US Gulf drillers forgo insurance citing high premiums

US Gulf drillers forgo insurance citing high premiums by Herman Wang, Edited by Jason Lindquist, September 4, 2012, Platts
Added James West, an analyst with Barclays: “Insurance has become somewhat cost-prohibitive. Several have decided to self-insure, and you’ve also had companies eating the extra costs, which drives the cost of E&P up.” … Typical insurance for oil drillers falls into two major categories: physical damage coverage and production-interruption coverage. Owners of oil rigs and platforms will buy insurance to cover physical damage to their properties, such as when a storm causes a pipeline to become dislodged. In many cases, this insurance will include “control of well” coverage, which is triggered if the well blows out.

All of this is separate from liability insurance, which covers environmental damages stemming from an oil spill. This issue came to a head in 2010, when BP’s deepwater Macondo well blew out on the floor of the Gulf of Mexico and spewed nearly 5 million barrels of crude into the water over the course of 87 days. The Oil Pollution Act of 1990, which Congress passed in the wake of the Exxon Valdez oil spill in Alaska, capped a company’s liability for an offshore spill at $75 million. But when BP’s Macondo well blew out two years ago, and a live video feed showed oil surging into the waters of the Gulf, many lawmakers and environmental activists complained that the $75 million cap was too low. The then-Democratic-controlled House passed a bill that summer that eliminated the liability cap, but Republicans and some oil-state lawmakers managed to kill the measure in the Senate. At the time, opponents of the legislation argued that eliminating the liability cap would cause insurance premiums to skyrocket, hurting small and independent producers.

“While based on the company’s risk analysis, it believes that it is properly insured, no assurance can be given that the company will be able to maintain insurance in the future at rates that it considers reasonable,” it said. “In such circumstances, the company may elect to self-insure or maintain only catastrophic coverage for certain risks in the future.”

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