Energy - Allianz Global Corporate & Specialty

Proven reserves
NOC dominance
60 % Middle East
11 % Europe and Eurasia
10 % Africa
10 % South and Central America
6 % North America
3 % Asia Pacific
78 % NOCs
11 % NOCs (equity access)
6 % Russian Companies
6 % IOCs
actually carry out operational and project work. “Oil companies
are not attracting enough young people with experience
to meet the needs of the industry,” says O’Neill.
“The workforce needs to be constantly replen ished so
that oil companies do not suffer a skills short age, particularly
as global demand for oil is pushing them to look for
reserves in riskier areas at greater depths.” O’Neill adds:
“While this is a short-term problem, there is currently a
higher risk of an accident or spill occurring as human
error is still one of the main causes of losses, which
means that insurance premiums become more expensive
and the scale of potential liabilities also increases.”
Political risks also come to the fore. In developing
countries, political unrest or the nationalization of
resources might lead to disruptions in supply. As
governments have realized the benefits of securing
their own oil supplies, some have taken “authoritarian”
steps to ensure that they remain in control. For example,
in 2006 Russia forced oil giant Shell to cede its majority
control in the Sakhalin 2 project to Gazprom, majority-owned
by the Russian government, slicing its stake
in half down to 27,5 percent.
In May 2007 the Venezuelan government nationalized
the country’s Orinoco Oil Belt reserves so that the state
had at least 60 percent stakes in all oil projects. State
participation in the Orinoco River Belt has since
increased from 39 percent to 78 percent. Six major
companies were asked to hand over proportions of
their stakes, and Chevron, Total, BP PLC and Statoil
negotiated deals with Venezuela to continue on as
minority partners. But ExxonMobil and ConocoPhillips
rejected the terms, prompting Venezuela to
nationalize Exxon’s 42 percent stake of the Cerro
Negro project. Exxon went to the International Centre
for Settlement of Investment Disputes (ICSID), a World
Bank institution that arbitrates investment disputes
between member countries and individual investors,
demanding that projected profits be included so that
the total compensation was $ 5 billion, rather than the
$ 750 million on offer. However, in June 2010 the ICSID
Tribunal concluded it had no jurisdiction to act.
“Increased direct government involvement in oil and
gas projects has always been on the risk register for
insurers and IOCs,” says O’Neill. “However, the industry
and insurers need to work more closely with NOCs and
their governments so that best practices are followed,
technical innovation and expertise is maintained, and
risks are properly identified and managed,” he says.
O’Neill believes that insurers need to make a greater
effort to help oil companies understand that they plan to
be involved in the industry for the long-term. “If insurers
are going to promote greater openness to encourage
better information sharing, then it is important that
clients understand that we are committed to the
industry for the long-term. This means that insurers
need to invest in better training and recruitment so that
underwriters have a better understanding of the oil and
gas sector and the risks that it faces,” he says.
PAUL O'NEILL
Global Head of Energy Underwriting
paul.oneill@allianz.com
WWW.IEA.ORG
WWW.AGCS.ALLIANZ.COM/SERVICES/ENERGY/
Modern oil platforms
still need raw muscle
power to function.
18 Special Topic – Energy Special Topic – Energy 19