Abstract
Two major exploration and development scenarios for evaluation of insurance premium versus insurance coverage are considered here. The first situation considers insurance against catastrophic loss due to a major adverse event while drilling, irrespective of whether commercially attractive hydrocarbon reserves are found or not; the second situation considers insurance against an hydrocarbon spill after hydrocarbons are found. Numerical examples indicate how the insurance premium to be paid is related to the insurance cover provided for a fixed corporate requirement on the probability to make a profit.
The examples illustrate how considerations of mean expected value, and variance around the mean, can both be incorporated in a quantitative measure of worth of insurance cover versus premium paid.