INSURANCE AND THE EXPLORER

Abstract

The physical risks and liabilities associated with oil exploration, particularly in off shore areas, are potentially disastrous to the smaller exploration company. To the larger organization with ample funds and massive capital support the possibility of being financially crippled by unexpected occurrences is more remote. Nevertheless, sound business principles dictate that in both cases, the company protects itself, its shareholders and its employees from unncessary loss. This is effected through a carefully planned insurance programme which takes into account risk management and the economics of arranging insurance cover.

Some risks are considered to be normal business hazards which should not or cannot be insured. Others, which may be insured, are divided into three general classes: protection of assets; insurance of liabilities under contract, at common law and under statute; insurance against extraordinary expenses for regaining control of wells following blow out. In each class the basic forms of insurance are reviewed, the cover explained and the principal exclusions in standard policies highlighted.

One of the features of modern business is the practice of, and problems created by, the transfer of responsibilities to or from other parties by contract. The effect of such transfers by hold -harmless agreements and the like are far reaching and the insurance implications should be studied and assessed in each instance.

The necessary insurance may be arranged in Australia or overseas - with insurance companies, or with Lloyds Underwriters in London. Where and with whom it is placed depends on the scope of cover required and the establishment of a competitive market. All of the negotiations with exploration companies and insurers will, in the ordinary course of events, be handled by an insurance broker who is professionally responsible for the economic, efficient and adequate protection of his client - the explorer.