of the United States of America adjacent to the Continent of North America of water depths less than 10 feet at mean low tide, excluding:– North of the Arctic Circle and South of the Antarctic Circle; and– Alaska

• Area 3—The Gulf of Mexico, Venezuelan waters and the Gulf of Paria, excluding Area 2 (Wet) as defined above

• Area 4—Waters worldwide, excluding;– Areas 2 (Wet) and 3 as defined above; and– North of the Arctic Circle and South of the Antarctic Circle

• Area 5—North of the Arctic Circle and South of the Antarctic Circle

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Property Insurance

• Operator (Oil Company)– Mostly fixed (platforms, pipelines, subsea well heads,

loading buoys, etc.)

• Drilling Contractor– Mostly moveable (rigs, etc.)

• Service Contractor– Mostly moveable (equipment)

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Property Insurance – Operators

• Physical Damage Coverage – usually “all risks,” which generally excludes:– Terrorism risks– Nuclear / Biological / Chemical / Electromagnetic damage– Political risks– War risks

• Time Element Coverage– Which can be provided as:

Business interruption insurance (formula) Loss of production income insurance (per diem amount) Delay in start-up insurance (per diem amount)

• Special Considerations– Capacity risk?– Removal of Wreckage / Debris coverage– Builder’s Risk exposures– Concentration of exposures– Named Windstorm coverage

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Offshore Operators Package Program

Physical Damage

Operators’ Extra

Expense

Builders’ Risk

Loss of Production

Income

Nominal Retentions 45 Days +/-

Single Aggregate Limit• MWS and CORD coverage on nominated wells (only)• Sub-limit(s) on MWS and CORD coverage• “Other Peril” limits/amounts, if lesser, would apply

Large Per Occurrenceretention

60+ Days

Millions $

100

50

-0-

All Covered Perils except Named Windstorm Named Windstorm

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Property Insurance – Contractors

• Physical Damage Coverage – usually “all risks,” which generally excludes:– Terrorism risks– Nuclear / Biological / Chemical / Electromagnetic damage– Political risks– War risks

• Time Element Coverage– Which can be provided as:

Loss of earnings insurance (per diem amount) Loss of hire insurance (per diem amount)

o Or in some cases, replaced by: Extra expense insurance (cost incurred)

• Special Considerations– Capacity risk?– Removal of Wreckage / Debris coverage– Transit exposures– Hull & Machinery coverage or Property Insurance coverage– Named Windstorm coverage

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Offshore Contractors Package Program

Hull & Machinery /

Physical Damage

Contingent Operators’

Extra Expense

Builders’ Risk

Loss of Hire / Business

Interruption

Nominal Retentions 45 Days +/-

Single Aggregate Limit• “Other Peril” limits/amounts, if lesser, would apply

Large Per Occurrenceretention

60+ Days

Millions $

100

50

-0-

All Covered Perils except Named Windstorm Named Windstorm

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Current TrendsinEnergy Insurance

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Lloyd’s of London

Estimated Pure Year Profit/Loss, 1985-2012* (£m)* 2012 6 months

Source: Lloyd’s85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 10 11 12

6 month

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Mobile Offshore Drilling UnitsTotal & Major Partial Losses—The Early Years

Name Date of Loss Amount Paid Cause

Colco S-44 1954 $1,800,000 Blowout/FireMovible No. 3 May 1955 $2,500,000 Bad WeatherSedco No. 8 August 10, 1956 $1,338,782 Negligence (Overloaded with Pipe)Qatar Rig No. 1 December 12, 1956 $1,650,000 Bad WeatherMr. Gus 1 April 1, 1957 $3,500,000 Negligence (Collision)Ed Malloy June 1957 $2,100,000 Bad Weather (Hurricane Audrey)Deepwater No. 2 September 1957 $1,900,000 UnknownTrans-Gulf Unit #10 1959 $3,200,000 Bad WeatherC. E. Thornton 1959 $1,000,000 BlowoutLa-Delta No. 1 September 15, 1961 $1,475,000 Bad Weather (Hurricane Carla)Off-Co No. 55 October 31, 1961 $1,100,000 Bad Weather (Hurricane Hattie)C.P. Baker June 18, 1964 $2,500,000 BlowoutBlue Water Rig No. 1 September 1964 Partial Loss Bad Weather (Hurricane Hilda)Blue Water Rig No. 1 September 1965 $7,425,000 Bad Weather (Hurricane Betsy)Orient Explorer 1965 $1,500,000 Damaged while being towed

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Mobile Offshore Drilling UnitsTotal & Major Partial Losses—The Early Years

Name Date of Loss Amount Paid Cause

Triton July 7, 1965 $3,000,000 BlowoutPaguro August 19, 1965 $6,300,000 BlowoutMaverick 1 September 1965 $5,700,000 Bad Weather (Hurricane Betsy)Penrod Rig No. 52 September 1965 $2,500,000 Structural (Hurricane Betsy)Marlin III November 3, 1965 $1,644,000 Sank while being towedBruyard December 1, 1965 $7,000,000 Bad WeatherSea Gem December 1965 $4,360,000 Sank by unknown causeRoger Butin-Gem 109 February 9, 1966 $6,000,000 Sank due to punch-throughNeptune III February 10, 1966 $6,000,000 Sank due to punch-throughMr. Cap March 1965 $4,800,000 Blowout

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2011 World News Impacting Insurance Market

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2012 Insurance News

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Projected Energy 2013 Rating Trends

• Offshore Property and Operator’s Extra Expense

• Certificate of Financial Responsibility (COFR)

• Onshore Operator’s Extra Expense Flat

• Excess Liabilities

– Primary Layers

– Excess Layers

• Onshore Property

– Catastrophe Exposed

– Non Catastrophe Areas Soft to Neutral

Rate Trend

To learn more about Wortham’s services and coverages,visit our new website at:

www.worthaminsurance.com

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