Upping the coverage

Moira Baird
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Nalcor beefed up insurance in the wake of Gulf of Mexico oil spill

This April 21, 2010 file photo, the Deepwater Horizon oil rig burns after an explosion in the Gulf of Mexico, off the southeast tip of Louisiana. — Photo by The Associated Press

The impact of the BP oil spill in the U.S. Gulf of Mexico was felt as far away as the provincial energy corporation offices in St. John’s when Nalcor Energy reconsidered its own oil spill insurance coverage last year.

Last summer, the company increased its coverage by 66 per cent to $500 million, the highest level available at the time.

Nalcor’s oil and gas operations were previously insured for up to $300 million during its first year as an oil producer.

The expanded coverage also increased the company’s annual insurance rate by 24 per cent — jumping from $291,000 to $361,000.

“When BP happened, we bumped it to $500 million,” said Dawn Dalley, Nalcor’s communications manager. “This year we’ll assess whether or not we maintain that level, decrease it or increase it.”

Nalcor is in the midst of discussions with its insurance company, AON Corp., for its next round of annual coverage. The current coverage runs until the end of June.


Current coverage

Nalcor’s coverage includes business interruption, third-party liability and control of well expenses, which provides coverage for costs incurred in regaining control of a well after a blowout, injuries and damage to property.

“The current coverage is for everything except for tankers,” said Dalley. “We’re working on the transportation agreements. Once we have those, we’ll go to market for coverage.”

Dalley could not say when those agreements might be concluded.

The company’s portion of spill liabilities off Newfoundland and Labrador would be based on its ownership interest in three offshore oilfields.

Nalcor has equity stakes in Hibernia South (10 per cent), Hebron (4.9 per cent) and three White Rose satellite fields (five per cent). Only one oilfield is currently in production, the first White Rose satellite that pumped first oil in May 2010. Tankers ferrying that crude head directly to markets in Canada or the U.S.

The effects on insurance rates for the oil and gas industry were felt soon after the April 20, 2010 BP well blowout that triggered the world’s worst oil spill. The spill has been estimated at 4.9 million barrels of crude.

Last June, Moody’s Investors Service reported insurance rates for oil rigs operating in deep water increa-sed by 50 per cent during the weeks following the Gulf of Mexico spill.

BP was self-insured

But the long-term impact on rates might not have been as great as anticipated, according to a report by Willis Group Holdings, a global insurance broker.

“Its impact on the energy insurance markets has not been as profound as might be imagined, due to the limited amount of the loss that was actually insured,” states this year’s Willis energy market review.

Like some of the larger oil and gas companies in the world, BP was self-insured — meaning it does not purchase insurance in the market.

A large portion of the losses will fall to a BP subsidiary, according to a 2010 report by the U.S.-based Insurance Information Institute.

BP holds a 65 per cent ownership stake in the blown-out well. Other companies, such as well partners Anadarko Petroleum and Mitsui Oil Exploration and rig owner Transocean, were not self-insured.

So far, BP has said it paid more than $5 billion for environmental restoration alone since the spill.


Organizations: BP, AON Corp., Investors Service Willis Group Holdings Anadarko Petroleum

Geographic location: Gulf of Mexico, White Rose, Newfoundland and Labrador Hibernia South Hebron Canada U.S.

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