U35's Final Trip Report (USA & Canada)

LLOYD’S MARINE UNDER-35 GROUP STUDY TOURLLOYD’S MARINE UNDER-35 GROUP STUDY TOUR

CANADA VIA OKLAHOMACANADA VIA OKLAHOMA1818THTH SEPTEMBER – 4 SEPTEMBER – 4THTH OCTOBER 2012 OCTOBER 2012

TRIP REPORT TRIP REPORT

Risk Management Services

BACKGROUND

The primary focus of the Lloyd’s Marine Under-35s Group, which was formed over 30 years ago, was – and continues to be - to provide a forum for topical comment and to encourage younger members to be aware of the many rapidly changing facets of the insurance industry as a whole; in particular those that affect the Lloyd’s Marine and Energy community.

The group has always believed that one of the most effective ways of enhancing this awareness within its membership is to undertake carefully planned trips abroad to visit markets, both new and old, that are important to our community. These trips are of great value in strengthening contacts in such markets and in promoting understanding within the Lloyd’s community itself.

Due to the importance of the North American insurance markets to London, and especially Lloyd’s, this year the Committee organised a two-week trip to Canada (via Oklahoma) for the September 2012 study tour, visiting Oklahoma, Calgary, Banff, Vancouver, Fort McKay and Halifax which I had been tasked with organising.

The party was comprised of 12 people from a wide section of the Market, being underwriters and brokers from a background of primarily upstream offshore Energy insurance and reinsurance business.

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STUDY GROUP TEAM MEMBERS

Team 1 Chris Fagan ACE European Group (Team Leader) Graham Prior Travelers Syndicate Management Kristina Sisk Marsh, Inc. Tracy Cattermole Ascot Underwriting

Team 2 Leanne Judge Zurich Global Energy (Team Leader) Huyen Pham Aegis London Michael Poulteney QBE Joe Peachey Catlin Syndicate

Team 3 Luke Sanders Advent Group (Team Leader) James Brewins Alesco Risk Management Services (Tour Leader) Jennifer Franklin Amlin Syndicate Rama Monk ARK Underwriting

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Chesapeake Energy “Shale School”

Wednesday 19th SeptemberChesapeake (CHK) Campus, Oklahoma City

Host: Stacy Roberts

This was a one-day seminar, providing an overview of Chesapeake’s experience, industry footprint and expertise in the shale gas arena. The Under-35s Group was joined by a larger group of insurance professionals, predominately underwriters, from the London, Bermuda and US markets, most of whom are participants on Chesapeake’s insurance programme.

Welcome given by Nick Dell’Osso, CFO

Environmental ProtectionMike Brownell, Senior Director, Environmental & Regulatory Affairs

Unsurprisingly, Chesapeake are spending a lot of resources – both time and financial - in combating media perception and environmental concerns regarding shale gas drilling.

Pressure is being exerted by NGOs, Federal Government, and the media. EPA groundwater investigations has uncovered inconclusive results regarding water

contamination. Three layers of regulation to comply with at the federal, state and local levels. Precautionary measures taken to protect groundwater by engineering protective casing

designs and to control/mitigate the surface impact. Provided a context for their air emissions and water usage; ie. natural gas industry

accounts for 1% of water used (data from 20-county area in north-central Texas). Explanation of how and to what extent hydraulic fracturing causes earthquakes:

o Equivalent to a “gallon of milk falling off the kitchen counter”.o UIC Injection 150,851 wells. 0.02% cause earthquakes - not felt/minor damage.

CHK OverviewSteve Dixon, COO

Huge success in unconventional resource plays but has also impacted economics/profitability of company due to increase in reserves. Now, CHK are aggressively shifting resources to liquids-rich plays.

Estimates liquids will be 25% of total production but 55% of total realized revenue in 2013.

Chesapeake participate in 10 key plays with #1 or #2 involvement in each of these. The company history is one of entrepreneurship and rapid growth – founded in 1989

with $50,000 investment and a vision to grow through the drillbit. CHK also capitalized on lease acquisition skills.

Investment in hiring the best geologists and engineers. “Instrumental in the evolution from vertical to horizontal drilling.”

Reservoir Technology CenterJeff Miller, VP, GeoScience Technology

Core analysis lab which controls time delays, provides quality control and data confidentiality. The other majors send core analysis to 3rd parties (eg. Corelabs, Teratek, Weatherford).

Gas is on the mature side so pores are more developed vs. oil which is on the developing side.

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Use technology to analyze other opportunities both domestically and internationally (eg. Poland).

CHK shale properties database is the largest proprietary shale database in the world.

Engineering Technology OverviewKeith Yankowsky, VP, Engineering Technology & Special Projects

Uses proven technology in development for drilling, completion, reservoir modelling, facilities, artificial lift, production chemicals, and capital recovery.

Works with the Reservoir Technology Center (RTC) for completion/stimulation optimization.

Helps implement best practices across all shale plays, reduces learning curve, and provides continuity.

Drives technological advances – accessing more than one “pay” section through one wellbore; using better proppants (ceramics); environmentally- and economically-friendly frac fluid; artificial lift technology to optimize horizontal production performance (previously were unable to produce from the 400-500ft curve during horizontal drilling).

The goal of horizontal drilling/hydraulic fracturing is to maximize the Stimulated Rock Volume (SRV) along the wellbore – can’t “cookbook” this, because each play has its own challenges.

Operational efficiency – use of surveillance and control systems (SCADA) which provides remote and real-time monitoring.

Environmentally friendly operations – Spill Prevention, Control and Countermeasure (SPCC) plans; service companies with “Green” fluid systems; use of other “green” technologies; recycling of produced water; promoting use of natural gas – converting trucking fleets and own vehicles to natural gas power.

CHK Play OverviewJeff Miller, VP, Geoscience Technology

Analysis of hydrocarbons, deliverability, and hazards attributable to production estimates which in turn delivers profitability.

Barnett Shale and Haynesville Shale – so successful that these plays are in part responsible for the drop in gas prices due to very high production rates.

The Eagleford shale play is instrumental in CHK’s shift to liquids-rich plays.

CHK Energy Marketing, Inc (CEMI) OverviewBill Wince, VP, Transportation & Business Development

Wholly owned subsidiary formed in 1996 to market all Chesapeake oil, gas and NGL production.

Their market share of gas represents 8-9% of total US gas production. Current oil production at 135,000 bbl/day which has grown from 20,000 bbl/day in this time.

Effort put into aggregating volumes pre-sale, compared to smaller companies who sell immediately.

The rig fleet has been re-allocated to focus on drilling for liquids instead of gas due to current commodity prices.

CHK is #11 in top 20 US liquids producers but the market has been dominated by majors due to legacy acreage. The independent companies will move up because of their performance in shale plays.

Shale gas now accounts for roughly 40% of the US gas production. Success in the Haynesville shale play now accounts for more than 10% of US gas

reserves. Producers will not keep drilling at same rates because of prices, however, if at $6/Mcf

there is sufficient supply for decades of gas and exports.

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The gas boom is creating new opportunities for utilization including LNG export, the petrochemical/industrial sectors, power through gas-fired plants, heating and transportation fuels.

Risk ManagementJeff Fisher, SVP, Production

Best Management Practices, risk mitigation, and loss prevention plans are already in place.

Partnership with Boots & Coots who complete pre-spud review for wells exceeding 12ppg; complete rig, flow-back equipment, coil tubing, snubbing, completion/workover audits; well cap training; and other training as requested.

Detailed contractor selection process. Successful subrogation against third parties - CHK maintains a tight MSA program. Vendor selection is dictated by reviewing records, availability, and a preference for

using the “big boys”.

PTL FrackingBill Stanger, President, PTL

Employ 548; 32% are ex-military Currently maintain 6 fleets: 169 wells/ 1465 stages successfully pumped since start-up The major equipment consists of frac pumps, sand storage, hydration unit, blender, Discussed the location layout: back-side = low pressure area; front-side = high pressure

area, casing pump, storage area, frac tanks, sand storage. The major equipment consists of frac pumps, sand storage, hydration unit, blender, high

pressure manifold trailer, frac van (data van). The frac pumps are trailer mounted units with high horse power diesel engines, transmissions, fluid pumps to produce the hydraulic pressure to inject frac fluids into the formation.

Nalco provide the chemicals used for stimulation. The sand logistics involve rail car leasing and integrated coordination to transport to

well site. CHK require have more sand storage than Schlumberger and Halliburton combined.

Evening: Oklahoma City Museum of Art Tour followed by dinner hosted by Chesapeake.

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Chesapeake Land Rig Tour

Thursday 20th September 2012

Hosts: Cheseapeake (Rig owner)Nomac Drilling (Contractor)

The rig we visited is located in the Anadarko Basin, a liquids-rich play. Our hosts wanted us to experience a typical, fully-operational land rig with all the usual characteristics of exposure to the London Market:

kicks and blowouts; subsequent resulting fires/explosions; vulnerability to losses during transit; and during periods where they are being set-up and dismantled on the drilling location

Our guides sought to point out to us characteristics they felt mitigated these risks, whether unique to Chesapeake, or common within the industry, as discussed overleaf.

Clockwise from left: the land rig itself; Drill pipe ready to be used; Mousehole

Top-drive, swivel and derrick

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This particular rig is operated by top-drive technology rather than a rotary table. A top-drive provides clockwise torque to the drill string to facilitate the process of drilling a borehole. It is located at the swivel place and allows a vertical movement up and down the derrick. Our tour guide advised that Chesapeake pride themselves that most of their rigs are operated in this way.

Advantages to a top-drive as an alternative to a rotary table include:

health and safety factors (no need for workers to be near the rotating drill pipe, thus reducing liability interest losses);

time efficiency – a top-drive mechanism allows the drilling rig to drill longer sections of pipe. See picture above - the mousehole is the storage area on a drilling rig where the next joint of drilling pipe is held until needed;

a rotary table type rig can only drill 30-60ft (double/triple respectively) sections of drill pipe while a top-drive can drill 60-90ft stands;

longer sections of drill pipe allows the drilling rigs to drill deeper sections of the wellbore, thus making fewer connections of drill pipe and fewer ‘trip-outs’;

fewer chances for stuck drilling pipe or costly fishing operations in order to recover lost or stuck equipment in the wellbore;

negates the need for the entire string to be withdrawn from the wellbore for the length of the kelly drive. The draw works only has to pick a new stand from the rack and make two joints;

reduction of the risk of a stuck string from annulus clogging.

These are advantages for both the insured operator as well as the insurance industry.

As with all rigs, the drilling fluid and shale shakers (shown above)“form an integral part of controlling and preventing kicks and therefore blowouts”

Drilling fluid, a.k.a. "mud": pumped down the inside of the drill pipe and exits at the drill bit; drilling mud is a complex mixture of fluids, solids and chemicals that must be carefully

tailored to provide the correct physical and chemical characteristics required to safely drill the well.

Particular functions of the drilling mud include: cooling the bit; lifting rock cuttings to the surface; preventing destabilisation of the rock in the wellbore walls; overcoming the pressure of fluids inside the rock so that these fluids do not enter the

wellbore;

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sweeps up the generated rock "cuttings" as it circulates back to surface outside the drill pipe.

The drilling fluid then goes through the "shakers" (see overleaf).

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Shale Shakers:

Strain the cuttings from the good fluid which is returned to the pit. a) Watching for abnormalities in the returning cuttings and b) monitoring pit volume or

rate of returning fluid are imperative to catch "kicks" early.

Our tour guide stressed the importance of Chesapeake’s use of technology on its rigs, rather than human judgement alone (hence also the choice of top-drive) to keep the drilling operation under control. Examples shown below in monitoring mud fluid, sensing and controlling kicks:

If formation pressure should increase, mud density should also be increased, often with barite (or other weighting materials) to balance pressure and keep the wellbore stable.

Unbalanced formation pressures will cause an unexpected influx of pressure in the wellbore possibly leading to a blowout from pressured formation fluids.

The use of highly sensitive equipment monitors the risk of a kick far more effectively than human observation, which should lead to the reduction of kicks becoming out of control and becoming full blow-outs.

Control unit; Ram controls for the BOP stack

There are various types of ram controls on the BOP stack (below), and that crucially it is often human error in the ‘panic of the moment’ which causes the vast majority of losses on site (when kicks reach this stage), as operators report their workers have used the incorrect set.

Pipe rams close around a drill pipe, restricting flow in the annulus (ring-shaped space between concentric objects) between the outside of the drill pipe and the wellbore, but do not obstruct flow within the drill pipe.

Blind rams (also known as sealing rams), which have no openings for tubing, can close off the well when the well does not contain a drill string or other tubing and seal it.

Shear rams cut through the drill string or casing with hardened steel shears.

It is a matter for current debate for both American regulators and within the insurance industry as to whether it should be made mandatory for land rigs such as Chesapeake’s to include shear rams in addition. Currently it is optional for onshore operators.

Chesapeake’s view is that it is unnecessary, and something only offshore, deep water drilling operations need. It certainly increases the operating cost when used, but what is the cost to the insurance industry for their absence? Ultimately, this could also be passed on as a premium saving to insureds, so the outcome of that debate should prove interesting.

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Meyers-Reynolds Meeting

Gallagher Meyers-Reynolds Office, Oklahoma CityFriday 21st September 2012

Hosts: Lee ReynoldsChad Reynolds

An Oklahoma-based broking house, specialising in the risk management of E&P/power & utility companies, this talk hosted by Meyers-Reynolds addressed the following topics:

Noted the importance of Master Service Agreements in terms of contractually shifting indemnities onto 3rd parties working for he assured (day-work contracts etc). This risk transfer represents a selling point to underwriters and is a focal point of Meyers-Reynolds (M-R).

Touched upon the advancement in technology from an educational stance: from all-vertical wells with high blowout rate and no seismic data to where we are today.

Regarding the scale of hydrocarbon production: “we are no longer exploring for gas, it’s pure manufacturing” - the concern is that supply/demand characteristics will shift long-term as a result if there continues to be an abundance of supply.

Looked at gas plants vs. coal fired plants. If there is a higher breakdown rate in gas plants (which their figures would suggest), this needs to be looked at in terms of rating/appetite, especially with regard to business interruption.

Looked at the history of COW insurance, the evolution of OEE as a combined coverage and the struggle to make a profit in the mid-1980s that prompted this change.

1985: EEE form introduced (became EED). Provided more coverage for assureds, but amended the definition of a well under/out of control and limited S&P coverage to a ‘sudden and accidental basis’ only.

M-R did not adopt EED and never have. They use their own OEE wording and charge a load on premium (“equivalent to all risks vs. named perils”). Challenged us to consider why there is no coverage if:

o the blowout can be promptly stopped by BOP (define ‘promptly’)o can be safely diverted into production (what if not at final intended depth?)

M-R offer pollution legal liabs, including gradual S&P (eg. if wrong cement is used), on a claims-made basis and with FAI limits.

The Under-35 Group then flew up to Canada, and headed to Banff to board the Rocky Mountaineer train from to Vancouver. This train came equipped with a ‘lecture carriage’, paid for by our sponsors for a series of presentations from experts in the surveying, loss adjusting and legal fields of the Energy industry.

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Rocky Mountaineer Train, Presentations - Day One

Sunday 23rd September 2012

With the presentations onboard the Rocky Mountaineer train, it proved to be a great way to learn just how the Canadian market works as well as taking in the beautiful scenery during the journey. It also gave everyone a unique opportunity to build relationships with fellow members of the market as well as discussing various relevant topics with industry experts.

“ An Introduction To The Canadian Oil Sands ”. Dallas Herschey and Grant Smith (Managing Director, Braemar Adjusting)

The purpose of this presentation was to give a general overview of what the Oil Sands are, its commercial growth and methods of extraction among other topics such as claims management issues.

Overview of Canada’s Oil Sands

Canada has the 3rd largest oil reserves in the world, 97% of which are in the oil sands Currently 1.5m bbl/day out of Canada By 2030 it is estimated that 80% of oil production in Canada will be from the oil sands

What is Oil Sand?

Oil sands are a mixture of sand, water, clay and bitumen; The oil is thick and found relatively close to the surface - bitumen is an oil that is too

heavy to be pumped without being heated or diluted; Canada aside, Venezuela has large oil sand reserves; Suncor are one of the better known oil sands companies.

Recovering the Oil:

There are two main methods of recovering the product: Mining (majority of environmental issues – circa 4 tonnes of waste = 1 barrel of crude

oil) ‘In-situ’ drilling

Mining:20% of the oil sands reserves are close enough to the surface to be mined. This mainly involves loading onto trucks where the ore is then taken to crushers and prepared for extraction.

‘In-Situ’:Oil sands that lie more than 200ft below the ground are recovered using this drilling method. There are various in-situ methods of extracting bitumen:

1. Cyclic Steam Stimulation: Steam is injected into the reservoir (when bitumen is heated up, it becomes easier to move) using the following process:o Steam and groundwater heat the viscous oilo Heated oil and water are pumped to the surfaceo They are then left to soak for few days before production can begin

2. Steam Assisted Gravity Drainage (SAGD):

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Begins with standard drilling using steel casing and cement, drilling through into the oil sands; this process is then repeated above and parallel to the first well (this being the injector well). Steam is then pumped between the two (the upper well injects steam and the lower one collects the heated crude oil or bitumen that flows out of the formation).

3. VAPEX: Similar to SAGD but instead of steam, a vapour extraction solvent is used to reduce viscosity of the heavy oil. The solvent is injected in the upper horizontal well and oil is produced from the lower well. This is a more effective but more expensive method than SAGD.

4. Toe to Heel Air Injection (THAI) :A new, experimental method that combines a vertical air injection well with a horizontal production well. The process ignites oil in the reservoir and creates a vertical wall of fire moving from the "toe" of the horizontal well toward the "heel", which burns the heavier oil components and upgrades some of the heavy bitumen into lighter oil right in the formation.

Grant and Dallas went on to summarise for us, touching upon claims management issues that they were seeing in this field. These included (aside from issues you would associate as more commonplace with regard to claims management), expediting, wordings (in that wordings in respect of in-situ recoveries are not really in place) and boiler and machinery disputes.

The talk was very open with discussions arising from questions throughout and gave an important overview into the oil sands, their development and the role they’ll have to play in the industry over the coming years. We would go on to visit the Alberta oil sands at Fort McMurray later in our trip.

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“ The Positive Impact of The Marine Warranty Surveyor (MWS) ” James Vavasour (SVP, Matthews Daniel).

Following a brief overview of MatDan, he was keen to stress that the beneficiaries from MWS recommendations are (or at least should be) all stakeholders: the assured, underwriters, brokers, transportation and engineering contractors. Three case studies were presented to us:

1. Semi-Submersible

The semi-sub in question had a late mating-location change. As a result of this, the original 10-day planned transit in Eastern Europe became 48 days’ travel to Asia, resulting in an increase in risk and therefore exposure. However: Through MWS recommendations, an additional 20 stops were plotted, with a weather

clearance obtained before moving onto the next designated stop; Revised engineering analysis confirmed the design for transportation was adequate in

new sea state; Seafastening design was increased, however space for additional seafastening was

limited; Rolling forecasts and holding points were identified to enable transportation.

These alterations resulted in safe arrival with neither incident nor delay and no additional expense to the assured as a result of the MWS.

2. Four Barges

Challenges: Original design included 30m overhang of barges; a forced route through Cape of Good Hope (owing to large beam); cargo slamming, immersion and uplift. Solutions to these issues included: Stowing barges longitudinally reducing overhang to 7.5m, a re-route through the Suez

Canal and with re-design to reduce cargo slamming, immersion and uplift.

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After re-design was taken into account, cargo slamming and immersion risk had reduced significantly. Although cargo uplift had reduced this was still greater than transportation manuals advised.

Results from the MWS showed that: the load-out location was too shallow for the 2nd tier of barges and had to be towed to a deeper location; lower barges needed to be cut for flooding and venting; seafastening strips were needed as were wood spacer blocks.

The cargo arrived safely in Europe but not without additional cost and delay. However, both were negligible vs. the potential extensive damage to the rake or indeed total loss.

3. Liftboats / Self-Elevating Platforms

The final case study showed how a thorough review of a project - with comparatively small changes to original plans - can make a significant difference: In Case ‘X’, cargo weight needed to be reduced. By removing all ballast water and

securing the lifeboat for uplift by installing steel wires (from side shell of cargo to deck of vessel) the vessel was made much safer. This required additional costs and also caused delays. The cargo owner was not pleased with this, but the cargo did arrive safely.

In Case ‘Y’, complex hull forms and overhang made transverse seafastening placement difficult. MatDan’s solution was to relocate one of the transverse seafastenings per side - ahead of the centre of gravity - against the side shell and in the way of the bow thruster. In this instance, the seafastenings were re-arranged without cost or delay.

These two cases go to show that the MWS recommendations are there to ensure the safety of the transit, whether or not it be at cost and/or delay.

Summary of Presentation:

1. MWS’ recommendations had a tangible, positive impact on each dry tow; it also had a cost impact for the owner of the asset being transported.

2. Difficult decisions were made.3. MWS’ recommendations were thoroughly researched, reasonable and to the benefit of

all parties suffering risk from transportation.

Overall, it was concluded that the easiest way to accomplish the various objectives while minimizing direct and in-direct costs is by the involvement of a MWS.

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“ The Role of The Adjuster in Claims Handling ” Dan Mason (SVP, Matthews Daniel).

An overview of loss adjusting, which listed, among other points, the importance of:

Responding to claims in a timely manner; Clear communication with policy holders and all other interested parties; Fair and thorough investigation of liability; Assessment of damages - research, detail and substantiate each aspect of the claim,

including building damage, contents, and extra living expense claims; Negotiate with product/service providers on time and cost of repairs for the purpose of

making an offer of settlement to the insured; A swift and thorough report of the site visit.

These elements are key in ensuring that a fair outcome is established for all concerned parties.

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“ Shale Fracking & Current Claim Issues ” Bryan Johnson (President, B.C. Johnson Associates)

This discussion raised the following points:

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It is thought that fracking can cause earthquakes - this is not (or very rarely at least) the case. Where earth tremors occur is in fact more often caused by the water injection wells;

No claims have been seen (by BCJ) as a result of earthquakes; Most claims seen in this area are as a result of production casing (multi-phase fracking).

This is where the production casing is faulty, through poor installation or too much pressure. In the case of the latter, it is seen that frac trucks are (more often) at fault, for pumping too much pressure (i.e. not coming from well);

There are potential wording issues in respect of Control of Well (specifically, the details of redrill) and there is a need to clarify this aspect.

Rocky Mountaineer Train, Presentations - Day Two

Monday 24th September 2012

“Dissecting An OEE Policy”Cliff Hall and George Lugrin (Co-founders, Hall Maines Lugrin, P.C.)

Hall Maines Lugrin is a law firm based in Houston but also has an office in London. Cliff and George specialise in the Energy sector and have extensive experience in settling insurance coverage disputes.

Initial discussions were on the topic of differences between EED 8/86 and other OEE wordings (following on from the group’s talk earlier in the week on the subject with Lee Reynolds). The ‘bottom line’ to come out of the discussion was that, from a lawyer’s viewpoint, they are a lot clearer when dealing with the EED 8/86 definition of what a well out of control actually is - this tighter definition, being better or worse, depending on which side one represents.

An open dialogue followed, which led on to discussing four areas where recent issues have arisen, including:

Well Out of Control and Underground Blowout (UGBO) disputes. Redrill/Betterment disputes Ownership in the context of insurable (expense-bearing) interest among assureds and

coventurers. Due Diligence - a key area for lawyers and difficult to prove/disprove if due diligence has

been adhered to.

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“‘What The Frac’? An Overview of Hydraulic Fracturing and Pollution”April Zubizarreta (Cozen O’Connor, Houston).

The presentation gave an overview on the subject of shale gas and hydraulic fracturing, a very hot topic at present and broadly spoken of in the media. New discoveries in the US have significantly increased known reserves. Some of the points of the presentation are as follows:

The USA has the largest known reserve of shale gas in the world. Over 90% of all global fracking is now in the US. Shale or other rock formations with potential to produce oil or gas using fracking are in

48 US states alone.

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Future Developments o July 2012 - Natural gas joined coal as the top source of electric power.o 12 applications have been made to the US federal government for export facilities.o The European fracking bans open up the market for US exports.

New Technologies o Waterless fracking, using liquid petroleum gas mix of propane pressurised to make a

gel is currently being tested at EagleFord shale.o One astonishing point from the presentation is that there is current speculation that

within five years all fracking fluid may be food grades.

Criticism Regarding Fracking o In order to extract methane from hard, shale rock, hydraulic fracturing is required.o Hydraulic fracturing requires large amounts of sand, water and chemicals injected

deep underground at high pressures.o It can produce over a million gallons of wastewater, together with corrosive salts,

carcinogens and radioactive elements. All of which can occur naturally thousands of feet underground.

What are the environmental issues regarding fracking? o Noise.o Contamination of ground water.o Investigations are being carried out in respect of the increased earthquakes in the

US.

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“The Canadian Legal Environment”Mitch Cohen and Keith Marlowe (Blakes, Cassels & Graydon)

Blakes have a broad range of expertise in coverage disputes, subrogation, and liability defence work, with offices worldwide.

U.S Law vs. Canadian Law o In Canada, juries are almost exclusively used for criminal cases, whereas in the U.S,

juries are often used for non-criminal cases.o Judges in Canada are appointed whilst judges are elected in the U.S.

Concurrent causation o Arises when a loss is caused by two or more different events, neither of which is

dominant or which caused the other, e.g. hurricanes, flood, wind etc.o This notion in insurance may be problematic in situations when one cause of the loss

may be covered by an insurance policy but the other cause may not be covered or in fact specifically excluded from coverage.

o Prior to Derksen, there was a notion that if there were concurrent causes of a loss and one of these was excluded, the entire loss was excluded.

o Dersken now says that in cases of concurrent causation, the loss is not excluded if one of the causes is excluded, unless the policy expressly states that coverage is excluded in cases where covered perils operate concurrently with excluded perils. This ruling reinforces the importance of careful drafting.

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Contingent Business Interruption The case of Neste Canada Inc v Allianz Insurance Company of Canada and Allianz Insurance Company highlighted the importance of careful drafting of insurance policies to clearly define and delineate the intended coverage. Here, the Court found that the policy provided coverage for the interruption of supply caused by damage to a facility used by, and not just owned by, a supplier of the insured. Consequently widening the scope beyond the intention of any prudent insurer.

Faulty Design and Defects o Many CGL and all risks policies exclude coverage in respect to faulty design.o The onus is on the insurer to demonstrate that the exclusion applied.o The Supreme Court of Canada recently ruled that faulty design does not need to

meet the standard of perfection, and that the failure of the design does not immediately equate to the design being faulty.

(Continued overleaf)

o The London Engineering Group (LEG) “defects wordings” are widely used to exclude coverage in relation to defects. There are three exclusion clauses (overleaf):

1. LEG 1 is an outright exclusion against “loss or damage due to defects of material workmanship design plan or specification”.

2. LEG 2 is slightly less restrictive than LEG 1 and is the so-called “resultant damage” cover. Although LEG 2 excludes coverage for the failed part as well as the costs associated with repair or replacement of the failed part, ensuing damage to other parts of the machinery or plant would be covered.

3. LEG 3 is the most favourable of the exclusions, in that once a loss has occurred, the policy will respond to all of the rectification costs, with the only costs excluded being those associated with the improvement costs, if any, of the original defect. Essentially it does not pay for the redesign property but pays for the damage caused from the loss.

Reservation of Rights o A reservation of rights letter is a unilateral statement used by insurers to reserve its

right to deny coverage.o It does not mean the claim isn’t covered but serves as a notice that some elements

of the claim may not be covered, thereby allowing the insured to take necessary steps to protect its potentially uninsured interests.

The rest of the afternoon was spent socialising with the various speaking guests and asking any questions we wanted to address either in a group or one-on-one.

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Our Rocky Mountaineer train, pulling into Banff train station

Fortis BC Meeting

Site Visit, VancouverTuesday 25th September

Fortis Inc. is the largest utility distributor in Canada and operates in Alberta, Newfoundland, Ontario as well as the Caribbean. They own over $14 billion worth of assets and provide over 2 million customers with utilities. Fortis BC is headquartered just outside Vancouver and is responsible for Fortis’ operations in British Columbia. Travelers participate on Fortis BC’s London Market placement.

We travelled to Surrey Operations Centre which is a short drive out of Vancouver. The morning comprised of the following presentations with a trip to Langley compressor station in the afternoon:

Introduction to Fortis BC – Steve Cop (Business Leader, ERM & Insurance)A general overview of the Fortis group and then focused on Fortis BC’s activities in British Columbia. Many of the details covered are listed above.

Natural Gas for Transportation – Gary Lengle (New Product Operations)Gave an interesting presentation on how compressed natural gas is being used in BC and Fortis’s role in delivery and transportation. Compressed natural gas is fast becoming an abundant resource in North America. It has significant environmental benefits over gas, diesel and other fossil fuels. Fortis is now delivering solutions for compressed natural gas from light duty trucks to school buses and ferries. Fortis BC operates the Tilbury LNG plant. This has been in operation since 1971 supplying BC with liquefied natural gas.

Energy Solutions – Dan Noel (Energy Solutions Manager)Explained what Fortis BC is doing in the thermal energy market in Vancouver. They have various developments in the Vancouver area supplying geo-thermal energy.

Competency Management Program – Greg Elenko (Manager, Compliance & Competency)

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A short presentation on how Fortis maintains staff compliance through training and development. Also touched on how staff progress through the ranks at Fortis and how their work is tested.

Emergency Preparedness/Business Continuity – Christine Trefanenko (Business Continuity Manager)Gave an interesting presentation on how Fortis plans and reacts to natural disasters to PR crises. British Columbia can experience natural disasters from flooding from snow caps to earthquakes. Christine explained how the pipelines are positioned to protect them from landslides which can occur after earthquakes.

System Integrity Program – Gary Johnson Explained how Fortis monitor and maintain their vast pipeline network. These inspections are carried out via cathodic protection, in-line inspection, leak surveys and odorization. One of the most common problems encountered by Fortis is third-party damage. Gary explained how Fortis mitigates this problem by signage, public awareness programmes, patrols, facility protection and security.

Langley Compressor Station Tour – Gary AbbottIn the afternoon, the group visited Langley compressor station which is an hour’s drive out of Vancouver. This station is a ‘peaking’ station which means that it only operates during the winter months when demand is particularly high. Explained how the compressor station operates and is monitored when in operation, including its new emergency-shutdown foam technology.The group also saw the compressor house which contains essentially two Rolls Royce jet engines that have been modified to drive the compression equipment.

Precision Drilling

Onshore Fabrication Yard VisitWednesday 26th September

The group visited Precision Drilling’s fabrication yard in Calgary where the senior site manager gave an engaging tour of the yard. Precision Drilling build their own rigs here and are tailored for purpose; the yard has completed 60 rigs in total and can be building up to three rigs at any given time.

The site visit included:

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Tour of workshop and welding process

Explanation of types of units built and how they differ.

Tour of a rig near its completion stage.

Explanation of how they test each part.

Spacing between working areas.

Explanations of main risks to be managed: mast collapse/electrical fires.

How some of the risks are managed during harsh winters (as welding workshop only indoor area).

How the shifts work and number of staff.

Values of completed rigs / individual parts.

Overview of where Precision drills and how the rig specs can change to match drilling

‘Super-single’ Rig #145, under construction


No maintenance is undertaken at the yard unless a rig happens to be suitably nearby. Upgrades would be performed on-site or at a local yard if it would be more economical to do so rather than incur additional transportation costs back to this yard.

‘Super-Single’ Rig #145:

o $8m ECV (‘Cookie cutter’).o Construction take 3-5 weeks, but 8-12 months in all, including design and

procurement.

o Quicker preparation time than lower-spec ‘single’ rigs.o Central system can be added at extra cost with movable dog house*, pumps, mud

tanks and generators, which can therefore move from well to well with the central system staying in place for approx 10 moves of 40ft (i.e. ideal for SAGD).

o Pipe arm used to load pipe – takes 30 to 60 seconds to load 13m of pipe.o 4000-5000 litres of diesel used per day while drilling.

* Dog house = annular preventer, blowout preventer computer control (can log into any Precision Drilling rig from here for an update on live drilling statistics.

The group were joined that evening by Ryan Bechard (A.J. Gallagher) and Tim de Jonge (Precision Drilling)

CNRL - Horizon Oil Sands

Fort McKay – Site VisitThursday 27th September

Hosts: Grant Smith (Braemar Adjusting)Lloyd Kortbeek (e2I2 Consulting Inc)

A real highlight of the trip. Departing early from our hotel we flew by light propeller plane, with flight tickets kindly sponsored by Braemar Adjusting, to Fort McKay for a site tour of the Horizon oil sands.

Background:

Canadian Natural Resources Ltd have one of the largest, most diversified portfolios of natural gas, light oil, heavy oil, in-situ oil sands production, oil sands mining and associated upgrading facilities any energy producer in the world.

The Horizon Oil Sands project is located in Fort McKay, Alberta, and consists of open pit mining operation and bitumen extraction facilities to mine and separate the raw bitumen from the oil sands.

CNRL then upgrades the bitumen to a sweet synthetic crude oil (SCO) using proven delayed coking and hydro-treating technologies. CNRL owns and operates leases covering 115,000 acres. CNRL currently produce 110,000 bbl/day to 250,000 bbl/day of SCO capacity. Their continual expansion will result in 500,000 bbl/day.

Oil sands are a mixture of sand, water, clay and bitumen (extra heavy non-conventional crude oil). The composition of oil sands is approximately 80-85% sand, clay and other mineral matter, 5-10 weight % water, and 1-18 weight % crude bitumen.

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The Process:

We learned how Caterpillar mining trucks, capable of hauling up to 400 tonnes of material, are loaded by electric and hydraulic power shovels with buck capabilities up to 44 cubic metres. It takes an average of three shovel loads to fill up a mining truck.

The mined ore is then transported to the Primary Crusher Hopper(s) located at the Ore Preparation Plant (OPP) where is it unloaded into the Crusher Pocket to be crushed and transported to the extraction plant.

The shovel-truck operation is designed to yield about 135,000 bbl/d of bitumen feed to the Upgrader where the extraction process takes place.

Crushed oil sand ore is transported from the Ore Preparation Plant to the Bitumen Extraction Plant where it is filtered and mixed with hot water, creating a slurry. This goes through a frothing process and separates into three layers – sand (10%), water (30%) and bitumen froth (60%).

The bitumen is then skimmed off the top and is mixed with a solvent (diluents), ready to be processed further.

The extraction process creates a by product called tailings – sand and water. Tailings are then deposited back to the mine site into tailing ponds and the diluted bitumen is sent to the upgrading facilities.

Clockwise: Caterpillar mining truck; Horizon Oil Sands project; Shovelling operation; Delayed coker unit

The Delayed Coker Unit:

Bitumen is a complex hydrocarbon made up of a long chain of molecules. In order for bitumen to be processed in refineries, this chain must be broken up and reorganised.

Bitumen is carbon-rich and hydrogen-poor. The bitumen goes through an upgrading process which means removing some carbon while adding additional hydrogen.

The first upgrading process is called ‘Primary Upgrading’ (PUG):

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o The process begins with the separation of diluents from the bitumen in the Diluent Recovery Unit (DRU) in a distillation process. The diluent is recycled and sent back to the extraction plant there it is used again.

o The bitumen is then transported to the Delayed Coker Unit where it is heated to extremely high temperatures. Here large complex molecules are cracked into smaller molecules.

o This coking process produces different hydrocarbons products: refinery fuel gas, naphtha, diesel, gas oil and coke. Coke is a byproduct of the primary upgrading and is then transported to a storage are for future utilisation.

o The fuel gas is used in the upgrader’s furnaces and the remaining hydrocarbons are sent for further processing in Secondary Upgrading.

In the ‘Secondary Upgrading’ process (SUG):o Hydrogen is added to stabilise the hydrocarbon molecules. Impurities like

sulphur and nitrogen are removed. The remaining different hydrocarbons: naptha, diesel and gas oil, are then blended to make the final end product which is called Synthetic Crude Oil (SCO).

o The SCO is then transported via pipelines to refineries across North America.

Following the conclusion of the site visit we flew back to Calgary, arriving that evening.

This was a unique opportunity to witness first-hand every stage of a world class oil sands facility and one which will remain with all attendees for years to come.

Nexen Meeting

Nexen Office, CalgaryFriday 28th September 2012

Hosts: Mark Roberton (Director, Risk Management & Insurance)Hobby Pardo (Manager, Risk Management & Insurance)

The group visited Nexen’s HQ in Calgary. There we were met by senior and junior members of Nexen’s risk management team. The purpose of the visit was for Nexen to conduct a presentation on the world’s largest energy mutual, O.I.L, and also to provide a background of Nexen and an overview of their activities worldwide.

The presentation contained the following:

Overview of Nexen’s history and operations in the North Sea / Canada (incl. oil sands) / US GoM / Colombia / West Africa and Yemen

CNOOC takeover was discussed, including book price vs. market cap, shareholder reaction etc.

Why OIL was established and history of membership / membership today / split of membership by domicile / industry segment

Underwriting results: premiums vs. claims

Losses split by location / segment

Membership criteria / contractual obligations

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OIL capital structure

Policy coverages / exclusions

Explanation of limits offered for various coverages incl. NWS and how the limit aggregations work and allocation of wind losses.

OIL deductible structure and the deductible options available for members

OIL rating and premium methodology with examples and formula explained

Gross assets / sector, limit, deductible weightings explained

New entrant premium calculation

OIL withdrawal process

OIL advantages / disadvantages

The presentation provided a good overview of OIL and its main features. Nexen presenting had the added benefit of the ‘client’ perspective and their opinions on OIL vs the commercial insurance market

Having an adjuster of OIL claims (Grant Smith) in the room also sparked interesting debate of the difference in coverage between OIL and the commercial market and how this has affected claims.

The Under-35 Group had drinks with the Young Risk Managers of Calgary that evening, making some useful contacts with people of similar age and experience to ourselves, and the following morning departed from Calgary International Airport flying across to Halifax, Nova Scotia, arriving that evening.

Helicopter Ditching Training

Survival Systems Ltd Sunday 30th September 2012

Survival Systems Ltd was founded in 1982 and has become the world leader in supplying high fidelity emergency egress simulation devices and associated safety survival training programs for the offshore, marine, aviation, and industrial sectors. Ditching training programmes were originally developed for civilian offshore oil companies and, shortly afterwards, for military personnel. The offshore oil industry insisted on a training syllabus centred on absolute safety for personnel, ease of training, and a very high course pass rate.

It was a very interesting insight into the type of training anyone working in the Canadian offshore oil industry must go through and a unique opportunity to learn key survival techniques taught to civilians and military personnel alike, and was certainly an unusual way to spend a Sunday afternoon!

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The helicopter ditching simulator in action

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NSBI – Dinner

Westin Hotel, Halifax

The group had dinner that evening with Nova Scotia Business Inc (NSBI), whose primary goal is to expand business activity in Nova Scotia. In doing so, NSBI seek to raise the level of wealth and prosperity for the people of Nova Scotia and increase revenues for the Province of Nova Scotia.

NSBI is the first point of contact for local companies that want to grow in Nova Scotia, and for international companies that have heard about the province and want to know more. They promote the competitive advantages of doing business in Nova Scotia through four business units: trade development, business financing, venture capital and investment attraction, and this was an opportunity to make acquaintances should this be a consideration for Travelers in future.

Point Tupper, Nova Scotia

Windfarm Site VisitMonday 1st October 2012.

Visit to the NuStar Trans-shipment and storage facility as well as Renewable Energy Services Ltd’s Windfarm.

Hosts: Andy Williams, Mike Seiber and Greg Potten (AMG Claims Inc)Bob Hutchins (Atlantic Energy Claim Service Inc)Mathieu Cote (Enercon Services Nova Scotia Inc)Henri Knapen (Renewable Energy Services Ltd)

The Monday involved a three-hour drive from our base in Halifax to the Port of Hawkesbury. The main facility in this area is the NuStar Transhipment Terminal that also used to house an adjacent refinery operation. The refinery has been subsequently decommissioned and as an alternative, Renewable Energy Services has found it to be a suitable location for a windfarm.

NuStar Transhipment Terminal:

Upon arrival at NuStar and before being permitted to tour the site, we were given a presentation about the history, function and operations of the facility as well as the requisite safety procedures and precautions that we needed to follow in order to maintain their impeccable safety record.

NuStar Energy is a publicly traded, limited partnership based in Texas. Their assets include two asphalt refineries and a fuels refinery with a combined throughput capacity of 118,500 barrels of oil per day. They have 84 terminal and storage facilities, of which the Point Tupper facility is one, that store and distribute crude oil, refined products and speciality liquids. They are one of the largest asphalt refiners and also the second largest independent liquids terminal operators in the U.S.

Key features of the Point Tupper terminal include:

37 Storage Tanks with capacity of 7.5 million barrels of oil. Products include Crude oil distillates, Gasoline, Aviation fuel, Butane, Intermediate

Petroleum Products. The deepest independent, ice-free marine terminal on the North American Atlantic coast

with good access to East Coast, Canada and Mid-Western U.S. via St. Lawrence Seaway and Great Lakes system.

Premier jetty facilities with two mooring locations that can accommodate the world’s largest fully-laden Very Large Crude Carriers (VLCCs) and Ultra Large Crude Carriers (ULCCs) for loading and discharging. Up to 400,000DWT.

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Crude oil and petroleum product movements at the terminal site are fully automated. Other services include tug assistance, spill response services, tug charter and mooring

launches.

Whilst on site we weren’t permitted to take any photographs of any of Nustar’s assets, however below is an example of another NuStar terminal that illustrates the typical layout of these sites.

A NuStar transhipment terminal in St Eustatius, left, and an Enercon E-82 installed in 2010

Enercon Services Nova Scotia Inc:

Enercon is a German-listed company and one of the world’s premier manufacturers of wind turbines.

The first turbines to be produced commercially by the company were the E-15/16 with a rated power of 55kW. Initially, Enercon systems featured gearboxes, however in 1992, the changeover to gearless technology came about with the first E-40 turbine rated at 500kW. This innovation meant that there was nearly friction-free energy flow providing outstanding performance and reliability. Furthermore, mechanical stress, operating costs and maintenance costs are reduced, and the system’s service life is increased.

Some manufacturers still utilise gears in their wind turbines to help control over spin potential. Over spin is one of the biggest threats to the lifespan of a wind turbine but Enercon’s braking system and ability to manoeuvre out of the direction of the wind are suitable attributes to counteract this peril.

Currently more than 20,000 Enercon wind turbines are installed in over 30 countries and Canada being a significant market. With Canada being a jurisdiction that is open minded to renewable sources of energy, Enercon turbines are installed in Point Tupper as well as other regions across Canada.

Renewable Energy Services Ltd (RESL):

Henri Knapen, the Operations and Project Manager of Renewable Energy Services Ltd (RESL) was responsible for taking the group to one of the RESL’s, Enercon-manufactured E-82 turbines. He has over 30 years of experience of international design, construction, installation, and consultation for wind energy projects having supervised the installation of over 650 wind turbines worldwide.

As a company, RESL’s strategy is to explore wind resource opportunities in Nova Scotia. Key features of the Point Tupper windfarm are as follows:

The Commercial Date of Operation (COD) for the development was August 4th, 2010.

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The 23.3MW project produces enough power to supply electricity to 7,000 homes.

The capital cost of the project was $55.6 Million and is a joint venture with Nova Scotia Power Inc. RESL maintains controlling interest in the development.

The project has a 20-year Power Purchase Agreement (PPA) with Nova Scotia Power Inc and is one of the most cost competitive projects in Nova Scotia.

The Point Tupper location was selected based on wind data gathered from a test turbine located on site since May 2006 and because the project could be remotely operated and did not require a substation.

The project combines the larger, more power efficient state of the art, direct-drive Enercon E-82 turbines with capacity outputs of 2.05MW, and the original E-48 turbines that each has a capacity output of .800MW.

In summary:

As expected, the site appeared to be run with an strong emphasis on safety and procedure. The visit to Point Tupper was a good opportunity for the group to witness and understand first-hand the operations of a transhipment terminal and learn about the burgeoning windfarm industry in Nova Scotia.

This part of the trip also enabled the group to broaden their knowledge of the less familiar midstream and renewable aspects of the energy industry as the majority are more exposed to upstream projects.

Fundy Ocean Research Center for Energy (FORCE) Presentation

Tuesday 2nd October 2012

Hosts: Doug Keefe (FORCE)Bob Hutchins (Atlantic Claims)Andy Williams(AMG Claims Inc)Mike Seiber (AMG Claims Inc)

Involved a two-hour presentation by FORCE before departing to the Nova Scotia Power Annapolis Tidal Power Generation Station. Doug Keefe, executive director of the FORCE Center is responsible directing research into tidal power, which is especially relevant at the local Bay of Fundy which exhibits the largest tidal range in the world and thus presenting a huge opportunity for Nova Scotia to harness such power.

FORCE is Canada’s leading tidal energy research facility. Its key functions are:

Host: provides an approved test site and access to power grid via submarine and onshore cable;

Watchdog: environmental monitoring in the Minas Passage - emphasis on effect upon marine life;

Research: priority on site characterization - resource assessment, subsea mapping, current profiling. Also environmental impacts, technical barriers, etc.

Why tidal power?

Low impact, renewable energy is also predictable, i.e. ‘free’ fuel four times a day due to tidal transitions. It is also economic and a global hi-tech/high-skill sector.

The principal advantage is its potential for expansion and implementation all around the world. Particularly well-suited coastlines include the UK, Ireland, New Zealand, India, Australia, Japan, Korea, Norway, France and areas of the USA.

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Generates CAD 2 billion per year of energy revenue plus £1.4 - 4.3bn in the UK. This presents a potentially huge emerging market for insurance providers of both physical damage and business interruption coverage of turbines. Although, given the proto-typical nature of some of the new installations/turbines, it is yet to be see how profitable the business can become.

To date FORCE have only deployed four full-scale turbines, with two planned for next year and 25 in the current tank and testing phase.

Potential sites for future tidal power generation

Annapolis Tidal Power Generation Station

Nova Scotia Power, Site TourTuesday 2nd October

The tour involved a presentation by the director of the Annapolis site and then an inspection of the turbine itself which is housed deep below ground level.

The Annapolis site is one of few tidal power plants in the world and, surprisingly, the only one in North America. The power plant came online in 1984 and has a capacity of 20 megawatts and a daily output of roughly 80-100 megawatt hours, depending on the tides.

Until recently the most common form of tidal power technology was to build a large dam called a barrage across a river or outcropping of land. The dam funneled water into the tidal generating plant and through a large turbine as it flowed in and out with the tide. However today, engineers have developed (and continue to develop) tidal technology that does not require any dams or head ponds. These include offshore floating tidal turbines, which are anchored to the ocean floor. A recent study by the Electric Power Research Institute has singled out the Bay of Fundy as one of the best spots on the planet to deploy this new technology.

In a sense the site we visited has provided a case study for other sites around the world for which this new technology is being taken up.

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Nova Scotia Department of

Energy

Wednesday 3rd October 2012.

Host: Kimberly A. Doane (Director, Petroleum Resources, Nova Scotia Dept of Energy)

The key mandate of the Nova Scotia Department of Energy is to ensure that Nova Scotians benefit from the province’s energy sector in order to enhance the region’s enterprise and also to educate Nova Scotians on energy issues. Kimberly Doane is a representative of this government funded organisation and her department’s intention is to develop the province’s energy resources and build the energy industry so that the most is made of the available opportunities.

Much of the group’s time in Nova Scotia had focused on alternative forms of energy. Canada is probably most associated with some of the onshore orientated E&P projects discussed in earlier stages of this trip report. However Kim’s presentation was more of an insight into the deepwater offshore upstream projects being carried out in Nova Scotia and for her audience this was of considerable interest.

Key facts outlined in the presentation were as follows:

Offshore Nova Scotia can be characterised as being more of a gas play.

To date there has been four oil discoveries (two developed) and 20 gas discoveries (three developed). The Sable Area is the only area to date to have been developed.

208 wells in total to date and of 126 wildcat wells. This is a relatively low success rate of 42% in the Sable area. Therefore, historically operators have found the risk to reward to be insufficient.

Current offshore projects include:o Sable field: 2.0 tcf gaso Deep Panuke: 0.65 tcf (See EnCana)

Kim explained that, with the knowledge of hydrocarbon reserves in Nova Scotia, the Nova Scotia Department of Energy undertook a $15m research program that was completed in 2011. The outcome of the project has been to generate a data package with reservoir models on the deepwater slope of Nova Scotia. This has now been released to interested parties being mainly the major independent operators to see if they would be interested in development.

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Annapolis Tidal Power Generation StationAnnapolis Turbine


As a result of this research a rights issuance plan has been drawn up for the region and operators will be free to bid for drilling rights on lease blocks over the next three years. For 2012 the last date of bidding will be on 7th November. So far the most significant success has been the purchase by Shell of four lease blocks in the Shelburne sub-basin which has yielded a return on their investment of $970m. This is welcome news for the region and will help with future investment in the regions infrastructure. It remains to be seen as to whether Shell’s enthusiasm will be followed by other operators and also whether Shell can deliver on the potential.

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EnCana – Deep Panuke, Project Overview

EnCana Corporation Office, CalgaryWednesday 3rd October 2012

Host: Robert MacQueen – Commerical Manager, EnCana Corporation

The Deep Panuke project was approved for development by EnCana’s board of directors in October 2007. The Deep Panuke gas field is located 250km south east of Halifax, Nova Scotia, in a water depth of 45m. EnCana has a 100% interest in the development.

The wells tap into the natural gas reservoirs in the carbonate reef located underneath the original Cohasset-Panuke oilfield - Canada's first offshore project - which ceased production in late 1999. The life of the field is estimated to be between around 13 years.

The Deep Panuke project involves the installation of facilities required to produce and process natural gas from Deep Panuke that will be processed offshore and transported via a 22-inch subsea pipeline approximately 172 km long to Goldboro, Nova Scotia for further transport to market via the Maritimes & Northeast Pipeline. The design capacity of the current project is 300 MMscfd of sales gas with first gas from Deep Panuke expected at the end of 2012.

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There are four key elements to the project:

1. Drilling and completionsRe-complete four existing production wells (all low pressure wells). Drill and complete one new acid gas injection well and install subsea production trees.

2. SubseaInstall individual well tieback flowlines, umbilicals, control systems, protection structures. Also flowlines and umbilicals to be trenched and buried. (approx value of subsea $250m). Installation by Subsea 7. The flowlines were connected to the production trees and PFC during 2011 campaign.

3. Export pipelineWill install export pipeline to shore. Approx value $250m. Onshore 3km line and tie-in to existing M&NP pipeline connecting to USA and Canadian markets. Line trenched and buried approx 50% of length. Landfall preparation and offshore pipelay installation and trenching completed 2009. Onshore pipeline installation work was completed during 2010. Rock placement and pipeline drying completed during 2011. The export pipeline was connected to the PFC during the 2011 campaign.

4. Production field centreSelf-installing four-leg facility. The PFC was jacked to full height with Skandi Skolten in July 2011. The major fabrication locations were Nova Scotia for the flare tower. Netherlands for the platform legs and France for the riser caisson. The hull, spud cans, topsides and living quarters (designed for maximum crew of 75) were fabricated in Abu Dhabi. The spud cans were designed with a 19m diameter as there had been previous punch-throughs in the area.

Liquids found in this region are so small it would be more expensive to export it onshore. It is therefore processed on-site and used as power generation instead.

Heat tracing work is important due to inherent fire hazard and is taken very seriously as a result.

The construction project is almost completed with commissioning works now due to take place. All regulatory approvals are in place for production to commence. Current estimated date for handover is 01/04/2012.

The Deep Panuke construction project, as well as EnCana’s operational policy – to which the Deep Panuke will attach upon completion - are placed in the London Market, both of which Travelers participate on.

This was the final meeting of the two-week study tour, and the group flew back to London that evening. It was an intensive itinerary but a very rewarding, educational experience.

The names of those who participated on the trip and those who helped make it possible do not all feature on this report, but they will prove invaluable contacts in future, both in terms of business relationships and willingness to answer any technical questions we may have on risks presented to us.

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LLOYD’S MARINE UNDER-35 GROUP STUDY TOURLLOYD’S MARINE UNDER-35 GROUP STUDY TOUR

CANADA VIA OKLAHOMACANADA VIA OKLAHOMA1818THTH SEPTEMBER – 4 SEPTEMBER – 4THTH OCTOBER 2012 OCTOBER 2012

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U35's Final Trip Report (USA & Canada)

Documents

Transcript of U35's Final Trip Report (USA & Canada)