BP’s Silent Partner in Deepwater Horizon Spill – Anadarko

Posted: June 5th, 2010 by: h2

Here’s one I bet you haven’t heard much about. And of course, the problem of increased costs, for insurance, for dealing with expanded and improved and revised drilling regulations that will be required to minimize the risks of another blowout can’t be ignored.

See the update comment under the fold about partner liabilities, also quite informative.

Anadarko owns a 25 percent stake in London-based BP’s Macondo well, where the April 20 rig disaster killed 11 people and set off leaks spewing an estimated 5,000 barrels of oil a day into the sea. Anadarko, based near Houston, had no say in how the well was drilled.

“They were basically the passenger and somebody else was doing the driving, so the car crashed,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. “What we see here is that Anadarko got hurt more than the driver.”

Pound for pound, Anadarko may have to pay more than BP. ING Bank NV estimated that costs of the spill may reach $7.8 billion. Anadarko may have to pay as much as 25 percent of those expenses, which would be almost $2 billion, if ING’s forecast proves accurate. BP, which owns 65 percent of Macondo and is project operator, is 29 times the size of Anadarko by revenue and almost eight times as big based on reserves available for future production.
source: Spill May Hit Anadarko Hardest as BP’s Silent Partner, Bloomberg Businessweek

So here’s another area that deepwater drilling is going to see major ripple affects down the road: the willingness of businesses to invest in drilling ventures. And of course, also the ongoing problem of insurance re-adjustments for deep water drilling. All in all, Deepwater Horizon is looking to be a major game changer in global oil production.

The price to insure offshore rigs will almost certainly rise as the accident’s cost to the insurance industry becomes clearer. Premiums may remain permanently higher if the investigation of the disaster reveals previously unknown dangers, or if the inevitable legal wrangling breaks new ground in assigning blame more broadly than insurers expected.

The loss of the Deepwater Horizon rig itself has cost insurers $560 million, but that expense is just the start. The still-growing spill will likely require insurers to shoulder part of the cost of cleaning up the beaches, compensating coastal business owners and fighting the inevitable wave of litigation.

Two weeks ago, Swiss Re estimated insurers would incur $1.5 billion to $3.5 billion in claims. At the higher end, that would surpass the $2.2 billion to $2.5 billion that is generally believed to represent the annual premiums collected globally from companies involved with pulling oil and gas out of the ground.

And the spill has only grown since then.

“Two billion? Three billion? Nine billion? Nobody knows,” said Kerr. “They can’t get the damn thing stopped.”
Spill May Force Long-term Rise in Insurance Cost

Yes indeed.

The price to insure offshore drilling in the Gulf of Mexico has risen at least 15% since last month’s Deepwater Horizon disaster and may stay permanently higher, as unknowns about the spill cleanup have left insurers feeling in the dark about their risks, industry executives say.

Before the rig sank in 5,000 feet of water and touched off a massive oil spill, the cost of insuring a physical rig itself ranged from $3 million to $9 million a year, said Richard Kerr, chief executive of MarketScout, a Dallas-based electronic insurance exchange. The premium would depend on the deductible and other factors.

Liability coverage, including for a large oil spill, would be priced separately, Mr. Kerr said.

Rates have risen 15% to 25% for rigs operating in shallow water, said Mr. Kerr, whose monthly summary of insurance prices are followed by insurers and their commercial customers. Price increases for operations further out to sea might be as high as 50%, he said.
Insurance Premiums for Offshore Drilling Soar 15%-50%

2 Responses to “BP’s Silent Partner in Deepwater Horizon Spill – Anadarko”

  1. Seeing what this oil is doing to our shores and wildlife is just terrible. The longer this goes on, the less the country will care – just like Katrina. I feel so bad for the people whose entire worlds are turned upside down.

  2. h-1 says:

    Update on Anadarko liability in the BP Gulf Oil Spill. Read the latest Anadarko liability posting for the entire discussion.

    How close is BP coming to the gallows? Keep an eye on Anadarko. They may represent the best “leading indicator” of BP’s future.