Welcome to our second special edition of the Standard Bulletin focusing exclusively on offshore matters. Since our last offshore edition of the Bulletin was published, in October 2006, Standard Offshore has continued to grow. The global expansion in the offshore oil and energy business has resulted in large numbers of new units coming onto the market, and the Standard has taken advantage of this activity. More offshore tonnage has joined the Club, both in the shape of new Club members and as entries in existing fleets. We now have 55 offshore members entered in the Club, and the offshore entry includes every type of unit, from the largest FPSOs through offshore installation vessels and cable-layers to AHTs and supply boats. Standard Asia, our Singapore based Club, has been particularly active in the offshore sector this year. In the meantime, we have also been improving and expanding our offshore team. Although the Standard Club has underwritten oil and gas business since the first drillships entered the North Sea in the 1970s and a specialist team has supervised the Club’s offshore business since 1999, it was only last year that we decided the time had finally come to consolidate our offshore business in one syndicate. On 1st December 2006, the offshore syndicate came into being and now that we have done it, we are rather surprised it took us so long! Robert Dorey as syndicate head and Sharmini Murugason as syndicate claims director lead a team of specialists who handle all aspects of the offshore members’ day-to-day business. As a repository of knowledge and expertise, the syndicate is the natural result of the Club’s ongoing commitment in this area, and working with Offshore Director Barbara Jennings, they provide us with an excellent platform to further expand the Club’s offshore portfolio. In the meantime, the Standard Offshore brand has been rolling out in other ways during the past year. We held our first Standard Asia Offshore Forum in Singapore in December 2006. More than 65 club members from Asia and Australasia and representatives from the shipping, offshore, and oil and gas sectors attended the one-day seminar at the Shangri La Hotel. The event was judged so successful that it is being repeated later this year. Standard Club representatives have also been invited to speak at conferences in Houston, Norway and Dubai, and we are proud of our team’s ongoing contribution to industry training and debate. In This Issue - OFFSHORE REVIEW - REINSURANCE REVIEW - SPECIALIST OPERATIONS AND CAR - HARMONISING FPSO PROJECT CONTRACTS - NEW BIMCO CONTRACT - KNOCK-FOR-KNOCK - CONSEQUENTIAL LOSS - OFFSHORE FORUM - ASIA OFFSHORE BY ALISTAIR GROOM, CHIEF EXECUTIVE +44 (0)20 7522 7422 [email protected]Standard Bulletin October 2007 The Standard Steamship Owners’ Protection & Indemnity Association (Bermuda) Limited The Standard Steamship Owners’ Protection & Indemnity Association (Europe) Limited The Standard Steamship Owners’ Protection & Indemnity Association (Asia) Limited Standard Bulletin is published by the Managers’ London Agents: Charles Taylor & Co. Limited International House 1 St. Katharine’s Way London, E1W 1UT England Telephone: +44 (0) 20 7488 3494 Fax: +44 (0) 20 7481 9545 Emergency mobile: +44 (0) 7932 113573 E-mail: p&[email protected]www.standard-club.com Please send any comments to the Editor – [email protected]Telephone +44 (0)20 7522 7566 The Standard Special Edition - Offshore CONTINUED ON PAGE 2 BARBARA JENNINGS DIRECTOR, OFFSHORE +44 (0)20 7522 7454 [email protected]
Transcript
Welcome to our second special edition of the Standard Bulletinfocusing exclusively on offshore matters.
Since our last offshore edition of the Bulletin was published, in October
2006, Standard Offshore has continued to grow. The global expansion in
the offshore oil and energy business has resulted in large numbers of
new units coming onto the market, and the Standard has taken
advantage of this activity. More offshore tonnage has joined the Club,
both in the shape of new Club members and as entries in existing fleets.
We now have 55 offshore members entered in the Club, and the offshore
entry includes every type of unit, from the largest FPSOs through offshore
installation vessels and cable-layers to AHTs and supply boats. Standard
Asia, our Singapore based Club, has been particularly active in the
offshore sector this year.
In the meantime, we have also been improving and expanding our
offshore team. Although the Standard Club has underwritten oil and gas
business since the first drillships entered the North Sea in the 1970s and
a specialist team has supervised the Club’s offshore business since 1999,
it was only last year that we decided the time had finally come to
consolidate our offshore business in one syndicate.
On 1st December 2006, the offshore syndicate came into being and now
that we have done it, we are rather surprised it took us so long! Robert
Dorey as syndicate head and Sharmini Murugason as syndicate claims
director lead a team of specialists who handle all aspects of the offshore
members’ day-to-day business. As a repository of knowledge and
expertise, the syndicate is the natural result of the Club’s ongoing
commitment in this area, and working with Offshore Director Barbara
Jennings, they provide us with an excellent platform to further expand the
Club’s offshore portfolio.
In the meantime, the Standard Offshore brand has been rolling out in
other ways during the past year. We held our first Standard Asia Offshore
Forum in Singapore in December 2006. More than 65 club members from
Asia and Australasia and representatives from the shipping, offshore, and
oil and gas sectors attended the one-day seminar at the Shangri La Hotel.
The event was judged so successful that it is being repeated later this
year. Standard Club representatives have also been invited to speak at
conferences in Houston, Norway and Dubai, and we are proud of our
team’s ongoing contribution to industry training and debate.
BY MIKE DEAN,DIRECTOR OF CTC'S BUSINESS DEVELOPMENT UNIT+44 (0)20 7759 [email protected]
This in turn brought new players into the insurance market withcommensurate increased capacity. If contractors and operators were ableto do so, they tended to buy less insurance and to absorb more riskthemselves. So did direct insurers, who bought less reinsurance and tooklarger retentions.
All of these trends are putting a downward pressure on rates, but this hasyet to lead to any significant softening of the market. Insurers are able tocommand top rates as regards capacity risks or those operating in themost exposed geographical areas of the world. In the energy sector, westill think of 'Piper Alpha' as being a huge loss. Whilst in real terms it wasindeed catastrophic, it falls a long way short of the top ten worldwideinsured losses. Interestingly, the top ten losses are all the result of naturaldisasters, except for 9/11. Of those nine natural catastrophe losses,seven were in the United States, the other two being in the Far East andEurope. Clearly, if you are an operator or contractor working in andaround the southern United States, Caribbean or Gulf of Mexico, you aregoing to be paying a lot more for your insurance than those in other partsof the world.
What we have today are all the above competing with pressures of recenthistorical losses, a more recent good year, increased capacity andcompetition. These combine to create an anxious and fragile market, withinsurers trying to hold the line wherever possible and buyers seeking someamelioration of the ‘post-Katrina’ premium hikes in the belief that 2005and not 2006 was the aberration. Who knows - back to the crystal ball!
2007 Offshore Industry Review
In last year's bulletin, we talked about the strong demands for contractorservices. This trend remains within the industry and, on a recent driveacross the Cromarty Firth just north of Inverness, it was apparent thateven the stacked rigs that have adorned the seascape for the last decadehad finally disappeared. So whilst the industry remains buoyant, what ofoperating expenses?
For those working in the energy sector, insurance costs have always beena major item. One of the difficulties with regard to premium levels hasbeen their unpredictability and volatility. The nature of P&I Clubs is suchthat to some extent their very structure enables much of this volatility tobe removed. But this ability is less apparent in the wider insuranceindustry.
We know that the energy losses of 2005 amounted to around US$20billion and, whilst 2006 was relatively benign, the problem for insurersand reinsurers is not having a crystal ball - or at least one that works.The models that are being used have been shown to be inaccurate atbest and sadly lacking at worst.
Modelling aside, the insurance industry is mostly reactive to events,and right now, we are still in the post ‘post-Katrina’ period. We saw ratesrise dramatically in late 2005 and continue to rise during 2006.
Industry Review
On that note, BIMCO contracts are some of the most widely used in theindustry and, this year, we are pleased that representatives of theStandard Club were invited to sit on three of the subcommittees currentlyredrafting contracts used widely by the offshore industry. BarbaraJennings sits on the subcommittees to revise Heavycon and to produce anew form for the mid-size heavy lift business, whilst Robert Dorey isrepresenting the clubs on the committee that is revising Bargehire. GrantHunter from Bimco writes on page 9 of this Bulletin about thedevelopments in the Heavycon form.
In insurance, as in the rest of the industry, business does not stand still,and this year has seen a change in the way the International Groupapproaches towage. In many previous editions of the Bulletin, we havecommented on the regrettable erosion of the knock-for-knock principle inoffshore contracts, particularly in supply boat charterparties. Although wefirmly believe that knock-for-knock is and remains the fairest and mosteffective way to approach offshore liabilities, we are also aware that toorigid an approach by insurers can make life difficult for their clients. Thisyear, therefore, we were happy to support a move by the International
CONTINUED FROM FRONT COVER
Group of P&I Clubs to increase the numbers of towage contracts that can be pooled, despite not adhering to knock-for-knock principles, if themember is contracting in jurisdictions that do not uphold knock-for-knock. On page 10 of this edition of the Bulletin, Sharmini Murugasonexamines knock-for-knock worldwide in a comprehensive review that webelieve is the first of its kind. We also continue to offer our contractreview service to members, providing them with a full analysis of theirinsured exposure under individual contracts, whether at the negotiationstage or once the contract has been finalised.
Also in this edition of the Standard Bulletin, we consider the keycontractual issues that can arise in an FPSO project, courtesy of WilliamCecil of solicitors Curtis David Garrard; we examine the interface betweenP&I and CAR insurance with broker David Sharp; and we take a lookforward to this year’s London Offshore Forum in an interview with one ofour speakers, Marcus Jones of Lloyd’s Register. All this is in addition toour regular overview of the energy and insurance markets andexamination of legal updates of particular relevance to our members. Wevery much hope you will enjoy reading this issue of the Standard Bulletinas much as we have enjoyed putting it together, and we look forward toreceiving any feedback or suggestions you may have.
BY STUART CAPEWELL,REINSURANCE DIRECTOR +44 (0)20 7522 [email protected]
At Lloyd’s, we now see the clear influence of the Franchise PerformanceDirector’s initiatives. These include very close monitoring of eachsyndicate’s performance compared to their stated Realistic DisasterScenario submissions. For the first time in 2005, these included a Gulf ofMexico hurricane causing US$10 billion of insured offshore losses (andUS$50 billion onshore). The modelled loss had a damage track almostidentical to that of Hurricane Rita. The fact that individual syndicates haveexperienced losses both above and below their own predictions has ledto a huge demand for clearer recording and monitoring of exposure datain this sector.
The long range forecasters at Colorado State University this year warnedof expected Atlantic Basin hurricane activity at twice the average levels,with five major hurricanes projected in 2007. It is timely that newoffshore energy modelling tools such as Eqecat are being launched tohelp insurers quantify their offshore risks, leading to improved pricing andbetter use of capital.
We don’t believe that any single year, either good or bad, defines whethera reinsurer has a good strategy or whether it is able to execute itsstrategy effectively. Reinsurance is a long-term business, and areinsurer’s performance can only be quantified over a multi-year period.It is capacity, stability and consistency that we value in our reinsurers.
At the Club, we view our role as ensuring not only that our reinsurershave the resilience to handle large losses, but they will be there at thenext renewal, providing stable capacity in the turmoil that inevitablyfollows close upon catastrophe.
2007 Reinsurance Review
In the last two years, the reinsurance industry has experienced twoextremes. 2006 was as exceptional from a positive perspective as 2005was from a negative perspective. Most of the companies that madelosses in 2005 made large profits in 2006; in fact, one was partly theresult of the other. The losses of 2005 led to significant price increasesand dislocations in the United States windmarket, resulting inconsiderable profitability when no major storms occurred. And, in additionto a scarcity of hurricanes, there were no major insurance losses in 2006from earthquakes, typhoons, floods or tsunamis.
The other remarkable thing about 2006 was that most lines of businessproduced record profitability in the same year. For a global diversifiedreinsurer with exposure in various markets, it would be normal to expectsome lines of business to face increased losses or softer marketconditions. The 2006 results have shown that a professional reinsurercan withstand the turmoil of years like 2005, respond to the opportunitiesthat invariably follow, and earn back the lost money in a very short periodof time.
Quantifying risks for the offshore energy market is markedly different andmore complicated than modelling for onshore property risks. Mostdamage onshore is attributed to wind, but losses to the offshore energymarket are primarily due to severe waves and currents generated by astorm, as well as undersea landslides. Whilst some of the risks tooffshore energy include property exposures to platforms, well heads andpipelines, an important component of the risk is centred on continuousproduction issues.
It is not surprising that FPSO facilities have developed to become anincreasingly popular solution worldwide for offshore field development.Within the US Gulf of Mexico, the dominant production facilities havebeen fixed structures and floating production systems based on Spar,TLP and semi-submersible platforms. Higher oil prices, and significantultra deepwater prospects extending farther beyond established pipelineinfrastructure, make FPSOs an increasingly viable option, especially asthey can move off site if there is a threat of hurricanes.
The Minerals Management Service, the federal regulatory agency thatoverseas oil and gas activities offshore United States has recentlyapproved the first FPSOs to operate in United States territorial waters.It has approved an FPSO for the Cascade/Chinook fields for Petrobras,and in the meantime, Helix Energy Solutions have approval for theirfloating production unit Helix Producer 1, which will be dynamicallypositioned and capable of disconnecting from the risers in the event oftropical storms or hurricanes. This is foreseen as being a growth area forthe Club as we are well positioned to offer high levels of flexible cover foroperating FPSOs both on and off the riser.
BY DAVID SHARPEXECUTIVE DIRECTOR, OPERATING GROUP,AAA INSURANCE & REINSURANCE BROKERS LIMITED+44 (0)20 7220 [email protected]
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David Sharp makes the point that the gaps between P&I and CAR covers,in most cases, relate to the operation and interpretation of contractualand hold harmless indemnities. The commercial reality of the offshoreinstallation market is that there is no standard industry agreed wordingcovering the obligations of each contracting party. This means that everysingle contract is different. The contracts will reflect the prevailing marketbargaining positions of the parties, which can be seen not only in scopeof work definitions but also in respect of the liabilities that each partyassumes. Many of the deviations from a knock-for-knock regime incontractually assumed liabilities represent the exclusions or deductiblesapplicable to other insurances.
Whilst the Club has a wide reinsurance programme, gaps in CAR andsimilar covers cannot be normally accommodated under our extendedcovers. It is therefore imperative that members ascertain at the outsetwhether their contractually assumed liabilities fall under their P&I orextended covers. The Club operates a contract review system so thatcover can be positively confirmed. Contract reviewers in the OffshoreSyndicate work with the underwriters to produce a comprehensivecontract review so that there is clarity and certainty in respect of the P&Icover. Any gaps in cover can then either be dealt with by a furtherextension of cover if appropriate, or by the member and his contractualpartner clarifying his access to the CAR cover or reframing thecontractual liabilities as necessary.
P&I Specialist Operations and the Interfacewith Construction All Risk Policies
P&I Specialist Operations are set out in a wide and non-exhaustive list ofmarine activities in the Standard Offshore Extension or Rule 19.11 of theRules. The Specialist Operations exclusion has its roots in a desire by thetraditional shipowning market not to mutually share liabilities arising outof activities that involve exposures beyond the carriage by sea of personsor property under a contract subject to statutory principles of liability.
Many Specialist Operations liabilities involve activities that have little orno overlap with other insurances. One significant exception to this is theinstallation and marine construction market, where shipowners maytransport and/or install property that falls under the Construction All Riskspolicy placed by an oil company client or other principal.
The P&I Perspective - by Robert Dorey
This article addresses some of the areas of overlap between the twocovers, and David Sharp’s article opposite looks at those issues from theConstruction All Risks perspective. From the Club point of view, where amember has bought back liabilities arising from the nature of theSpecialist Operation, the Club cover still excludes liabilities in respect offailure to perform or fitness for purpose/quality of the member’s work andalso liabilities in respect of contract works. The exclusion for failure toperform is because the exposure is a pure economic loss. The exclusionin respect of liabilities for contract works arises primarily because of theexistence of a CAR policy, which is the proper market for these risks.
a “primary” insurance clause would have meant that any collectibleclaims under a valid P&I insurance had to be exhausted first. This is nolonger possible under the standard CAR policy, which only provides suchcover on more restricted wording to the Operator for removal of wreck ofits own properties.
Indemnity Arrangements
What benefit is really being conferred on the contractor, absent coveragefor vessel-related liabilities and removal of wreck? This question hasmore resonance when it is considered that mutual indemnityarrangements between Operators and contractors will theoreticallyinterpret third-party claims at site as between the two parties.
Mutual indemnities, however, come under the microscope when acatastrophe occurs, particularly if it involves loss of life, and courts maynot always construe the contractual indemnity clauses in the mannerintended. It must also be recognised that such indemnities can only beeffective between contracting parties. Different contractors at theworksite will not be in a contract with each other, only with the Operator.The same, if not more complex, position arises with subcontractors.Contracting strategies in the UK have only partially dealt with this positionby utilising what is known as the “small family” indemnity concept. Thisprovides that the contracting parties are grouped into larger entities. Onthe one hand is the “Operator Group” comprising the Operator and its co-venturers, plus their affiliates, but excluding any member of the“Contractor Group”. The latter consists of the contractor, itssubcontractors of any tier who are performing work at construction sites,and their affiliates, but excluding any member of the “Operator Group”.This grouping is favoured by CRINE and its successor organisation LOGICin seeking to create more uniformity in UK offshore contracting.
The inclusion of subcontractors within this latter group creates anattempt to bring subcontractors within the ambit of the indemnityarrangements. Under English law, this would not have been legallyenforceable until the passing of the Contracts (Rights of Third Parties) Actin 1999, which enables persons who are not parties to a contract toenforce rights under the contract. However, a gap still exists in terms ofliabilities between different contractors and their subcontractors.
An alternative is the “large family” concept, which includes the Operator’sother contractors and subcontractors in the “Operator Group”, and iscommonly used in Norway, where the basic contract - the NF97 form -includes the large family as standard. The Norwegian contracting regimeallows for standardisation in the indemnity structure, thus each contractis on a “back to back, word for word” basis, which is essential if theprinciples are to be upheld and the indemnities to operate in the mannerintended within the entire community involved in the construction project.
Liability Cover Available to Contractors UnderOffshore Construction All Risks Policies
The CAR Perspective - by David Sharp
There has been much discussion regarding the extent to which offshorecontractors are insured under CAR policies arranged by their Principals,which in most cases, will be the oil company operating the lease block(the “Operator”). The topic has been the focus of legal disputes in the UK,United States and Australia, to name but three jurisdictions. Invariably,practice within the oil industry determines that it is the Operator whoarranges the CAR insurance, there being good reasons for this, albeit thecontractor generally has primary responsibility for the works whilst underhis control. The Operator will include all his contractors and indeedsubcontractors as “Other Assured” parties under the CAR insurance, butsuch parties will only have the benefits of the policy to the extent madeavailable under contract.
Cover
The contract should then spell out the basis of the cover arranged. So faras concerns physical damage risk, this usually occurs with some clarity,but many contracts are silent on the issue of third-party cover. Thecontract itself will usually stipulate that each party is responsible for itsown third-party losses, but the Operator’s CAR insurers are not unhappyto provide such protection to the contractors on the unwrittenunderstanding that the contractor will have a primary policy in force. Thecontract will therefore normally stipulate that the contractor effects aprimary comprehensive general liability policy up to certain limits. Third-party cover under offshore CAR policies is arranged as a separate section(Section 2) to physical damage, for a limit generally pitched at between$50 million and $100 million per event, such cover being available to theOperator from the “ground-up”, and for contractors in excess of theirprimary policies. However, there is only one limit per event provided forall parties.
It used to be the case that certain contractors would consider this benefitas providing them with Excess Protection and Indemnity Risk on vesseloperations connected with the CAR works, sometimes in order to protecttheir existing arrangements. This is no longer possible because of theexistence of a “Watercraft” exclusion in Section 2 coverage, which CARinsurers will not normally delete for contractors. The contract willtherefore stipulate that contractors should have P&I insurance inexistence for specified minimum limits. Given the “specialised vessels”exclusion in force where the P&I is provided by a Club, the contractshould ideally stipulate that this exclusion is deleted, althoughinterestingly, it very rarely does in so many words.
Another feature of CAR coverage that was historically provided wasremoval of wreck cover that enabled any insured party to recover claimsfor removal of wreck of their properties, howsoever arising, provided thata liability existed for wreck removal or the wreck interfered with currentoperations. Thus contractors could have the benefit of this cover, although CONTINUED OVER
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Industry Mutual Hold Harmless
In the absence of a Norwegian model for structuring indemnities, theoffshore industry in the UK has, through LOGIC, introduced an IndustryMutual Hold Harmless (IMHH) scheme to seek to avoid any such gaps asmight still exist in the small family concept. The IMHH is not tied to aspecific contract but is designed to underpin all offshore activity in the oiland gas industry on a global basis. Participants need only enter thescheme once by signing up for the long term. It is not intended that theIMHH Deed that participants sign takes precedence over existing or futurecontractual arrangements; its purpose is to address liability for propertydamage or personal injury where there is no contractual arrangement inforce between the respective parties. A significant number of the partiesworking on the UK Continental Shelf have signed up to the scheme.
Conclusion
So, to come back to the question – what benefit is actually available tothe contractor by accessing the Operator’s third-party cover under CARSection 2? In theory, these must be very little. Off-site liabilities (i.e.during tows and movements to the field) will fall to be dealt with by P&Iinsurance. Removal of wreck of contractor’s vessels and equipment isexcluded under the CAR policy. On-site liabilities should be dealt with byindemnity arrangements and, so far as the gap in terms of non-contracting parties is concerned, should be dealt with by parties signingup to the IMHH Deed or similar schemes. It must be concluded that theexposure in relation to offshore operations is very small, possibly reducedto the risk that indemnities will fail to operate in the manner intended or,where parties have not signed up to IMHH schemes, that no indemnitiesexist. It follows that any issue with respect to the interface between theCAR policy and the P&I insurance – so far as concerns the contractor -narrows in similar fashion to the point that it is marginal.
David Sharp has worked in energy insurance in the LondonMarket for more than 40 years. He is the author of the seminalbook “Offshore Oil and Gas Insurance”, published by Witherby& Co, London in 1994, a new edition of which is in preparation.
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BY WILLIAM CECIL PARTNER, DAVIS GARRARD LLP, LONDON+44 (0)20 8734 [email protected]
First, the operator can enter into an EPIC (Engineering, Procurement,Commissioning and Installation) contract with the head contractor forthe provision of a fully functioning FPSO at the required field location.Usually the head contractor will, in return for payment of a lump sumfee, assume vis-à-vis the operator full responsibility for completing theconstruction or conversion of the FPSO, its “hook-up” andcommissioning offshore at the field. Where the FPSO is supplied underan EPIC contract, the operator will normally retain title to the unitthroughout the project. Indeed, where the project involves a conversionrather than a newbuilding, the operator will often purchase the tankerat the outset and “free issue” this to the head contractor for thepurposes of the construction works and topside installation. The use ofEPIC structures in the offshore sector has become a controversial issuein recent years, with a number of major contractors suggesting thatthe risk/reward balance associated with lump sum contracting hasbecome too heavily weighted in favour of the operators.
The second option is for the operator to enter into an agreement withthe head contractor for the provision of the FPSO and associatedoperating and management services. This is in effect a time charter ofthe unit, although this is normally known as a Production ServicesContract or an operating lease. The key differences between thisscheme and the EPIC approach are that the head contractor, ratherthan the operator, normally assumes full responsibility for themanagement and operation of the unit post-delivery and retains bothtitle to it and any entitlement to the “residual value”.
There are, of course, a number of reasons why an operator mightchoose to enter into an EPIC contract in preference to adopting theProduction Service Contract approach, or vice-versa. In addition to therisk issues indicated above, tax/customs considerations will often be akey driver. In order to minimise these potential exposures, it may forexample be prudent for the operator to acquire title to all or part of theFPSO equipment prior to entry into the host country, in which event,the Production Services Contract approach may be unworkable.
2. The “Modular” Strategy
The alternative approach is for the operator to contract separately forthe component parts of the project i.e. design, procurement,construction and installation. The operator may also decide to managethe marine and offshore operations of the FPSO itself. This is, however,relatively rare, given the scale and complexity of the tasks involved,and few operators are able to maintain the necessary expertise and‘skill sets’ needed to achieve this successfully, and most do not evenattempt to do so.
Harmonising FPSO Project Contracts
Advances in recent years in FPSO vessel technologies havefundamentally altered the economics of offshore oilfield development.Floating production systems represent a safe and efficient method ofexploiting previously inaccessible deepwater fields – they are also a cost-effective means of developing marginal fields that would otherwise beincapable of supporting the construction and decommissioning costs offixed platform development.
To employ this technology, the oilfield operator must obviously acquire, orengage the use of, a suitable vessel to act as an operating platform andan integrated crude oil processing and storage system. Furthermore, thesystem must be capable of meeting the requirements, both technical andcommercial, of the project in question. To achieve this normally requiresthe operator to enter into a range of complex contractual arrangements.
Principal FPSO Project Phases
The first principal phase of the project is design and engineering. Thisstage encompasses the conceptual design and front-end engineering anddesign, through to the more detailed engineering phase. These tasks willoften fall within part of the head contractor’s workscope. Next comes theconstruction of the hull or the conversion of an existing vessel. Thus anexisting vessel will need to be purchased for conversion or, particularlyfor projects involving harsh environments or extended life, a hull will needto be built from scratch. This is followed by the construction of theprocessing facilities. The “topsides” contract will define the contractualrelationship between the owner and processing contractor. This will eitherform part of the shipyard construction or conversion contract, or will be aseparate contract with a specialist contractor. Once the constructionstage is completed, the FPSO unit will be towed or transported to the fieldlocation1. Following arrival at the field, the unit will be installed andhooked up with the subsea system. This is usually undertaken pursuantto a separate contract between the operator or head contractor andspecialist subcontractors. The head contractor will then undertakecommissioning of the unit. Finally, once the FPSO has been accepted bythe operator, the unit will need to be operated and maintained throughoutits life at the producing field until demobilisation.
FPSO Contract Strategy
1. The “Turnkey” Strategy
The most commonly employed approach to FPSO contracting is for theoperator to employ a single contractor, referred to here as the “headcontractor”, to manage the project and to engage any subcontractorsrequired for those elements of the project that the head contractor isnot himself able or willing to undertake. As the name suggests, theoperator is looking for an integrated, managed solution. Whenemploying a turnkey strategy, the operator broadly has two options.
1In addition, the hull may be towed from the shipyard building the hull to the facilities of the topsides contractor,if different.
crude regime”2, it is well established in the offshore sector and has thevery great virtue of simplicity.
In the absence of a knock-for-knock arrangement, English law will holdeach party working at the field liable (primarily in negligence) for allforeseeable losses resulting from its negligent acts or omissions andthose of its employees. The size of the potential liabilities involvedrenders this exposure unacceptable for the majority of offshorecontractors and their insurers; moreover, each contractor working at thefield will, to the extent that insurance is obtainable, be required to insureto the full extent of the damage for which it is potentially liable and thismultiplicity of insurance will add significantly to the costs of the project.
The indemnity is normally agreed to apply to damage or injury to theoperator and contractor groups. A key issue in the indemnity structurewill be whether the operator group is broadly or narrowly defined. If abroad approach is adopted, the operator group will include all of theoperator’s other contractors working at the field. Alternatively, where amore narrow approach is adopted, the operator’s indemnity will notextend to the property and personnel of its other contractors.
A narrow definition of operator group can cause the head contractorsignificant difficulties, particularly if he is working in close proximity withsubcontractors of the operator, who are not included within the definitionof operator group and therefore are not covered by the indemnityprovided by the operator.
2Per Morrison in the unreported case of Smit International (Deutschland) Gmbh v Josef Mobius.
Key Contract Issues
The contractual workscope
Assuming that a turnkey contracting strategy has been adopted, the mostimportant issue in any FPSO project contract is defining and agreeing theContractual Workscope, i.e. the precise scope of the works to beundertaken and the allocation of responsibility between the parties. A keyelement in this context is the question of delegating design responsibilitybetween the operator, the head contractor and the subcontractors of eachof them. The Contractual Workscope is normally set out in a technicalspecification. A number of factors render the agreement of theContractual Workscope a complicated process.
First, many operators express their requirements for FPSO tonnage partlyin functional, rather than purely descriptive, terms. This should inprinciple work well, except that shipyards are more accustomed todealing with descriptive specifications and are often cautious aboutaccepting responsibility for guaranteeing functionality. This is particularlyproblematic given that the FPSO’s functionality cannot normally bedemonstrated before the unit undergoes acceptance tests at its firstproducing well. Problems can also arise where there are inconsistenciesbetween the descriptive and functional parts of the specification.
Second, the complexity of the FPSO’s onboard processing systems meansthat these are frequently designed and engineered, in whole or in part, bya large number of third-party contractors, some of whom may beselected by, and in some cases employed by, the operator rather than thehead contractor, the shipyard or the topsides contractor. The multiplicityof the parties involved can often lead to serious questions concerning thedelineation of their respective responsibilities and workscopes.
The third complicating factor relates primarily to FPSO conversions,where the head contractor and its subcontractor, the shipyard, will berequired to incorporate new designs and materials within an existingstructure in order to permit the new and the old to operate together as anintegrated whole. Problems can arise at the ‘interface’ between new andold, particularly where the old structure is unable to cope with additionaldemands placed upon it after the conversion. The contract must be clearas to which party is responsible for this interface.
Indemnities
Indemnities are another key contractual issue. As in many types ofoffshore contract, indemnities form an important part of FPSO projectstructures and, in terms of harmonisation, it is vital to ensure that theseprovisions are as far as possible consistent between the head contractand the principal subcontracts. The indemnity structure most commonlyemployed is the usual knock-for-knock approach under which theoperator and the head contractor indemnify each other against propertydamage, personal injury and death sustained by members of their owngroups and employees in the course of undertaking the projectirrespective of cause (i.e. regardless of whether the damage was inflictednegligently or in breach of duty). Although the knock-for-knock structurewas recently described by an English High Court judge as a “blunt and
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commercial practice. The new mid-size form will offer a comprehensivetrade-specific alternative to the less than ideal generic forms currently in use.
A drafting group consisting of trade representatives from companies suchas BigLift Shipping, Dockwise, SAL Shipping, Heerema and Fairmount iscurrently working on the revision of HEAVYCON and is making goodprogress. It is hoped that the project will be completed by November2007. To ensure consistency between the revised HEAVYCON and the newmid-size contract, some members of the HEAVYCON drafting team willparticipate in the development of the new standard form for the mid-sized trade. Work on the new form will begin in September and should becompleted towards the end of 2008.
The great benefit for end users is that this will be a form developed bypeople working in this trade and entirely familiar with the contractualneeds of the business. Tied to BIMCO’s sound track record for producingclearly written and well-balanced standard forms of contract, the newheavy lift contract should make a welcome addition to the existing suiteof BIMCO offshore contracts.
An alternative solution is to utilise a stand-alone Field Mutual HoldHarmless agreement, such as the one prepared by CRINE/LOGIC. Undersuch an agreement, each contractor working at the field assumesresponsibility for its own property and personnel and indemnifies all othercontractors against loss or damage to such property/personnel incurredworking at that field. If such a scheme is not put in place, however, it isobviously sensible from the perspective of both the operator and the headcontractor that they each ensure that, in the contracts they each placewith their own subcontractors, the knock-for-knock principle contained inthe head contract is adopted.
Post-delivery defects
A third key issue is the question of post-delivery defects. This is one ofthe most difficult areas in which to harmonise the various projectcontracts, particularly in respect of defects that affect the FPSO’soperating status and, therefore, the income stream under the headcontract. In the event of a defect affecting the FPSO’s operations, theoperator will almost certainly insist on a reduction in the contractual dayrates, sometimes to a zero level, while the problem is resolved. However,while most shipyards and topsides contractors are prepared to provide a
BY GRANT HUNTER,HEAD OF DOCUMENTARY DEPARTMENT, BIMCO+44 (0)1993 772 [email protected]
New BIMCO Mid-Sized Heavy Lift Contract toJoin Revised HEAVYCON
The offshore industry is a tremendous user and supporter of BIMCOstandard contracts. Over the years, BIMCO documents have established afirm and welcome foothold in this niche market. In some sectors, such asheavy lift, BIMCO’s charter parties and contracts enjoy almost universaluse.
The heavy lift sector is currently experiencing something of a boom, witha sizeable number of newbuildings on order. One particular growth areaover the past few years has been in the lift on/lift off and roll on/roll off‘mid-sized’ heavy lift sector. Unlike the super-heavy lift market, which hasrelied on the HEAVYCON form for its contractual needs, the mid-sizedsector tends to operate on a more conventional cargo basis where goodsare stowed below as well as above deck.
The HEAVYCON form was originally designed with special offshoreprojects in mind and uses the knock-for-knock principle as the primarybasis of liability. In contrast, the mid-sized sector generally relies onconventional cargo liability regimes such as the Hague/Hague-VisbyRules. Using HEAVYCON for the latter type of operation is not ideal andrequires significant amendments to be made to the form.As a result, operators in the mid-size sector have generally relied onusing an amended CONLINEBOOKING Note or similar generic form astheir contractual platform. With this in mind, BIMCO has in response toindustry demand decided to develop a new standard contract for the mid-size heavy lift sector based on the CONLINEBOOKING Note, whilesimultaneously updating the well-used HEAVYCON form to reflect current
contractual commitment to undertake the repair works, this is normallylimited to a period of 12 or 24 months from the date of completion oftheir portion of the construction or conversion works. Further, they arealmost universally unwilling to assume any responsibility for associateddowntime. Experience shows that it is very difficult to achieve anymeasure of harmonisation between the Production Services Contract andthe subcontracts regarding the issue and, although this can be addressedto some extent by loss of hire insurance coverage, this represents one ofthe largest exposures faced by the head contractor.
Conclusion
After consideration of the key stages in an FPSO project, the contractingstrategies employed and the contractual issues that are likely to arise,there is no doubt that these projects are highly complex. The success ofthe project will in large part depend on the time and attention spent atthe early stages to ensure that adequate time and resources are investedin the design and engineering stages of the project and to ensure that aproper and detailed contractual framework is put in place to cover theconstruction, installation and eventual operation of the FPSO unit.
Contractual
CONTINUED FROM PREVIOUS PAGE
BIMCO is the world’s principal organisation responsible for the development of maritime contracts and other related forms.Barbara Jennings, the Standard Club’s Director, Offshore, sits on the BIMCO Heavycon subcommittees.
such as industry-standard forms Towcon and Towhire or the UK or Dutchstandard towage conditions. The amendment recognises that certainjurisdictions will not uphold a contract that allows a towing vessel toavoid liability for its own negligence and to be indemnified by theinnocent tow for all losses arising from such negligence. The amendmentrelaxes requirements for towage contracts where the concept of kfk isunenforceable in whole or in part in that particular jurisdiction, providedthat those contracts do not impose liability for negligence of the tow onthe member and allow him to limit liability to the greatest extent possible.
We therefore felt it opportune to take a sounding on the recognition of kfkcontracts from around the world and, in particular, from thosejurisdictions with offshore activity. It was apparent from the responsesreceived that the concept is largely untested in most jurisdictions,perhaps due to the tendency to retain English law and jurisdiction clausesin Bimco standard contracts, but nonetheless the lawyers we approachedwere prepared to form a view based on existing law.
Europe
In most of Europe, it appears that the courts will uphold kfk contractsexcept in the case of wilful misconduct or gross negligence of themanagement of a contracting party. Some countries such as Italy orGermany may not enforce kfk contracts in the case of personal injuryclaims. In countries that are subject to a Civil Code, such as Russia, it ispossible that the courts will refuse to apply contractual provisions if theseconflict with the applicable Code.
The Americas
In the United States, kfk contracts are enforceable as a general ruleexcept in the case of towage, where any agreement requiring the tow toindemnify the tug is considered null and void. In Canada, kfk contractsare widely used and accepted in the offshore industry. The same appliesin Venezuela where such contracts are likely to be upheld except in caseof wilful misconduct and, in Mexico, although kfk is not acceptable incontracts with the state. In most other South American jurisdictions,it appears that whether or not the courts uphold contracts on kfk termswill depend on the facts of the individual case, with the courts taking intoconsideration such factors as the relative bargaining power of the partiesand whether clauses exonerating a party from the consequences of itsown negligence were specifically negotiated and accepted. Again, insome jurisdictions, kfk provisions may not be upheld in the case ofpersonal injury claims or a conflict with a Civil Code.
Africa and the Middle East
As a general rule, it would seem that kfk contracts will probably beupheld in these jurisdictions, although the law is not sufficientlydeveloped in many West African jurisdictions to be able to predict theoutcome of any case with great certainty.
International Recognition of Knock-for-KnockContracts
Mutual allocation of risk by way of knock-for-knock (kfk) contracts iscommon in the offshore industry and industry standard contractsincorporating kfk principles such as BIMCO Supplytime have beenaccepted by the International Group of P&I Clubs, thereby affordingpoolable cover. These contracts operate an apportionment regime whereeach party takes responsibility for loss/damage to its respective propertyand for the death/injury of its personnel irrespective of each party’snegligence and provides the other with a corresponding indemnity.
The benefits of such a regime are great: it provides legal certainty andavoids substantial costs being incurred in proving fault; it encourages anopen exchange of information, which improves safety in this high-riskindustry; it avoids double insurance thereby reducing the costs ofinsurance; and it is a reflection of the proportionate risk and reward ratioin the offshore industry where an accident could have substantial costimplications for the operators involved.
Most of these contracts incorporate English law and jurisdiction, and theconcept of kfk contracts is recognised and well established in Englishlaw, for example, in Smit International (Deutschland) Gmbh v JosephMobius (unreported). However, there will be occasions when contractorsare required to incorporate a different law and jurisdiction clause in theircontracts, perhaps to reflect provisions up the chain of contracts or toincorporate the law of the jurisdiction where the ultimate client is basedor where the activity in question takes place. There is a risk that thoseother jurisdictions may not recognise the legality of kfk provisions.
The pooling agreement
This issue was acknowledged by the International Group when itamended the Pooling Agreement requirements of vessels providingtowing services with effect from 20 February 2007 (a commentary byBrian Glover on the extent of the amendment was published in theStandard Bulletin 16 May 2007). Prior to the amendment, it was arequirement of poolable cover that such vessels contract on kfk terms oron contracts that incorporate provisions even more favourable to the tug,
Knock for Knock Contracts
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BY SHARMINI MURUGASON,SYNDICATE CLAIMS DIRECTOR+44 (0)20 7522 [email protected]
As with the United States, in many jurisdictions, it appears that kfkcontracts will be upheld except in the case of towage. This is the case inAustralia where the Queensland Supreme Court recently overturned theUK Standard Towage Conditions when it decided that the Conditionscontravened the Trade Practices Act 1974, the Australian unfair contractterms legislation. In Asia generally English law, which upholds kfkcontracts, is likely to be followed as a persuasive authority, except inVietnam where a duty of care is imposed on tug owners and in Thailandwhere parties are not entitled to contract out of the consequences of theirgross negligence. In China, the Shanghai Supreme Court recentlyconfirmed the enforceability of the BIMCO Heavycon form, although here,too, the law voids any exclusion from liability in cases where a party hasbeen guilty of gross negligence or wilful misconduct.
Summary
It would appear that contrary to what might be assumed, the courts inmany countries where there is a developed oil and gas industry in factshow a sophisticated understanding of the nature of kfk agreements andare likely to uphold them in many cases. The main exceptions will be in
cases of senior level gross negligence or wilful misconduct or where theindividual contract conflicts with public policy or codified law. In countrieswhere there are no prior cases upholding kfk contracts, such contractsare perhaps more likely to be upheld if clauses that exempt the partiesfrom the consequences of their own negligence are specificallynegotiated and agreed. Unfortunately, it would appear that towage is onearea where the courts are increasingly reluctant to completely exoneratethe tug from the consequences of its negligence and, in such cases,members would be well advised to take advice from a suitably qualifiedlawyer. Towage contracts concluded in jurisdictions that do not uphold kfkcan still be covered provided that the tug takes no liability for the tow’snegligence and the member’s right to limit liability is protected.
The position in respect of individual countries is set out in full in anextended version of this article available on our website: www.standard-club.com/publications
This article is intended as a guide only and should not be relied upon as asubstitute for specific legal advice.
BY JOHN CROUCHER,OFFSHORE LEGAL EXECUTIVE+44 (0)20 7522 [email protected]
Consequential Loss Clauses in OffshoreContracts
We examine a recent case (Ease Faith Ltd v Leonis MarineManagement Ltd [2006] 2 All ER) that underlines the importance ofclarity of language in consequential loss clauses.
Many pitfalls can arise in the interpretation of consequential loss clausesin offshore contracts, a risk that the Club considered in March 2005 inMarine Matters, the precursor to the Standard Bulletin. The articleconcluded: “Excluding consequential losses will not necessarily excludeall losses consequent upon a breach of contract. If the parties want toexclude direct losses, which can include economic losses, then theyshould be very clear in the language used.”
Rules of construction
Subject to specific authority on the treatment of standard form clauses,the basic and underlying rule of construction under English law can bebriefly summarised: in the absence of clear words to the contrary, anyambiguity is to be construed against the party seeking to rely on thatclause (contra proferentem).
Legal
In the context of exclusion clauses, therefore, clear words are required toexclude a liability that would otherwise have arisen. By way of example,the courts have previously attributed precise technical meanings to wordsso as to narrow the application of an exclusion where it is less than clearwhether the parties understood or intended such a distinction.
This rule has been applied, qualified and extended so as to form anumber of guidelines that are well recognised. For example:
(a) general words of exclusion will not normally be taken to cover seriousor fundamental breaches going to the root of the contract;
(b) clauses that purport to merely limit liability will be construed lessstrictly than those seeking to exclude liability all together;
(c) an exclusion clause may not be given effect where doing so wouldrender the agreement devoid of contractual content so as to turn it intoa mere statement of intent.
loss of profit, loss of use, loss or production or any other indirect orconsequential damage for any reason whatsoever”.
The court held that the words "loss of profit" referred to the loss ofprofits generated by future use of the tug by the tugowner or the tow bythe hirer, whilst the nature of the loss in this case was “more akin to adiminution of price than a loss of profit”. The Judge considered that"there were very few, if any, losses suffered by a commercial concernwhich could not be described as amounting to or producing a reduction inprofits", and that it must therefore be the case that clause 18.3 wasintended to have a restricted meaning. The correct interpretation of theclause, in accordance with the Eiusdem generis rule, was to consider theterm "loss of profit" to be of the same nature as “loss of use”, both ofwhich should be considered contra proferentem. In following these rulesof construction, the court held that the losses that were claimed could notbe considered to fall within the exclusion clause, the purpose of whichwas to exclude consequential losses such as the future use of the tug ortow rather than those losses that could be more readily categorised asdirect losses.
Conclusion
In this case, the court was not prepared to use a broad construction of anexclusion clause so as to apply it to direct losses in a similar manner tothose indirect or consequential losses that may properly be considered tofall within the second limb of Hadley v Baxendale. While a loss of profit ispotentially capable of being an indirect loss, the court was clear in itsview that clause 18.3 is not applicable to a claim for “loss of profit” thatis properly to be considered as a direct loss within the first limb of Hadleyv Baxendale.
Ease Faith Ltd v Leonis Marine Management is an important reminderthat even under standard form contracts, the potential for litigation is everpresent where there is no clear agreement on the precise nature of theterms that have been agreed.
13
Direct and indirect losses
Another well-known rule of construction is that the exclusion ofconsequential losses will not cover a 'naturally resulting' direct loss. Thisdistinction between consequential (or indirect) and direct losses isestablished law deriving from the decision in Hadley v Baxendale (1854)9 Exch 341. The judgment made a distinction as to whether the losses:
(i) arose naturally from the breach (i.e. direct losses);
(ii) were such that they may reasonably be supposed to have been in thecontemplation of both parties, at the time they made the contract, as aprobable result of the breach (consequential/indirect losses).
Therefore, when considering whether a loss is recoverable, it isnecessary to ask two questions, namely, whether the loss is foreseeableunder the test in Hadley v Baxendale and, secondly, whether any relevantexclusion clause may be construed as being applicable to such aforeseeable loss.
The International Ocean Towage Agreements Towcon and Towhire wereproduced by BIMCO with a view to achieving clarity in apportioningliability. The contracts have proved to be popular, and the simplifiedknock-for-knock liability regime can be considered to have beensuccessful by virtue of a reduced level of litigation. An undoubted benefitof using such standard form contracts is that the intent behind theclauses is often clear, thereby reducing the scope for dispute.Notwithstanding this, while such standard contracts invariably haveconsequential loss provisions, there have been a number of cases thathave sought to clarify the nature and extent of the liabilities such clausesare designed to exclude.
Ease Faith Ltd v Leonis Marine Management
In the case of Ease Faith Ltd v Leonis Marine Management, a number ofcomplicated evidential issues and detailed facts were considered.Amongst these was a question as to the correct interpretation of clause18.3 of Towcon, which is designed to exclude liability for consequentiallosses. By way of brief background, the facts in issue were as follows.The Kent Reliant had been purchased for scrapping in China with anagreed date of delivery of the end April 2004. Ease Faith entered into anagreement with Leonis for the services of the tug Naporistyi to tow theship to China (sub-towcon) and, in order to fulfil the sub-towcon, Leonisentered into an agreement (the head towcon) with the co-defendants,Cloudfree. The ship was delivered late, and the claimants issuedproceedings on the basis that the tug had failed to proceed with properdispatch and the defendant was therefore in breach of the sub-towcon.Ease Faith claimed damages for, amongst other things, losses arisingbecause the late delivery caused the Chinese buyers to reduce their pricefor the ship.
Both Leonis and Cloudfree sought to argue that the claimant's claim wasexcluded by clause 18.3 of the standard Towcon form, which provides:“..neither the tugowner nor the hirer shall be liable to the other party for
“There will be some highly knowledgeable and experienced people in theaudience, and I see it very much as an interactive session. I aim togenerate a stimulating debate by asking relevant questions, and I’mgenuinely excited at the prospect of discussing this subject with such awide range of experts. I hope that we can all learn from each other, thatwe’ll go home with fresh ideas and insights.”
New Frontiers for the Offshore Industry
The offshore industry has become more complex and technicallychallenging as oil companies venture into increasingly remotelocations. How best to manage the resulting risks will be among the subjects debated at this year’s Standard Offshore Forum.
The world’s known oil and gas reserves are diminishing just as newlyindustrialised nations such as China and India are pushing demand tounprecedented levels. The inevitable result is that oil companies havestarted to explore, drill and produce in locations that would once havebeen considered too difficult and dangerous. The recent row over rightsto the Arctic suggests that it is just a matter of time before even this mostinhospitable of environments is explored for whatever may lie beneaththe seabed.
“As the oil industry pushes into new frontier regions, it is encounteringnew types of risk, and it’s still getting to grips with them,” according toLloyd’s Register Oil and Gas Director Marcus Jones, a speaker at thisyear’s Offshore Forum.
The difficulties associated with remote locations have been compoundedby increased political and supply chain risk, says Mr Jones.
Apart from the obvious dangers of instability in many territories, wheregovernments and their regulations may change quickly, there are growingdemands for local content in any oil or gas activity. For example, it isquite common for the national authorities to ask that a certain percentageof the workforce should come from their country or that their own yardsdo much of the construction work.
“You often get a project that’s already high risk, and you have the addedproblem of having to use people who you have not chosen,” says Mr Jones.
Even without this distraction, the oil and gas business is already muchmore complex logistically than it used to be. Whereas oil companieswould once have used their own resources to do the bulk of theexploration and production work, they are now much more likely to usecontractors and subcontractors.
“It’s a very complicated scene,” says Mr Jones. “You could have lots offirms from many different countries working on the same project. You needto have very strong procedures in place to manage the supply chain.”
Meanwhile, back in the more established oil and gas fields, existing unitsare working to peak capacity to meet the world’s need for energy. And,whenever commercial activity increases, so does the risk of somethinggoing wrong.
This scenario of greater opportunity and risk asks all kinds of questionsof the oil industry: of its systems and procedures; its ability tocommunicate; and whether it can continue to operate to the highestpractical health and safety standards. And it provides the backdrop forwhat should be a lively discussion at the Forum.
Although he is going to set the scene and lead the debate, Mr Jones isclear about one thing: he does not have all the answers.
Marcus Jones, Oil & Gas Director, Lloyd’s Register
Marcus is responsible for the global Oil & Gas business at Lloyd’sRegister. His primary role is to lead the development andimplementation of the global strategy and planning. He is alsoresponsible for directing worldwide business development and thedefinition of the commercial, technical and marketing policies for thebusiness.
Marcus joined Lloyd’s Register in 1990 as a basic grade engineersurveyor, having previously worked in the merchant navy. He waslater appointed lead surveyor for onshore and offshore activities tooil and gas clients such as Conoco, Arco and finally Shell, where hewas responsible for the offshore certification of 25 platforms.
Marcus is qualified as an Extra First Class Marine Engineer and is aFellow of the Institute of Marine Engineers.
Lloyd’s Register
Lloyd’s Register is an independent risk management and safetyassurance organisation. As well as being the oldest of theclassification societies, it provides a wide range of other services.These include assisting clients with their safety, quality andenvironmental performance.
Its expertise covers shipping and other forms of transportation, oil,gas, as well as general industry and manufacturing, andmanagement systems. It is recognised as a world leader in theprovision of compliance services to the oil and gas industry.
With 240 offices in 80 countries, employing 6,000 people from 90different nationalities, Lloyd’s Register will still bring a truly globalperspective to the debate.
Information about the seventh Standard Offshore Forum can befound on the back cover.
MARCUS JONESOIL AND GAS DIRECTOR, LLOYDS REGISTER+44 (0)12 2426 [email protected]
versatile solutions for small to medium-sized fields. Both of their FPSOs,which will be used to maximise production at the beginning and end offield life, or on fields where larger permanent units are unsuitable, areentered with Standard Asia.
Of course, the growing book of production units does not mean thatStandard Asia is no longer interested in other offshore business. We areproud to insure fleets such as that of Emas Offshore, which is typical ofthe new and energetic Singaporean companies taking up leadingpositions in the oil and energy business. Emas’ young fleet of AHTs andsupply boats is used to provide support throughout the lifecycle of anoilfield, and it too is moving into construction and production with theformation of a new division.
We believe that companies operating out of the Asia Pacific region willincreasingly be looking for local provision of their support services,and Standard Asia is confident that we can offer insurance solutions as flexible and innovative as the technological solutions our clients are providing to the industry. From our Singapore office, we are able tounderwrite and service the business from cradle to grave, and throughproducts such as the Standard Offshore Conditions for FPSOs and theOffshore Liability Extension for support units, we can give tailored coverdesigned for our members’ particular needs. We also work closely withour reinsurance colleagues in the London office to ensure that we aremaking the best use of the insurance capacity available in the market.And of course, our position in Singapore means that we are on hand to provide claims services not just to Standard Asia members but also to Standard Bermuda members working in the region. This is how we believe we give our clients the best of both worlds – insuranceslocally sourced, underwritten and serviced but backed by global security and expertise.
We have written elsewhere in this issue of the Bulletin about theworldwide boom in the offshore oil and energy business. Asia is noexception; new oil and gas discoveries in Asia and Australia are fuellingregional expansion as companies scramble to support present and futureprojects. Established operators and well-funded start-ups are ramping uptheir fleets to service their oil company clients, and south-east Asianshipyards are full of orders to build, convert and refurbish floatingproduction units, drilling rigs and support vessels.
Standard Asia, the Standard Club’s Singapore based P&I Club, is seeing asimilar expansion in its business. Ten years ago, the Standard Clubdecided that Asian shipowners needed their own dedicated club basedand incorporated in the region. That led to the setting up of StandardAsia, with the express intention of providing a full range of P&I functionsfrom a management base in Asia. During the decade since it wasfounded as the first mainstream P&I club in the region, Standard Asia hasbecome a major player in the offshore energy market. A book of offshorebusiness which was dominated by fleets of supply boats in 1997,has now expanded to provide full cover for FPSOs and jack-ups.
For Standard Asia, as for other companies based in Singapore, projectssuch as Tanker Pacific’s FPSO Raroa have now become almost routine.The 53,287 gt FPSO is currently under conversion in Singapore’s JurongShipyard, which is installing a turret, boilers and process facilities as wellas other renewal and life extension work. When the project is completednext year, the FPSO will take up her station on New Zealand’s Maari field.Standard Asia has been able to provide Tanker Pacific with an insuranceprogramme to cover the FPSO from the conversion through theinstallation phases and onwards to operation on the field.
In the meantime, companies such as Rubicon Offshore International arebreaking new ground in production technology, producing flexible
The seventh Standard Offshore Forum will be held this year on Tuesday 6November in London. The main topic this year will be an examination ofglobal risk management for the offshore industry, looking at the variousregulatory and operational issues that arise in different regions and howthese can best be managed.
The Club will also host an Offshore Forum in Singapore in December.
Both Forums provide an opportunity for shipowners involved in theoffshore oil and gas industry to meet and talk with their contractor and oilcompany clients in an informal environment. They are open to shipownersinvolved in the offshore industry, whether or not they are members of theStandard Club, as well as to representatives of the marine contractingand oil and gas industries.
Attendance is by invitation, so if you are interested in joining us, please contact Barbara Jennings([email protected])on +44 (0)20 7522 7429.
You can see presentations and papers from previous Forums under“Features” on the Standard Offshore website at www.standard-club.com.
The information and commentary herein are not intended to amount to legal or technical advice to any person in general or about a specific case. Every effort is made to make them accurate and up to date. However, no responsibility is assumed for their accuracy nor for the views or opinions expressed, nor for any consequence of or reliance on them. You are advised to seek specific legal or technical advice from your usual advisers about any specific matter.
