April 27th, 2010

Update: Explosion and Fire at Offshore Oil Rig, Gulf of Mexico

Posted at 10:26 AM ET

severe-weather-in-us-small1An explosion and large fire on an oil rig in the Gulf of Mexico left 11 workers missing and 17 others injured on April 20. The blaze on the Deepwater Horizon drilling rig, which broke out around 22:00 local time (03:00 UTC on April 21), sent flames and smoke high into the sky about 40 miles off the coast of Louisiana. Seventeen workers were injured, three critically, and the 11 missing men are now feared dead. Reports said the rig, which is owned by Transocean Ltd, was under contract to the oil giant BP at a cost of USD533,000 (EUR395,000) a day and doing exploratory drilling. The rig was listing badly as it was consumed by flames and it eventually sunk on April 22, leaking oil into the Gulf of Mexico. The well is currently leaking oil at a rate of about 1,000 barrels per day. Reports said the rig was built in 2001 in South Korea at a cost of about USD350 million. Transocean said the 400-by-250-foot (120-by-80 meter) rig was located around 42 miles offshore Venice, Louisiana, on Mississippi Canyon block 252.

Transocean has announced that the total insured value of the rig was USD560 million and it has insurance to cover the total loss. According to Best’s Insurance News, Transocean’s annual report said a deductible ranging from USD500,000 to USD1.5 million would apply in the event of a total loss of a drilling unit. Transocean’s filings also indicate a USD10 million deductible on crew injury liability and a USD5 million deductible on third-party non-crew claims, the report says. Transocean also carries USD950 million in third-party liability coverage, the report said. Transocean retains the risk for any liability losses in excess of the USD950 million limit.


Hazard data illustrated in the CAT-i map was taken from i-aXs®, Guy Carpenter’s web-based risk management platform. i-aXs users can view impacted areas on any map as well as see how their portfolios were affected. Please contact your broker or Instrat® representative for assistance or go to www.i-axs.info for further information.

According to sources quoted by Insurance Day, the incident is likely to produce a sizeable loss to the insurance industry, including some losses to Lloyd’s syndicates. Insurance Day added that QBE’s syndicate 1036 is reported to be the rig’s lead insurer. Munich Re and Hanover Re have also said they expect a claim from the explosion and fire, with the latter expecting a claim of more than EUR5 million (USD6.7 million). As the operator of the rig, BP is responsible for the clean-up. BP said it expects its self-insurance and captive insurance to cover costs associated with the clean-up effort. Robotic submersibles are currently being used to try to stop the leak and BP said it has already spent around USD30 million to clean the spill. The oil slick is estimated to have grown to about 600 square miles (1,550 square kilometers). Weather conditions are currently keeping the slick away from the U.S. coastline, but conservation experts say it has the potential to cause environmental damage.

A total of 126 workers were on the rig at the time of the blast, according to officials. Seventy-nine were Transocean workers, six were BP employees and 41 were contracted. Reports said some workers jumped at least 75 feet (23 meters) into the water to escape the fire. The Coast Guard said the 17 taken by air or sea to hospitals suffered burns, broken legs and smoke inhalation. The remaining 98 were later rescued by boat. A BP spokesman said that all six BP workers on board are safe and accounted for. Transocean said there had been no signs of trouble before the explosion and the rig had been drilling at the time but was not in production.

Although the cause of the blast has yet to be determined, Transocean said the explosion appeared to be a blow-out, in which natural gas or oil forces its way up a well pipe. Transocean said a full investigation into the cause of the blast would begin after all the missing had been accounted for. The Coast Guard said it would conduct a joint investigation with the U.S. Interior Department’s Minerals Management Service (MMS) and BP.

According to Transocean, the Deepwater Horizon rig was built in 2001 in South Korea and is designed to operate in water up to 8,000 feet (2,400 meters) deep, drill 5.5 miles (8 kilometers) down and accommodate a crew of 130 workers. It floats on pontoons and is moored to the sea floor by several large anchors. There have been at least three rig fires in the Gulf this year before the Horizon incident and 14 last year, including several that forced crew members to evacuate, according to data from the MMS. The MMS added that there have been 69 offshore deaths, 1,349 injuries and 858 fires and explosions in the Gulf since 2001.

Sources: CNN News, Associated Press, Reuters News, Agence France Presse, BBC News, Dow Jones, British Business Monitor, Wall Street Journal, Platts Commodity News, Insurance Day, Business Insurance, Best’s Insurance News

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