Of the US$80 million insurance claim payout, US$72 million was to compensate for the interruption in oil and gas production resulting from the defects in the turret bearing while the US$8 million is to cover for the mechanical and technical challenges arising from the development.
In an operational update to investors and the media, the company said the US$72 million payout was the net equivalent of 4,600 barrels of oil per day (bopd) given to Tullow Ghana by the insurers.
The claim payment is under a joint venture hull and machinery insurance policy that Tullow, as the operator, took on behalf of the Jubilee Field Joint Venture to cover eventualities at the field and on the floating, production, storage and offloading (FPSO) Kwame Nkrumah.
Although the claim payout is not enough to cancel out the losses suffered from the defect, Ms Efua Twumasi of Tullow Ghana’s Communications Directorate said it ensured that the company’s losses were mitigated.
“It was through no fault of ours; not ours, not Ghana’s and not a failing thing that the issue with the turret bearing happened and so the payout is trying to cover what has been lost through production, if everything were working well,” she told the GRAPHIC BUSINESS in Accra.
Cost of fixing
Early last year, oil production at the Jubilee Field, off the coast of the Western Region, was interrupted following a defect that was detected on the turret bearing, a small tower on the FPSO.
Before and after the detection of the challenge, oil and gas production was slowed as engineers scrambled to first detect and later fix the issue.
This led to a downward revision in oil and gas production by both Tullow and the government to about half of the year’s targets and that ultimately affected revenue targets from the sector.
Beyond the drop in production and revenues, Tullow, in June last year, said partners of the field needed to spend US$345 million to fix the challenge.
In August, it said in another operational update that estimates showed the fixing would cost between US$100 million and US$150 million.
Sharing of claim
On whether or not the partners qualified to benefit from the US$80 million payout, Ms Twumasi said it was only in respect of Tullow’s insurance.
She explained that just like Tullow, some of the partners also had separate insurance policies that covered only their interests in the field.
Although the details of the insurance policy are not known, her explanation on the matter is at variance with the rules governing the JVP, which includes Ghana’s national oil company, GNPC.
Just like the revenues, the JVP allows the partners to share expenses incurred to keep production running on the field base on their respective stakes.
Going forward, Tullow said it expected production to be halted for 12 weeks this year, as remediation works on the turret bearing continue in the first half.
“Tullow expects 2017 production from the Jubilee field to average 68,500 bopd (net: 24,300 bopd), assuming 12 weeks of shutdown associated with the next phase of remediation works.”
“Tullow’s Corporate Business Interruption insurance cover is expected to continue to payout in respect of lost production associated with the turret remediation works, and the equivalent average annualised net production is around 12,000 bopd, increasing Tullow’s effective net production to around 36,300 bopd in 2017,” the company added.