Overview of Operational Risk / Liability

1. Overview of Operational Risk / Liability U.S. Maritime and Offshore Oil & Gas Industries

2. What is risk? • Set of All Possible Hazards – what can go wrong? • Likelihood of Occurrence of Hazards – how possible is it? • Consequence of each Hazard – how bad can it get? RISK = PROBABILITY x CONSEQUENCE

3. Operational: Scope of Work Indefinite Beyond capabilities Project management Resources Planning and logistics Execution Delays, productivity, competing projects Reliance on third parties Deliverables Time Quality Changing expectations Accidents Property or equipment People Acts of God and Nature Legal / Financial: Pricing risks Payment risks Delay costs Claims for defective deliverables Termination risks Hazards of Business

4. Offshore Oil & Gas Activities • Exploration • Seismology • Seafloor surveying / Mapping • Drilling • Transporting supplies, equipment or personnel • Development • Drilling • Construction • Wells • Structures / facilities • Pipelines • Pipe-laying • Transporting supplies, equipment, or personnel • Production • Operating structures / facilities • On-site processing • Transporting oil, gas, & gas condensates • Transporting supplies, equipment, or personnel

5. Maritime & Shipping Activities • Shipping • Logistics • Managing inventory on-shore • Loading • Transporting, navigation, & pilotage • Off-loading • Customs • Vessels / Assets • Newbuilding/commissioning • Operation and Maintenance • Salvage • Cargo • Bulk • Container • Human transport (Cruise ships) • Special purpose (FPSO, LNG, Tenders, Tugs, etc.) • Port • Navigation • Stevedoring • Cranes • Drydocking

6. Probabilities & Consequences For Example: • Late arrival at designated location: • Probability: medium to high • Consequence: - no material delay to others: no impact - delays overall project: $$ impact • Employee Error: • Probability: low to medium • Consequence: - not material error: no impact - material error: $$ impact - critical error: impact to life, property, or project viability • Collision at Sea – Our negligence: • Probability: low • Consequence: - injury to customer personnel & property - injury to third parties or 3rd party property

7. U.S. General Common Law concepts • Intentional Acts • Assault, Battery, Trespass, False Imprisonment, Defamation • Fraud, Wrongful Interference with Contract or Business Relationship • Intentional Infliction of Emotional Distress • Negligence • Acts that a person exercising ordinary care would not do under similar circumstances; or • Fails to do what a person exercising ordinary care would do under similar circumstances. • Negligence per se • Violation of a statute or ordinance that provides criminal penalty and that violation causes injury to another • Strict Liability in Tort • Abnormally Dangerous Activities • Product Liability

8. More Specific Law concepts • Unseaworthiness • Ship owner’s duty to maintain its vessel in a seaworthy manner • Vessel’s equipment, masters, and members of the crew can render a vessel unseaworthy • Jones Act • Vessel owners’ liability for injuries to seamen • Oil Pollution Act • Responsible party liability for response costs to oil spills • U.S. Admiralty Law • Affect ship owners, cargo owners, marine insurers, and crew • Pertain to salvage claims, marine pollution, and collisions at sea • Anti-Indemnity Statutes of TX, LA, NM, & WY

9. What can go wrong? How often? How big? Is that OK? What can be done? Is it being done? Risk Management - Key principles • Risk Quantification • Likelihood • Consequence • Risk Mitigation Measures • Risk acceptance criteria • Barrier identification and monitoring

10. Mechanisms for Controlling Risk • Shift Risk to someone else • Buy Insurance • Seek Contractual Protections • Employ operational excellence • Employ the best people • Maintain state of the art operations • Provide best on-going training, and • Keep highly motivated