Operability Stabiliser

Reducing uncertainty of a fields operational performance

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Frequently Asked Questions


Please contact info@chrysalisinsurance.com for further information

1. What is Operability Insurance?

Operability is coverage for aggregate under-production of hydrocarbons during an agreed term due to impaired operability of production infrastructure.

2. What production can be insured?

Oil companies can choose between insuring total production, production from a single asset or combined production from selected assets.

3. How is it different from Business Interruption?

Operability covers aggregate under-production during a stated term such as an accounting period. Primary Operability covers a wider scope of perils than traditional BI insurance or LOPI and has no waiting periods or deductibles.

4. The policy is called Primary Operability. Is there an Excess?

Yes, Excess Operability (with narrower scope than Primary Operability) can add capacity for larger programmes.

5. Can an Insured buy Operability and traditional Business Interruption (BI) together?

Yes, oil companies can use traditional BI insurance instead of Excess Operability, either giving BI/LOPI benefit of recoveries under Operability or conversely Operability benefit of the BI/LOPI policy.

6. What is the available capacity?

We offer up to USD 200 million Primary Operability + USD 200 million Excess Operability, per asset.

7. How is loss measured?

Loss is measured by comparing the achieved production during a Term with an agreed aggregate production threshold called Term Floor. If actual production is less, the policy pays the difference times an agreed monetary amount.

8. How is the Term Floor determined?

The level of Term Floor is agreed policy by policy. Main determinants are the oil company’s assets and risk tolerance: greater risk tolerance allows the ideal Term Floor to be lower relative to “100% efficiency” production.

9. Is all under-production covered?

There are certain kinds of production shortfall that Operability does not cover. The policy adds these uncovered shortfalls to achieved production and compares the combination to the Term Floor.

10. What shortfalls are not covered?

  • Inherent Shortfall: not demonstrated to have been caused by physical impairment of production infrastructure (or other Qualifying Explanation as may be agreed case by case).
  • Expected Shortfall: resulting from misrepresented or undisclosed material fact.
  • Voluntary Shortfall: due to failure to make reasonable mitigation efforts or deliberate impairment of infrastructure by Insured.
  • Excluded Shortfall: caused by war, civil war, nuclear, hostile cyber or communicable disease
  • 50% of Mixed Peril Shortfall: due to combination of excluded and non-excluded causes.

11. Does this mean that subject to exclusions and except in cases of misrepresentation, non-disclosure or due diligence failure, everything is covered?

The Insured must first point to impairment of the infrastructure and show that this is the cause of the shortfall (subject to “Unseen Cause Buffer” – see Q14). Examples of causes outside of standard policy scope are weather, regulatory action, reservoir behaviour, industrial action and licensee insolvency.

12. Is there is a buy-back option to include perils outside of the standard policy scope?

Other perils can be considered case by case and added to a Supplementary Explanations Endorsement.

13. How are uncovered shortfalls quantified?

Uncovered shortfall is limited to the difference between an agreed benchmark called “Par Daily Production” and the day’s actual production. Par Daily Production is negotiated per policy, typically 95% of estimated “100% efficiency” production.

14. It may be time-consuming to show cause for small production shortfalls. Is there a “de minimis” provision?

Yes, Inherent Shortfall = 0 for any day when under-production is less than an allowance called “Unseen Cause Buffer”. No Qualifying Explanation is required. The size of Unseen Cause Buffer is negotiated per policy depending on the Term Floor (i.e. can be larger for lower Term Floors and vice versa). Note that a Par Daily Production of 95% exempts 5% of a day’s under-production due to any cause. An Unseen Cause Buffer of 10% (of PDP) excuses an additional 9.5% from the requirement for the Insured to demonstrate cause.

15. How long is the policy period?

Duration is subject to negotiation. “Term” is the policy expression for a period during which aggregate under-production compared to Term Floor is insured. A policy may cover a single Term or successive Terms each having a distinct Term Floor. Typical Terms would be accounting periods.

16. What happens if an Insured gets caught out before it has arranged renewal by an incident likely to cause under-production after policy expiry?

Chrysalis offers a rolling policy that initially covers two Terms and adds a new Term as each one expires. Alternatively, in cases when an Insured takes a single Term it can purchase an option to add a so-called “Optional Term” that will only take effect at expiry of the Standard Term if a loss is in progress.

17. What happens when an asset has a planned shutdown?

The oil company’s production estimates will reflect estimated “non-production” during the planned shutdown. To avoid such “non-production” being treated by the policy as uncovered shortfall the Insured is expected to declare the shutdown and its estimated duration (“Declared Shutdown Days”). The asset’s performance will not be counted by the policy from when the shutdown starts until all the Declared Shutdown days have elapsed. During this time Par Daily Production is reduced to zero and any actual production will not be included in the calculation of achieved production versus Term Floor.

18. How does the policy compensate for an oil company experiencing uncovered shortfalls while it continues to pay for the insurance?

Terms may be suspended to remove uncovered shortfalls from calculation of loss. There are two kinds of suspension:

  • “Automatic Time-out” – the Term is automatically suspended by agreed triggers, for example regulatory intervention. Cover for each affected asset ceases for as long as the asset under-produces by an agreed margin.
  • “Discretionary Time-out” – the Term can be suspended by the oil company voluntarily. Cover for all assets ceases while collectively they under-produce by an agreed margin for any reason.

If there is an Automatic Time-out the Term Floor and Premium will be reduced, shrinking the policy. To reflect Discretionary Time-outs the Term expiry date will be extended (e.g. a Term of 365 days suspended after 100 days will resume with 265 days remaining).

19. How is Operability priced?

The mean and distribution of expected production and “as if insured” loss is estimated based on the physical attributes, quality and spread of the assets, their production histories, data for comparable risk parameters, other factors relevant to production output and outages, and the proposed policy parameters. Administration, transaction and capital costs and underwriting margin are then added to arrive at the Premium.

Chrysalis can also consider reducing the Premium in exchange for the Insured’s agreement to pay “Term Operability Surplus”. Term Operability Surplus is defined as a specific share of aggregate over-production excess of a pre-agreed “Term Cap”.

20. What information is required for an Operability policy?

Pre-underwriting: Historical daily production per field. (Feasibility) Proposed Term, Policy Limit and Term Floor.

Estimated monthly production per field during the proposed Term:

  • Base Case, assuming no new physical activity.
  • Project activity: works, drilling, workover, planned shutdowns.
  • Activity driven production forecast.

Underwriting: Insurers may also request engineering reports of physical assets more detailed information about historical production, injection and export infrastructure performance and efficiency, past activity (shutdowns, drilling, projects), and maintenance and integrity.

During the policy: Daily production reports and shortfall narratives. 

Insurers’ consultant North Star Risk Management is available to assist in explaining these information requirements to clients.