Petrochemical Valuations - Avoiding Under-Insurance · 2013-03-16 · Petrochemical Valuations -...

JOHN FOORD ESTABLISHED 1828 International Valuers of Industrial Plant and Property

Petrochemical Valuations - Avoiding Under-Insurance

Graham Copland CEng MIMechE

Managing Director


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Sums Insured

Key Issue :

Who is responsible for determining Your Sums insured?

Lack of insurance valuation knowledge

Concept of insuring assets at book value

In-frequent sums insured review

Under insurance only becomes and

issue after a loss

Difficulty in recovering after a substantial loss

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Why do Insurance Values Change?


Why is there Under-Insurance?

• Businesses are unaware their insurance cover is inadequate

• Inaccurate valuations due to methodology used to assess Sums Insured, such as:

• Information from internal engineers

• Financial system generated asset list

• Elements not allowed for in the Sums Insured:

• Major loss inflation omitted

• Extra costs of reinstatement omitted

• Perceived affordability

POWER

GENERATION

Pre

JF

A JF

A

42%


Site Layout Plan – Partial Loss Scenario

• Wrong split of values/plant identification – problems in partial loss

* Importance of correct plant identification and reporting by area


Under Insurance/Application of Average:

Full value of the property at the time of the fire = US$1,000,000

Sums insured at the time of the fire were insured for = US$500,000

Partial loss sustained as agreed between

the Insured & Insurers = US$400,000

A Hypothetical Scenario…Average


Average…Applied


Case Study - Large Petrochemical Facility – Built In 2003

• Construction cost (2003) US$2B

• Depreciated Cost (book value) US$1.2B

• Replacement Cost US$2.7B

* Assuming no change in technology and it is a total rebuild


Case Study - Typical Small 4 Leg Rig – Built In 2001

Difference in values:

• Construction cost (2001) US$ 70M

• Depreciated Cost (book value) US$ 40M

• Replacement Cost US$140M

* Assuming no change in technology and it is a total rebuild

http://upload.wikimedia.org/wikipedia/commons/a/a1/Oil_platform.jpeg


Case Study – Oil Refinery – Korea

• Replacement for New Valuation

• Refinery - Top 5 in world

• Client approached local valuation company

• Use of Asset Indices – wrong.


Case Study – LNG – Different Years Of Construction

• Construction @ 1983

- 3 X 2,800,000 tpa trains


- 3 X 2,600,000 tpa trains


- 2 X 3,900,000 tpa trains


Valuers Approach – Methodology & Research


The Valuer’s Approach

• On Site Surveys Physically Inspecting the assets and estimating the

replacement cost on site – site values

• Calculations Calculations “build up” of value by functional units

• Market Research Making contact with the original contractors

• Benchmarking – Database Accessing research sources to review cost activities

for similar assets across the world

• Benchmarking International Making direct comparisons between the assets

being valued and previous similar assets

• Analysis of List Costs Cost Indexing/Computer Modeling


Plant Cost Database – Example

AIR COMPRESSORS - CENTRIFUGAL (70 BAR)

DRIVE (HP) DRIVE (KW) PRESSURE (PSI) PRESSURE (BAR) BASIS OF COSTS 2009 REPLACEMENT COST

(US$)

COMPRESSOR & MOTOR

2009 REPLACEMENT COST

(US$)

PER KW

50 37 1,000 70 US GULF 44,064 1,182

100 75 1,000 70 US GULF 76,788 1,030

200 149 1,000 70 US GULF 133,596 896

300 224 1,000 70 US GULF 184,788 826

400 298 1,000 70 US GULF 232,632 780

500 373 1,000 70 US GULF 278,100 746

1,000 746 1,000 70 US GULF 484,272 649

2,000 1,491 1,000 70 US GULF 843,156 565

3,000 2,237 1,000 70 US GULF 1,166,184 521

4,000 2,983 1,000 70 US GULF 1,467,936 492

5,000 3,729 1,000 70 US GULF 1,754,892 471

6,000 4,474 1,000 70 US GULF 2,030,400 454

7,000 5,220 1,000 70 US GULF 2,296,944 440

8,000 5,966 1,000 70 US GULF 2,555,820 428

9,000 6,711 1,000 70 US GULF 2,808,432 418

10,000 7,457 1,000 70 US GULF 3,055,320 410


Current Prices Of Equipment, Commodities & Construction

Material Due To World Demand


Commodity & Construction Cost Tracking

0%

10%

20%

30%

40%

50%

60%

70%

Nelson Farrar Refinery Index


Commodity & Construction Cost Tracking


Costing

• Modular Section Material cost

• Weights

• On shore off shore costs

• Rig Configuration

• Installation costs

• Vessel costs


To Summarise

• Regular review of sums insured

• Be informed about insurance coverage and how it works

• Ensure all elements are included in the replacement value

• Be aware of supply and demand - material, labour, construction costs vary with

demand

• Valuations – assist all parties in reducing time to settlement/contentious claims

• Regular “health checks” are important


John Foord

• Beijing Office/ Representation

• Market Respect

• Experience Level – Valuers and Researchers

• Detailed and Factual Reports

• Independent

• Industry Specialist Recognition

• Support from the Lead Markets


Thank You

Petrochemical Valuations - Avoiding Under-Insurance · 2013-03-16 · Petrochemical Valuations -...

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