Offshore Energy Insurance Risks in Australia From an

Offshore Energy Insurance Risks in Australia From an underwriter’s perspective Hiroaki Kobayashi Melbourne Chief Representative, Tokio Marine & Nichido Fire Insurance Co. , Ltd. General Manager – Southern Region, Tokio Marine Management (Australasia) Pty. Ltd. Marine Insurance WP　18 September, 2013 Sydney 0

Self Introduction 1993 -97 2003 -04 2008 -10 1997 - Graduated from Keio University – Law & Political Science Tokio Marine sponsored Chinese Language Trainee Course at Fudan University in Shanghai Obtained Finance MBA at Graduate School of Waseda University Tokio Marine Fire Insurance Co. , Ltd. 1997 - Introduction to aviation insurance 2000 - Marine Industry Production Dept 2004 - responsible for offshore energy insurance for regions including North Sea, Vietnam, Sakhalin, Gulf of Mexico, Azerbaijian, Australia Tokio Marine & Nichido Fire Insurance Co. , Ltd. Shanghai Representative in charge of Chinese territories Suzhou, Beijing, and Qingtao for all classes of insurance business 2007 - Marine Industry Production Dept 2012 - Melbourne Chief Representative in charge of offshore energy insurance for regions including Australia, North Sea, Gulf of Mexico, Sakhalin, Middle East, Egypt, Brazil. You will be familiar with major projects such as Pluto CAR and Gorgon CAR which I underwrote. General Manager – Southern Region, Tokio Marine Management (Australasia) Pty Ltd Responsibility for Victoria, South Australia, Western Australia, Northern Territory and Tasmania Management responsibility for major Japanese corporations operating in Australia such as Toyota, Mitsubishi Motor, Mitsubishi Corporation and so on. I am also engaged in various offshore energy projects including Ichthys, Wheatstone, Pluto, Gorgon, Bayu-Undan and North West Shelf Project. Specialized Interest : Offshore Energy Insurance, Environmental Law, International Law 1

1. Floating LNG - Australia’s LNG Project (1) Australia has three existing LNG projects with a total capacity of 24. 3 million tonnes per annum (mtpa). ・North West Shelf ・Bayu Undan ・Pluto (2) Seven LNG projects are under construction in Australia, with capacity approaching 90 mtpa by the end of the decade. ・Gorgon ・Wheatstone ・QC LNG ・Gladstone LNG ・Prelude　→　FLNG ・AP LNG ・Ichthys Source : Shell (3) Other proposal projects may develop with Floating LNG technology. ・Browse　→　FLNG ? ・Sunrise　→　FLNG ・Bonaparte　→　FLNG ? ・Scarborough　→　FLNG ? Source : JOGMEC Insurance Arrangement for Floating LNG is under pressure – Limited Capacity 2

1. Floating LNG - Insurance Products for Floating LNG Development Stage F-LNG / SURF Construction All Risk ① F-LNG　②Subsea Operation Stage Maintenance Period Marine Cargo Third Party Liability Delay-in Start-up Operator's Extra Expense (Cost of Control) Wells Third Party Liability for drilling activity Third Party Liability for site operation Physical Damage　①F-LNG ②subsea Business Interruption Contractor Third Party Liability / Protection & Indemnity Physical Damage 3

1. Floating LNG - Offshore Energy Insurance Market Capacity (1) (2) (3) (4) Offshore Energy Insurance is usually placed in the international insurance market, such as Lloyd’s or major continental underwriters. Accepted, Specialized policy wordings are utilized in the Offshore Energy Insurance Market with limited number of underwriters participating. Current capacity of Energy Insurance Market is considered to be around $3. 5 billion, which is low compared with the exposures / sums insured of hull and topsides etc. . Advent of new and unproven technology has created difficulties for the underwriting markets. Current trend is to support proven and validated technology. 4

1. Floating LNG - Offshore Energy Insurance Layered Program - Integration of Hull and Topsides etc. will constitute the time to procure a higher layer. - Therefore, a detailed schedule containing the milestone dates is critical to build up a layered program. Depending on capacity required: - Special Capacity from investment company - Non-Marine (Excess of loss) / Pro-Re - Captive - Oil Insurance Limited (Mutual for oil companies) - Energy Insurance Market 5

1. Floating LNG - Offshore Energy Insurance Protection & Indemnity Insurance from PI Club can be obtained in order to achieve increased capacity for Construction All Risks Insurance. Entry into yard Exit from Yard Construction ★Commencement of Production Navigation to field Operation ★ The unit must move to Standard Offshore Rules cover at “Commencement of Production” however it is recommended that this should take place on arriving at the field Standard Poolable P&I Cover ・crew ・pollution from the entered ship ・wreck removal of the entered ship ・collision/dock damage ・carbon/property on board Standard Offshore Rules ・stand alone fixed premium cover ・P&I risks ・wreck removal of the unit ・pollution from the unit ・personal injury ・contractual (with prior approval of the managers) Offshore liabilities extension clause ・arise by reason of the member’s interest in the unit ・property ・personal injury ・chartered ships ・pollution (subsea) ・clean-up ・sue and labour/legal costs Source ; Standard PI 6

2. Seepage & Pollution Cover after Montara Incident Date : Early on 21 August 2009 Location : Timor Sea some 690 km west of Darwin and 250 km from the Western Australian coast. Incident: The H 1 well kicked, subsided for two hours, then began flowing uncontrollably with a plume of gas, condensate, water and oil venting into the air above the rig. The rate of discharge was initially estimated at 400 barrels a day, though it may have reached 1500 barrels. Estimates of the resulting surface sheen ranged from 6000 – 25000 square kilometres. The discharge was finally stopped in Nov 2009. Source : PTTEP Establishing an adequate limit of liability for Seepage & Pollution Coverage 7

2. Seepage & Pollution Cover after Montara Responsible Party and Insurance Responsible Party Category 1. Oil Pollution Liability from wells (1) Clean up cost (2) Liability (3) Cost of control Insurance Oil Company Rig Contractor Protection & Indemnity (Third Party Liability) Rig Contractor 2. Oil Pollution Liability from Rig’s fuel Operator’s Extra Expense (1) Cost of Control (2) Redrilling Expense (3) Seepage & Pollution Hull & Machinery Employer Worker’s Compensation Oil Company Contractor No Insurance Source : PTTEP 3. Damage to the Rig (1) Rig itself (2) Sue & Labour (3) Wreck of Removal http: //www. nopsema. gov. au/ 4. Death / Injury of workers on board Injury free offshore evacuation of all 69 personnel onboard the drilling rig 5. Fines / Penalties / Punitive Damage 8

2. Seepage & Pollution Cover after Montara Limit of Liability (1) (2) (3) It is difficult to determine the exact exposure from a blowout incident to an environmental pollution event. However, rule of thumb is that you cannot buy enough coverage for those exposures. Many oil companies decide limit of liability considering OPOL limit or OPA limit or OIL limit. Following is example how to proceed with a Blowout Risk Analysis. ① Blowout Risk Screening ② Blowout Risk Analysis Source ; DNV OPOL : Offshore Pollution Liability Agreement OPA : Oil Pollution Act of 1990 OIL : Oil Insurance Limited 9

Thank you for attention! 　TMNF at a Glance Established in 1879, the first P&C Insurance Company in Japan Net Premiums written JPY 1, 869 bn (Approx USD 20 bn) Total Assets JPY 9, 708 bn (Approx USD 90 bn) Number of Employees 17, 284 Highest Ratings in Japanese market S&P : AA- Moody's : Aa 3 AM Best : A++ Fitch : AA- Hiroaki Kobayashi Melbourne Chief Representative, Tokio Marine & Nichido Fire Insurance Co. , Ltd. General Manager – Southern Region, Tokio Marine Management (Australasia) Pty. Ltd.