How to prepare for Oil and Gas opportunities with Insurance

By Carol Tayebwa

As Ugandan companies gear up for the opportunities born of the recent official sign off of the Final Investment Decision (FID) of the Oil & Gas sector, a few questions linger. Are they prepared? Are they financially able? Are they aware of the risks involved? Are they insured?

Unlike most multi-billion projects, local firms have the chance to participate in the oil sector through the award of contracts and the promotion of the national content by Uganda Chamber of Mines and Petroleum (UCMP) in conjunction with the regulator; Petroleum Authority of Uganda (PAU).

At least $15 billion is expected to be spent in getting Uganda’s oil industry to the commercial production stage by 2025.

According to a statement by the UCMP, contracts worth over $600 million out of the $3.9 billion for the Tilenga and Kingfisher projects have already been committed to Ugandan companies.

According to PAU, the significant investment that has now been unlocked into Uganda’s economy includes the implementation of the Tilenga Project in Buliisa and Nwoya districts (approximately US$4 billion); the Kingfisher Project in Hoima and Kikuube Districts (approximately US$1.5 billion); and, the East African Crude Oil Pipeline (EACOP) (approx. US$3.6bn).

This is in addition to what government is investing in the required support infrastructure, including Hoima International Airport (over US$500m) and 700 kilometres of oil roads (over US$500m) and 700 kilometres of oil roads (approximately US$900m).

By the end of the construction phase, Uganda’s Gross Domestic Product (GDP) will be significantly boosted through sectoral linkages approximately USD 9 Billion. In the Upstream Sector, opportunities will manifest in the form of activities like; Exploration-survey such as geological mapping, rock sampling, rock analysis seismic shooting), Exploration – Drilling, Development, Production.

In the downstream sector, activities include refining, storage and distribution, marketing and retail. While in the midstream sector, activities like supply and trading, shipping and transportation, import/export facilities will reign supreme.But where great opportunities lay, an even higher proportion of risks abound.

While you prepare your business to leverage the opportunities presented by the Oil & Gas sector, it is important to understand the ‘risks involved’ and ‘how to manage them.’For instance, the Piper Alpha oil rig disaster that occurred on 6th July 1998 in the United Kingdom (UK) is by far the deadliest offshore oil rig accident in history.

An article by The Guardian, reported that 167 of the 228 workers lost their lives. Before the incident, ‘Piper Alpha was once Britain’s biggest single oil and gas producing platform, delivering more than 300,000 barrels of crude a day – around 10% of the UK’s total oil output. A lack of communication at a shift change meant staff were not aware that they should not use a key piece of pipework which had been sealed with a temporary cover and no safety valve.

Gas leaked out and ignited while firewalls that would have resisted fire on an oil platform failed to cope with the ensuing gas explosion.’ reads an extract of the story. The disaster led to insurance claims of around US$1.4 billion, making it the largest insured man-made catastrophe at the time. Therefore, the oil and gas sector comes with great opportunity for Uganda, however it also comes with risks.

The risks in the oil and gas industry range from property damage to employee health, mechanical failure, or human injuries and environmental damage caused by natural hazards among others. There is need for companies to fully understand the magnitude of risk operating in the Oil and Gas sector brings, and therefore devise insurance structures to protect their investments.

Companies in all tiers of contracting ought to understand the importance of insurance, so that they are able to pinpoint the appropriate insurance cover. Even more important, is the fact that you need to choose the Insurance Company with a reputation and traceable record of success, resilience, and over-arching insurance solutions like UAP Old Mutual.

UAP Old Mutual already has a track record in Nigeria, one of Africa’s biggest Oil and Gas economies, representing a host of companies plying the oil and gas trade. UAP Old Mutual is a subsidiary of Old Mutual Limited, based in South Africa, which has been in operation for over 176 years and is in 13 countries.

Some of the critical insurance policies for the oil and gas sector is Group Personal Accident (GPA), machinery breakdown insurance, and all risks insurance. The Oil and Gas Sector is a high-risk environment, especially for workers who operate machinery and those who get involved in the heavy-duty processes. It is important to protect employees on and off the job, GPA is a substantive solution that covers employees against accidental loss of life or disability arising out of an accident while on duty or pleasure on a 24-hour basis.

Additionally, the Oil and Gas sector is punctuated by mechanized production processes. This calls for a policy like the Machinery break Down Insurance that broadly covers loss due to all kinds of accidental, electrical, and mechanical breakdowns because of internal and external causes.

Furthermore, companies need to have insurance that is comprehensive such as all risks insurance that covers accidental physical loss or damage to specified items as a result of any cause which is not specifically excluded from the policy.

The policy safeguards against losses caused by: Fire and Theft, Explosions, Natural calamities like floods, storms, earthquake, landslides, rockslides, land subsidence, Riot and strikes, malicious damage.The above are only, but a snippet of the insurance policies you could take up to protect your investments, employees, partners, and stake holders, as you prepare for the Oil and Gas sector opportunities.

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