Charles Taylor Adjusting Limited 88 Leadenhall Street London EC3A 3BA

Construction of Mobile Offshore Drilling Units… …and some claims arising.

Mike McMahon CEng

LMA

24 July 2014

Content

• What’s a modern MODU? • MODU construction locations • Significance of South Korea • How a yard big works / stages of construction • Transfer of risk • Recent claims • Issues arising • Other considerations

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Semi-Sub Drilling Unit - Overview

• 44 MW DP3 • 150 crew • 3,000m water depth • 9,000m drilling • Harsh environments • Development Drilling

2

Drill Ship Overview

• 42MW DP3 • 200 crew • 3,000m water depth • 12,000m drilling • Storage space • Exploration

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MODUs currently under construction by country

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Location Semisub Drillship Total South Korea 9 36 45 Brazil 6 23 29 China 10 4 14 Singapore 1 3 4 Azerbaijan 1 0 1 Total 27 66 93

Source www.rigzone.com

DSME in 2013

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DSME – Sales Trends

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DSME – Sales Trends

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DSME – Sales Trends Units Numbers Built Average Unit Price (US$/m)

Commercial Ships 995 Gas Carrier 105 93 LNG Carrier 83 109 LPG Carrier 22 33 Oil Tanker 333 105

ULCC/VLCC 147 161 Suezmax TK 70 82 Aframax TK 37 58

Others 79 44 Full Containership 234 76

Above 10,000 TEU 54 137 5,000 TEU ~ 10,000 TEU 67 86

Below 5,000 TEU 113 41 Other Commercial Vessels Ro/Ro, Car Carrier 64 58 Bulk Carrier 193 62 Naval & Special Ship 56 1 Ferry 10 19

Wind Turbine Installation Vessel 2

OSV 2

Offshore Projects & Plant 72

Fixed Platform 25 FPSO 4

TLP 3 FPU 3

Semi-Submersible Rig 20 Drillship 13

Jack Up Rig 2 Drilling Barge 1 Modular Plant 1 8

DSME Shipyard – home to 47,000 workers

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Construction

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Recent S. Korea Shipyard Experiences

Claim Year Description Construction Stage

Shipyard specific?

Insured Value (US$)

Deductible (US$)

Approx. Cost (US$)

Semi-Sub

2013 Flooding Pre-commissioning Yes 700m 250,000 100m

Drillship

2013 Engine over-speed Sea-trials Yes 566m 500,000 8m

Drillship

2013 Engine Pre-commissioning Yes 566m 250,000 5m

Drillship

2013 Engine Pre-commissioning Yes 566m 250,000 0.3m

Semi-sub 2012 Collapsed mud tank Commissioning Yes 709m 250,000 0.5m

Semi-sub 2011 Dropped Module Assembly Yes 561m 250,000 10m

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Transfer of risk – WELCAR Schedule 2

Stage Value US$ OFE Preliminary Cost 15,000,000 BFE (1) Derrick 27,480,000 BFE (2) Builder Furnished Equipment (2) 360,000,000 Hull Hull Construction 144,700,000 Topside Topside Construction 120,520,000

Integration Integration of Hull and Topside 667,700,000 Sea Trials Sea Trails 667,700,000 DEM Design, Engineering and Management 106,831,000 Total 774,531,000

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Builder Furnished Equipment

• Main diesel generator sets (eg, 8 x 5mw) • Propulsion system, (DP3) • Mud handling (Dual system) • Drilling systems • Ballast water management • Power distribution System • Lifting gear • Mooring system • Etc.

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Recent S. Korea Shipyard Experiences

Claim Year Description Construction Stage

Shipyard specific?

Insured Value (US$)

Deductible (US$)

Approx. Cost (US$)

Semi-Sub

2013 Flooding Pre-commissioning Yes 700m 250,000 100m

Drillship

2013 Engine over-speed Sea-trials Yes 566m 500,000 8m

Drillship

2013 Engine Pre-commissioning Yes 566m 250,000 5m

Drillship

2013 Engine Pre-commissioning Yes 566m 250,000 0.3m

Semi-sub 2012 Collapsed mud tank Commissioning Yes 709m 250,000 0.5m

Semi-sub 2011 Dropped Module Assembly Yes 561m 250,000 10m

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Dropped Module

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Dropped Module

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Engine Damage

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Engine Damage

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Mud Tank Collapse

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Overspeed of Generator Sets

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Overspeed of Generator Sets (x2)

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Flooding

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Flooding

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Common Themes/ Considerations

• Failure of working systems • Risks are constantly changing • Human error (1,000 personnel) • Production is extremely quick

(20 months) • Sea Trials in congested waters

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Common Adjusting Issues Arising

• Restoration vs replacement • Cost effective repairs (Use of a repair yard?) • Cost presentation – labour / yard costs • Claims Control / Co-operation • WELCAR sub-limits

• Tests, Leak and/or Damage Search Costs • Expediting Costs

25

Working in Korea

• Shipbuilding Nation • Local survey expertise • Cultural sensitivities • Commercial considerations – the ‘Chaebol’ • Local Insurers’ Relationships • Local retentions

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Summary

• There is demand for new MODU • S. Korea still main market • Construction is highly automated / controlled • Some claims arise (modest compared to value?) • S. Korea is unique

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Questions?

Thank you

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