©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 1 Quantitative Risk Assessment and Mitigation for...

©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 1

Quantitative Risk Assessment and Mitigation for Onshore and Offshore Assets

Paolo Bazzurro, Ph.D.

Akshay Gupta, Ph.D., PE

2010 Marine Insurance Seminar

Houston , TX

September 20, 2010


What’s Churning in the Atlantic?


Agenda

• Hurricane hazard for GoM• Exposure

– Offshore– Onshore

• Vulnerability• Evaluation of Loss Potential

– Example: Energy entity with onshore and offshore assets


Tropical Storms in the Atlantic


Historical Major Hurricanes

Major Hurricane (V > 110 mph) Tracks in GoM : 83 events


Average and 2010 Atlantic Hurricane Season

121110987654321

10.7

TROPICAL

STORMS

6.2 (58%)HURRICANES

2.8 (26%)

MAJOR HURRICANES

May Jun Jul Aug Sep Oct Nov Dec Jan

Atlantic Hurricane Season

Atlantic Basin Storm Count

CSU Projection(as of Aug. 4, 2010, same as Jun 2, 2010)

11

5

4

9/15/10

18

10

5


Exposure


Offshore Exposure: Platforms and Rigs

~5500 Platforms/Rigs

~$90B


Platform Type CON CodeTotal

Count Value (Million USD)UNKNOWN 800 - $ - CAISSON 801 2,186 $ 7,147 COMPLIANT TOWER 802 3 $ 1,198 FIXED JACKET 803 2,555 $ 34,026 JACKUP 804 74 $ 6,083 MTLP 805 5 $ 1,036 DRILL RIG 806 61 $ 824 SEMISUB 807 26 $ 8,913 DRILL SHIP 808 5 $ 2,721 SPAR 809 16 $ 11,336 SUBMERSIBLE 810 7 $ 365 SUBSEA EQUIP 811 124 $ 26 TLP 812 10 $ 11,624 WELL PROTECTOR 813 351 $ 1,842

Total 5,423* $ 87,141

Offshore Exposure: Platforms and Rigs

*Platforms in TX state waters not accounted forSource: AIR


Offshore Exposure: Wells

~27,000 Wells


Offshore Exposure: Oil Production Volume (2009)

2300 BCF

$10B

GA

S420 Million BLLS

$23B

OIL


Offshore Exposure: Subsea Pipelines

~35,000 miles

~$70B


Onshore Energy Exposure

Image source: National Petrochemical and RefinersAssociation

• Platform Fabrication Yards• Port Facilities• Shipyards and Shipbuilding Yards• Support and Transport Facilities• Waste Management Facilities

• Pipe Coating Yards• Natural Gas Processing Facilities• Natural Gas Storage Facilities• Refineries• Petrochemical Plants


Vulnerability


Risk to Offshore Platforms



Mean Sea Level (MSL)

Topside (Decks and Equipment)

Structure and

foundations

Jacket Platform

Mud line

Waves

WindWind

Waves dominate



Before Rita

After Rita

Removing fallen drilling rig

Drilling Rig on MARS Tension Leg Platform

~ 150,000 bpd $300M PD loss~ $10M/day BI loss~ 10 months to fix


Risk to Subsea Pipelines, Wells and Equipment

• Subsea currents• Mudslides• Damage and Failure

of Platforms/Rigs

Oscillatory current

(Image source: OTC Ref #17734

(Image source : MMS Report # 581“Pipeline Damage Assessment from Hurricanes Katrina and Rita)


Risk to Onshore Assets

• Wind• Flood (storm surge & precipitation)


Risk Assessment for an Energy Entity


Energy Company A: Upstream - Downstream

Company A Exposure• Two Platforms

- 1 Fixed Jacket- 1 TLP

• Twenty Wells• 7 Natural Gas • 13 Oil

• 75 miles of subsea pipelines

• $3B onshore refinery

• $750M storage farm


Overall Modeling Methodology

HAZARD

VULNERABILITY

LOSSES

Intensity Calculation

Exposure Information

Damage Estimation

Policy Conditions

Event Generation

Loss Calculations

LifelineInformation

EXPOSURE

HAZARD

VULNERABILITY

LOSSES

Intensity Calculation

Exposure Information

Damage Estimation

Policy Conditions

Event Generation

Loss Calculations

LifelineInformation

LifelineInformation

EXPOSURE


StochasticCatalog

Location Frequency

Min. Central Pressure

Radius of Max. Winds

Forward Speed

Landfall Angle

Annual Frequency

Development of a HUR Stochastic Catalog


Hazard: Simulation of Cyclone Parameters


• 50,000 year event stochastic catalog– 50,000 possibilities of next year’s activity in GoM

• Over 200,000 events in the 50,000 year catalog• Validated against historical record

Hazard: Stochastic Catalog Event Set for GoM


1’-sustained Wind (Hurricane) Hazard Curve

0 50 100 150 200 25010

-5

10-4

10-3

10-2

10-1

100

Wind Speed at Plant A (mph)

Rec

urre

ce r

ate

(/yr

)

Median

5%-ile

95%-ile

Category 1 Category 2 Category 3 Category 4 Category 5

74 95 110 130 155 1’-sustained wind speed (mph)


• Significant Wave Height, Hs

• Wave Crest, Hmax

• Wave Duration

Gulf of Mexico Wave Model

10 1001E-4

1E-3

0.01

0.1

1

Hs [ft]

MR

E

WR-FPSO

KC-FPSOSite ASite B

Htot=Hcrest+HsurgeHcrest

Hsurge

Surge

Htot=Hcrest+HsurgeHcrest

Hsurge

Surge


Exposure: Platforms

• Location• Type• Deck Height• # of Decks• # of Legs• Bracing System• Manned/Unmanned• TRV• % of TRV in topside• # of Wells• Production Volume

28.91°N 90.13°W


Exposure: Undersea Pipelines

• Path• Diameter• Buried/Unburied• Flow Volume

Start: 28.91°N 90.13°WEnd: 29.22°N 90.09°W


Exposure: Refinery and Storage Farm

• Location• Facility TRV• Breakdown of TRV by

blocks• Breakdown of block TRV

by components (e.g., cooling towers, control centers, reactors, etc.)

• Elevation of blocks and components

• Product Daily Revenue

29.22°N 90.09°W

29.23°N 90.12°W


Exposure: System Operations Network

• Operational connectivity from wells to sales

• Connectivity between facilities AND within facilities

• Essential for accurate BI loss est. .es

System Connectivity

VS.

Refinery

Platform 1

Storage

Platform 2

Refinery Connectivity

Refinery

Platform 1

Storage

Platform 2

SalesSales


Vulnerability of Platforms to Wave Loading

Mea

n D

am

age

Rat

io

Wave Height - Deck Height0 20 40 60 80 100 120 140

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Wind Speed (m/sec)

Mea

n D

amag

e R

atio

FIXED, WP, JACKUP, SUBMERSIBLE

CAISSONCT, SEMI, DRILLSHIP, SPAR

MTLP, TLP

Mea

n D

am

age

Rat

io

Wind Speed


Vulnerability of Pipelines to Currents/Mudslides

Damage Cause Damage State(s) Intensity Measure

Mudslide Rupture Mudslide Stability Factor

Underwater current Exposure Subsea Oscillatory Current

Underwater current Leak, Rupture On Bottom Stability Factor

Underwater current Displacement On Bottom Stability Factor

Platform collapse Rupture Platform Damage Ratio

Falling debris from platform Dent, Leak Platform Damage Ratio

Anchor drag Rupture, Displacement Platform Damage Ratio

• Pipeline Vulnerability defined by fragility functions relating probability of a particular damage state to the appropriate hazard intensity measure


Vulnerability of Onshore Assets to Wind


0 1 2 3 4 5 6 7 8

10-4

10-3

10-2

10-1

100

BI Loss (BUSD)

recu

rren

ce r

ate

(/yr

)

BI Loss

Probabilistic Loss Analysis

0 50 100 150 200 25010

-5

10-4

10-3

10-2

10-1

100

Wind Speed at Plant A (mph)

Recurr

ece r

ate

(/y

r)

Median

5%-ile

95%-ile

Site-Specific Hazard Curves

+

Exposure (Assets)and

Vulnerability

0 2 4 6 8 10 12

10-4

10-3

10-2

10-1

100

Physical Loss (BUSD)

recu

rren

ce r

ate

(/yr

)

Physical Loss

Event Catalog


Probabilistic Loss Estimates: By Peril

• Loss by peril: note difference in relative loss between 100 yr and > 1000 yr loss. Helps determine appropriate risk mitigation strategy within portfolio.

Tota

l L

oss

Mean Return Period (years)10 20 100 200 1000 2000 10000

All PerilsWind OnlySurge OnlyRain Only

Waves

Wind

Surge

Current


Probabilistic Loss Estimates: By Asset

• Disaggregation of loss (PD and/or BI) into primary components (could be amongst properties in the portfolio, by coverage, etc.). Helps determine where to focus risk mitigation.

Portfolio

Oil Wells

Storage

Platform 1

Refinery

Platform 2

Gas Wells

Pipeline

Location 1 Location 2 Location 3Location 4 Location 5 Location 6Location 7

AAL

Oil Wells

Refinery

Pipeline

Storage

Platform 2

Platform 1

Gas Wells


Probabilistic Loss Estimates: Network

• Explicit network analysis leads to realistic BI computation; ignoring network results in markedly erroneous results

10 20 50 100 250 500

Lifelines NOT included

Lifelines included

Tota

l L

oss

Mean Return Period (years)

Network NOT included

Network included


Conclusions

• Significant offshore and onshore exposure at risk from tropical cyclones

• Scientific and engineering approach for probabilistically quantifying the hazard, physical damage, and business interruption

• Quantitative risk estimate can provide the sound basis for informed decision making related to catastrophe risk mitigation

©2010 AIR WORLDWIDE CORPORATION CONFIDENTIAL 1 Quantitative Risk Assessment and Mitigation for...

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