W3_LaShae_Risk Analysis

1.      Problem Definition

One of the major issues operator companies face is the management of risk.  These risks go beyond technical into economic, contractual and political.  This post will identify the possible risks associated with FPSO construction considering the options of leasing vs. owning.

2.      Feasible Alternatives

While there could be an infinite amount of risks that can be collected but the goal should be to gather risks that can be quantified and treated.  The risk register should be quantitative in nature and risks described in a way that makes it clear what the risk event, triggers and mitigations are.

3.      Develop the outcomes for each alternative

To make a decision companies need to look at risks not just in terms of economic risks but also technical, environmental and company reputation.  While it may be economically more cost effective to lease the owners will have to factor in the possibilities of negative consequences that although technically the fault of the contractor would be publically attributed to the company. 

4.    Acceptable Criteria

Identify risks associated with owning vs. leasing FPSO’s making sure to focus on both technical and non technical risks. 

 5.      Analysis and comparison of the alternatives

Owned

Risk	Company	Contractor
Injury to company employees	X
Injury to contractor employees		X
Damage to company group property including wreck and debris removal	X
Damage to contractor group property including wreck and debris removal		X
Damage to the FPSO	Following the Handover	Up to the handover
Environmental damage emanating from company group property including FPSO and reservoir	X
Environmental damage emanating from contractor group property		X
Company group consequential loss	X
Contractor group consequential loss		X
Third party liability (other than pollution liability)	Negligence Based

Leased

Risk	Company	Contractor
Injury to company employees	X
Injury to contractor employees		X
Damage to company group property including wreck and debris removal	X
Damage to contractor group property including wreck and debris removal		X
Damage to the FPSO		X
Environmental damage emanating from company group property and reservoir		X
Environmental damage emanating from hydrocarbons stored in the FPSO	Excess of contractors P&I insurance	Up to contractors per occurrence P&I insurance limit for the FPSO
Environmental damage emanating from contractor group property		X
Company group consequential loss	X
Contractor group consequential loss		X
Third party liability (other than pollution liability)	Negligence Based

6.      Select the preferred alternative

The above categorizes typical risks and can’t be used to fully make a decision regarding leasing vs. owning.  However seeing where the risks fall will help when the full picture is developed considering the costs, contractual terms and insurance options.

7.      Performance Monitoring & Post Evaluation of Result

Key risks for both owning and leasing of FPSO’s included in the risk chapter in my AACE technical paper.

References

Jilla, H (2012) Contractual Allocation of Risks, 17-18.

Retrieved from

 www.energyclaims.net/assets/FPSO-Contractual-Insurance.pdf