Aon’s 11 th Energy Insurance Training Seminar

1. Aon’s 11th Energy Insurance Training Seminar Aon Energy Risk EngineeringAEREAssessing Energy Risks Catalina WallisRisk Engineer

2. Presentation Content • Aon Energy Risk Engineering (AERE) • Overview of Piminca Facilities • Offshore/Onshore Hazards • Loss Exposures Offshore/Onshore (PD/BI) • Estimated Maximum Loss • Energy Risk Engineering Reports • Business Interruption

3. Key Updates • Global Coordination • Aon Global Risk Consulting (AGRC) now coordinating all energy related risk engineering services as a “virtual global practice”, sharing resources, best practices, tools and marketing materials. • Branding • Hydrocarbon Risk Consultants (HRC) and Risk & Reliability Services (RRS) have rebranded to Aon Energy Risk Engineering as part of Aon’s master brand implementation. • Aon Energy Risk Engineering – part of AGRC

4. Key Updates • Staffing • Aon Energy Risk Engineering and AGRC has established technical leadership centers for energy risk engineering in London, Dubai, Houston and Singapore and now has experts in place in each location to coordinate with Aon Energy, clients, prospects and markets • Services • AGRC is positioning as an integrated provider of risk control, engineering and related services to meet the needs of energy clients.

5. Fast Facts • 43 Aon Energy risk engineering professionals, located throughout global regions, have energy experience, shown in green in the map below, with the four regional centers referenced • Aon Energy Risk Engineering leaders are recognized industry experts, participate in industry organizations and are published authors of industry standards, guideline books and recommended practices • The wider service offering of AGRC is available through AERE for our Energy client base, including Nat Cat analysis and Rapid Response. London Dubai Houston Singapore

6. Service Overview – Key Buyer Questions Do you have adequate, cost-effective coveragefor major incidents, accurate underwriting reports and business interruption requirements? Have you identified the risks associated with the hazards at your facility and the overall impact to your company reputation? Cash Flow Do you have adequate valuation data to ensure maximize recovery is available from other parties in the aftermath of losses? Balancesheet Brand Aon Energy Risk Engineering Process Assets Are you looking for a dedicated staff of highly-skilled professionals whose sole purpose is to evaluate your asset protection? Do you have cost-effective plans to protect your organization’s key processes? People Do you understand your facility’s hazard potential to personnel and have adequate mitigation systems in place?

7. Aon Energy Risk Engineering (AERE) Aon Energy Risk Engineering is a global, multi-disciplined risk engineering consultancy focusing on the Energy sector. We bring together insurance and valuations, risk engineering and process safety teams to form a “one stop” consultancy that offers a complete risk engineering service to the oil, gas, petrochemical, chemical and pharmaceutical industries worldwide. Our services are designed to assist in managing risks at all stages of a facility from design, through construction, operation and eventual decommissioning.

8. The Insurance Risk Engineering group is the focus for insurance related risk engineering in Aon Global Energy and is centred on the 3rd Floor Block 8, Devonshire Square, London - within the UK Energy team. We have risk engineering resources worldwide Our focus is on Upstream and Downstream Oil and Gas Risks worldwide and Includes: Onshore Oil and Gas Offshore Exploration and Production Refining Chemicals Gas Plants Pipelines and Utilities Aon Energy Risk Engineering (AERE)

9. Global Energy Risk Engineering Resources EUROPE Risk Engineering Consultants London/Germany/France/Russia MIDDLE EAST Dubai Turkey FAR EAST Kuala Lumpur/ Singapore/Hong Kong AMERICAS Houston, New York, N Carolina Calgary Brazil

10. Some Major Clients Sonatrach British Gas Saudi Aramco Petrobras Thai Olefins TUPRAS Sunoco CNOOC Braskem TOTAL Pemex LyondellBasell KNPC Eni 10

11. Client Benefits – Protection Of Cash Flow • Reinsurance market underwriting reports • Insurance risk engineering consulting • Estimated maximum loss • Risk rating • Business interruption studies • Construction project reviews

12. Client Benefits – Protection Of Balance Sheet • Current property valuations • Desktop studies • Basic replacement cost reports • Detailed replacement cost reports

13. Client Benefits – Protection Of Process • Safety review of design features • Fire protection review • Spacing and layout review • High-level HAZID • Provide staff for in-house project teams

14. Client Benefits – Protection Of People • Hazard identification and evaluation • Process Hazard Analysis (PHA) • Layer of Protection Analysis (LOPA) • Facility siting to examine the risk to building occupants • Human factors • Critical task analysis • Control room/alarm evaluations • Audits to verify compliance and provide solutions • Provide solutions to underwriting recommendations

15. Client Benefits – Protection Of Brand • Consequence assessment, including “PHAST” modeling of fire, explosion and toxic release events • Frequency assessment using Fault Tree Analysis to determine the likelihood of a given event • Quantitative safety risk assessment to evaluate the impact on human health, the environment, property damage and business interruption using PHAST Risk • Comparative risk analysis to determine cost-effective solutions to risk reduction

16. Client Benefits – Protection Of Assets • Fire hazard assessment • Code and AHJ compliance • Suppression and detection system specification, design and performance testing • Fire water infrastructure specification, design and performance testing • Fire water pump specification, design and performance testing

17. Piminca OverviewHazards & Loss Exposures

18. Offshore Compressor Platform 100% Sale Plant Alia 100% Rama 100% O’Keefe Dam Drury Jarman Marine Terminal 16” 24” Onshore Gas Separation Plant 1 2 x Gas SeparationUnits Gas Separation Plant 2 1 x Gas SeparationUnits 28” Caribbean Gas Distribution Network (Customer 3) 28” River Crossing Control Room Control Room Overview of Piminca Facilities

19. Hazards - Offshore • Fire and Explosion • Blowout • Ship Collision • Sinking • Anchor Drag – Pipelines • Dropped Objects • Machinery Breakdown • Natural Hazards

20. Hazards - Onshore • Fire and Explosion • Machinery Breakdown • Natural Hazards – Earthquake/Windstorm/Flood • 3rd Parties • Overland Pipeline loss – landslides/river crossings • Ship Collision at Marine Terminal

21. Loss Exposures – Property Damage (PD) • Fire and Explosion – loss of a platform/Gas separation Plant (GSP)/Terminal • Machinery Breakdown – Compressors/On site Gas Turbine Generators (GTGs) • Natural Hazards – loss/damage to offshore/onshore plant and equipment/power lines • Overland Pipeline loss – landslides/river crossings • Ship Collision – Platform/Marine Terminal

22. Loss Exposures - BI • Loss of a platform/GSP/terminal – 2 year rebuild period • Machinery Breakdown – Compressors/Turbo generators in Power Plant – 12 to 18 months • Natural Hazards – loss/damage to offshore/onshore plant and equipment/power lines – up to 2 years depending on level of damage

23. Loss Estimates - Onshore • Vapour Cloud Explosion GSP1 • PD = US$280 million • BI = US$90 million (18 months) shutdown Caribbean Gas Network, 60% of BI sum insured • Combined PD/BI – US$370 million • Loss of GSP 2 will shut down supply to Sale Plant – possible penalties for failure to supply • Fire and loss of Distribution Area Control Room (6 - 12 months downtime) • Machinery Breakdown – Onshore Compressors/GTGs - 12 to 18 months – Extra Cost import of Power • Fire at the Marine Terminal/Ship Collision at Jetty – 6 months rebuild • Natural Hazards – loss/damage to onshore plant and equipment/power lines – up to 2 years depending on level of damage

26. Loss Estimates - Offshore • Fire/Explosion/Windstorm • 100% loss of Rama Complex Process Platform US$300 million (with allowance for removal of wreck and clean up) – 26 month rebuild • BI = US$130 million (26 months) loss of feed to GSP1 – 60% of supply • Combined PD/BI – US$430 million • Loss of Alia complex lower PD and will shut down GSP2 • Machinery Breakdown – Loss of Compressor on Compressor Platform – should be OK as normally only 3 required • Natural Hazards – loss/damage to platform – up to 26 months depending on level of damage

29. EML Scenarios, Calculation Methodology& Vapour Cloud Explosions

30. EML Definition “The largest, low probability loss, which could be caused by a single occurrence of the peril in question. Reasonably adverse conditions are assumed to exist; active protection systems are assumed to be inoperable.” EMLs are based on events considered by the engineer to be credible rather than merely conceivable. On most sites we could all conceive a highly improbable event that would destroy the whole site.

31. EML Determination • Scenario Identification: Consideration given to largest credible inherent hazard & concentration of values • Require accurate plot plan • Replacement Values: Unit breakdown values & year of values • Consequence analysis using ExTool (modeling software by Swiss Re Insurance company) EML should not be used as Loss Limit without careful consideration and advice to assured that EML can be exceeded.

32. Typical Range of Calculated EMLs Probability Of Loss EML 10-³ 0 20% 10% 100% % Total Site Valve (TSV) Destroyed

33. Vapour Cloud Explosion (VCE) • Release of liquefied gas which flashes to produce a vapour cloud and finds an ignition source. • Information required for VCE: • Source of release • Composition of release (mixture or single component) • Available inventory for release • Pressure & temperature • Release rate • Duration (limited to 600 seconds)

34. Vapour Cloud Explosion – ExTool Output Example

35. Vapour Cloud Explosion

36. Total EML Value • To calculate Total EML value, other costs include: • Inflation to current year – using published indices • Allowance for Associated Buildings and Utilities • Allowance for Interconnecting Pipework, etc. • Redesign, Procurement Engineering, Supervision, Testing and Commissioning costs • Removal of debris • Plus inflation to end of policy year • Cost escalation on "S" Curve over rebuilding period

37. Total EML Value Calculation in 2008 – Example

38. Energy Risk Engineering Reports

39. Energy Risk Engineering Reports – What do Underwriters use them for? • Familiarisation with the Risk • Location and Nature of Exposures • Relative Risk Ranking • Values • Property • Estimation of EMLs • PD, BI, MB • Identifying Risk Improvement Opportunities • Number and Type of Recommendations • Insured’s Response and Follow-up • Input into Commercial Decision Making

40. Energy Risk Engineering Survey Reports – Report Structure • Background Information • Location • Exposures (fire & explosion, site boundary, etc) • Loss History • Site Facilities • Process Facilities, Control & safeguards, etc • Utilities (steam, power, plant air, etc) • Storage (tanks, warehouse, etc) • Import/export facilities (jetty, pipelines, etc) • Construction & Layout • New Developments/Projects

41. Energy Risk Engineering Survey Reports - Report Structure • Management • Organisation • Policies, Procedures • Manning, Experience, Training • Fire Protection • Fire Proofing • Detection systems • Firewater • Fixed Protection • Mobile Equipment

42. Energy Risk Engineering Survey Reports – Report Structure • Loss Estimates • Values • EML/PML Estimate • BI • Risk Profile – including Risk Ranking • Risk Improvement Recommendations • New Recommendations • Review of Previous Recommendations

43. Business Interruption

44. Business Interruption Insurance • Major underwriting concern • Small PD can give huge BI exposure • BI is being given much more attention by Underwriters • Underwriters believe that BI is not well understood by Brokers and Insured alike! • Some 100 page Risk Survey reports have “two paragraphs” on BI • Bases and assumptions rarely stated • Lack of transparency in estimation methods used

45. Business Interruption Insurance • Bases and Assumptions • Gross Profit, Standing Charges • Assumed plant throughput • Assumed pricing or margin • Contingent liabilities • Breakdown of BI • By site – minimum required • By key area or process unit preferred • Generated by LP if possible BI EML may not be same event as PD EML!

46. Thank YouAny Questions?