Tullow Oil, the operator of the striken Kwame Nkrumah FPSO (floating production storage and offloading) on the Jubilee oil field, Ghana, said this morning that its reinsurers have confirmed that the ventures hull & machinery cover will pay out.
“Tullow Oil is pleased to announce that Hull & Machinery insurance cover has been confirmed for the FPSO Kwame Nkrumah by its reinsurers following the failure of the turret bearing earlier this year,” the company explained.
The Jubilee oil field loss is set to be one of the largest man-made insurance and reinsurance losses of the year, with many companies including some 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, which resulted 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.
With Tullow Oil having it confirmed by its re/insurers that the hull & machinery coverage is available to pay out, the process to identify the scale of the loss will now begin.
Insurance and reinsurance industry loss estimates for the Jubilee oil field loss range from $1.2 billion to $1.5 billion at this time.
The hull & machinery coverage protects Tullow Oil, as the operator of the Jubilee oil field, for “relevant operating and capital costs associated with both current operating procedures at the FPSO and the long-term solution.”
Tullow Oil said it would work closely with loss adjusters and re/insurers in order to set up “an efficient payments schedule as remedial work continues.”
Tullow is also actively working with its Business Interruption re/insurers on confirming coverage for loss of production and revenue due to the turret bearing failure, the company said this morning.
With this loss now confirmed by re/insurers, the world to validate loss assessments and pay claims will begin. For any ILS funds, or collateralised reinsurance sidecars, exposed through reinsurance or retrocession contracts, this will require notification to come through from insurers or reinsurers covered.
It’s only now that the size of the loss may begin to become clearer as well, as the Jubilee oil field loss does have the potential to creep higher than estimates, particularly once any business interruption loss is finally tallied.