Tullow Oil, the operator of the striken Kwame Nkrumah FPSO (floating production storage and offloading) on the Jubilee oil field, Ghana, has said that its insurers have confirmed that the firm has a recoverable claim to make under its business interruption policy.
“Tullow Oil is pleased to announce that it has received confirmation from its Lead Insurers that they accept there is a recoverable claim with respect to the Group’s corporate policy for Business Interruption insurance following damage to the Jubilee turret bearing earlier this year,” the company explained in an announcement this morning.
The business interruption claim could be larger than the hull and machinery, it is thought, as the loss of production costs have been mounting since the loss event began in March and will continue to build up.
Total insurance and reinsurance industry loss estimates for the Jubilee oil field loss range from $1.2 billion to $1.5 billion at this time, but that figure could rise as the extent of claims made should become clearer now both the business interruption and the hull and machinery policies have been confirmed to be in play.
The Jubilee oil field loss will be one of the largest man-made insurance and reinsurance losses of the year, with reinsurers and insurance-linked securities (ILS) funds reserving for potential hull & machinery and business interruption losses.
The loss event began in March 2016, when the floating production, storage and offloading vessel (FPSO) operating on the Jubilee oil field off Ghana, Africa suffered a fault to a bearing on the turret, resulting in a loss of production of approximately 15% of output per day.
The insurance and reinsurance industry has been expecting losses from hull & machinery, energy and also business interruption lines, with impacts likely to be felt in the retrocessional reinsurance market as well as some ILS funds investing in private ILS contracts, as confirmed recently by Markel CATCo.
Tullow Oil explained what is covered under the business interruption policy; “The Business Interruption policy, which is procured for Tullow’s interest in its major producing assets, covers loss of revenues as a result of production outages. Cover includes production losses at the Jubilee Field associated with the failure of the bearing and the downtime associated with the work programme to re-establish normal operations.”
The firm said it will “continue to work closely with the loss adjusters and insurers to establish an efficient payments schedule as remedial work continues.”
Insurance, reinsurance and affected ILS firms will begin to gain greater clarity on the size of this loss event now, enabling them to make reserves or side-pocket decisions more accurately in time and the size of the industry loss should become clearer as a result.