U.S. Oil Companies Plan New Insurance Fund to Cover Future Oil Spills

Posted in Alabama Maritime News,BP British Petroleum,Deepwater Horizon,Environment,Florida Maritime News,Gulf Coast,Louisiana Maritime News,Mississippi Maritime News,Texas Maritime News,World Maritime News on October 11, 2010

BP’s cost of the massive Gulf oil spill is expected to reach over $30 billion in clean-up and compensation which has raised U.S. oil companies concerns about what would happen if a company without BP’s massive resources had been operating the blown-out well.

Drill ships and response vessels work in the Gulf of Mexico off the Louisiana coast line while attempting to drill relief wells at the Gulf oil spill wellhead. Sean Gardner/Reuters

In order to avoid a scenario where smaller companies are unable to drill offshore, U.S. oil explorers are talking about forming a new insurance fund that would cover the costs of any future oil spill, a senior industry executive said last Thursday.

In an article from Reuters, they say the following:

Jim Farnsworth, Chief Executive of Cobalt International, a small explorer focused on the deepwater of the Gulf of Mexico, said his company was in talks on a solution to avert such fears.

“It is likely and probably desirable for a combination of us to come together and insure against these types of accidents,” he told the Finding Petroleum conference in London.

“Cobalt is actively in discussions along those lines,” he added.

Some analysts have predicted that the oil spill could cause a shakeout with smaller companies being forced to sell up because new regulations force them to seek insurance cover which may be either unobtainable or unaffordable.

In the wake of Exxon’s Valdez oil spill, companies formed a $1 billion fund to pay for future oil spills. Farnsworth, a former BP executive, said he expected the new fund to be bigger.

Cobalt’s market capitalization has dropped by $1.5 billion, or 30 percent, since the oil spill began, Farnsworth said.

The CEO added that he expected it would take a long time for drilling to resume in the Gulf of Mexico even if a drilling moratorium, installed in the wake of the oil spill, is lifted in November, as expected.

“The real moratorium ends when they start issuing permits again and that could take a long time,” he said.

Some analysts predict permitting may remain paralyzed until late 2011.