Oil industry not really ready for hurricanes

Sure, the oil drilling and production facilities in the Gulf of Mexico are ready to pack it in and get out of harms way should a hurricane threaten the area. And lenghty shut-ins of production shouldn’t hurt us at the gas pump too much thanks to above normal stockpiles given the recession.

oil_rig_in_the_gulf All clear so far. Chevron’s Genesis platform in the Gulf of Mexico (AP/Mary Altaffer)

But if something is damaged, knocked out of commission, how will that impact a company’s bottom line? It will likely hurt, says this WSJ article, thanks to a thin insurance coverage.

Many energy companies are facing the late-blooming Gulf Coast hurricane season without insurance against storm damage to their offshore platforms, pipelines and drilling rigs.

… small and midsize energy companies, a storm’s impact could be serious, because they would have to pay for repairs out of their own pockets at a time when revenues have been shrinking because of the global slump in oil and natural-gas prices.

“The offshore sector is a lot more exposed than people realize,” said Howard Mills, director of Deloitte LLP’s insurance industry group.

Insurance rates skyrocketed after Hurricanes Katrina and Rita in 2005 and last year’s hit by Ike, rising as much as 60 percent. Insurers have found themselves paying out more than they took in in the last five years, with about $4 billion in premiums from the offshore oil and gas business and $12 billion in claims, said Bertil Olsson, director of insurance broker Marshs U.S. energy practice.
Companies argue they don’t need the coverage as much: they are using tougher mooring systems to keep platforms in place and construction standards have increased over the years. It’s also possible the recent storms knocked out the most vulnerable assets already, those with the greatest risks.