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provides aerial surveillance and chemical dispersant services offshore Angola utilizing aircraft based in Ghana, and (iii) Oil Spill
Response Limited, a U.K.-based company which is wholly owned by exploration and production companies and provides us access to
personnel and equipment for oil spill events. We have also developed an Oil Spill Response Plan to address any potential spill, and we
have access to equipment which is pre-staged in Angola, including containment boom, skimming systems, chemical dispersant
systems, and temporary oil storage systems.
Furthermore, we also have contracts in place with Witt-O’Brien’s, The Response Group and J. Connor Consulting for the
provision of additional emergency response management services to help us address an incident in either the U.S. Gulf of Mexico or
West Africa.
We are also members of the Oil Spill Response, Ltd. Global Dispersant Stockpile. This membership provides us access to a
supply of over 1 million gallons of dispersant for use in a subsea well control event. This stockpile is stored in six locations around the
world in portable containers ready for air freight transport.
In considering the information above, specific reference should be made to the subsection of this Annual Report on Form 10-K
titled “Risk Factors—Risks Relating to Our Business—We are subject to drilling and other operational hazards.”
INSURANCE COVERAGE
For our U.S. Gulf of Mexico operations, we purchase (i) operator’s extra expense insurance with limits per well of $650 million,
which covers costs to regain control of a well, to re-drill the well and for pollution clean-up expenses associated with a loss of well
control incident, (ii) third-party liability insurance with limits of $450 million including coverage for third party bodily injury or death,
property damage and clean-up of pollution on a sudden and accidental basis, (iii) an insurance policy with limits of $75 million for
pollution damages as defined under the Oil Pollution Act of 1990 (“OPA”), and (iv) property insurance for our interest in the
Anadarko-operated Heidelberg field with limits of full replacement cost value, excluding engineering. In addition, we have identified
certain of our unencumbered assets in the U.S. Gulf of Mexico to demonstrate $75 million of Oil Spill Financial Responsibility
(“OSFR”) through self-insurance to the Bureau of Ocean Energy Management (“BOEM”) as permitted under the OPA. Towards the
end of 2013, we also purchased insurance coverage for our working interest related to construction of the Anadarko operated
Heidelberg field development.
For our West Africa operations, we purchase operator’s extra expense insurance with limits per well of three times the amount
of our nominal dry-hole authorization-for-expenditure for each well or approximately $200 to $300 million. In addition, we also
purchase $50 million of third-party liability insurance. Pursuant to the Purchase and Sale Agreement governing the Angola
Transaction, we are required to provide certain transition services to Sonangol, which may include continuing to support operations on
Blocks 20 and 21 on a no-profit no-loss basis until Sonangol nominates a new operator(s) of such blocks. During this transition
period, if any, we will have third party liability insurance available with limits of $150 million to cover those transition services.
In general, our current insurance policies cover physical damage to our oil and gas assets. The coverage is designed to repair or
replace assets damaged by insurable events. Certain of our stated insurance limits scale down to our working interest in the prospect
being drilled, including certain operator’s extra expense and third-party liability coverage. All insurance recovery is subject to various
deductibles or retentions as well as specific terms, conditions and exclusions associated with each individual policy. We believe that
our coverage limits are sufficient and are consistent with what is held by our peers operating in the deepwater U.S. Gulf of Mexico
and West Africa. However, there is no assurance that such coverage will adequately protect us against liability and loss from all
potential consequences and damages associated with losses, should they occur.
The continuation of the recent severe declines in oil
and gas prices has had a negative impact on the foreign currency exchange market for the Angola Kwanza, which in turn has made it
more difficult for our insurance provider in Angola to obtain foreign currency in an amount sufficient to procure adequate re-
insurance. The inability of our insurance provider to obtain adequate re-insurance may jeopardize our insurance coverage or
otherwise impair its ability to perform its obligations under our insurance policies and agreements.
We also purchase director and officer liability insurance. Recoveries under such insurance policies are subject to various
deductibles or retentions as well as specific terms, conditions and exclusions. Certain of our insurance providers are disputing
coverage for certain expenses and potential liabilities, including with respect to, our current shareholder litigation matters. We are
enforcing our rights to coverage pursuant to our insurance agreements with these insurance providers and believe such expenses and
potential liabilities are covered by such insurance, within certain thresholds.
In considering the information above, specific reference should be made to the subsection of this Annual Report on Form 10-K
titled “Risk Factors—Risks Relating to Our Business—We may incur substantial losses and become subject to liability claims for
which we may not have adequate insurance coverage” and “Risk Factors—Risks Relating to Our Business—We are subject to drilling
and other operational hazards.”
