Oil and Gas

History

Deepwater Horizon – 2010

On 20 April 2010 an explosion on Deepwater Horizon, an oil rig owned by an offshore-oil-drilling company Transocean and leased to BP, located in the Gulf of Mexico approximately 41 miles (66km) off the coast of Louisiana, created the biggest accidental marine spill in the history of the petroleum industry, also known as the Gulf of Mexico oil spill.

A surge of natural gas blasted through a flawed concrete core, recently installed to cap off a dormant well which extended approximately 18,000 feet (5,486 metres) into the rock. Once released by the fracture of the core, the gas shot up through the riser platform of the rig, where it ignited on the platform, resulting in 11 fatalities and 17 injured workers. Two days after the explosion, the rig capsized and sank, the damaged riser ruptured and began to belch oil into the ocean.

The spill lasted 87 days, releasing of 3.19m barrels of oil (roughly 134m gallons) into the gulf of Mexico. The resulting spill caused significant economic hardship for people living on the Gulf Coast and extensive environmental damage that still impacts the region today.

Although petroleum-giant BP was found responsible for the oil spill, the insurance industry felt its impact. Lloyd’s paid out over $600m in claims towards the disaster, BP’s total costs reached $40bn plus.

The spill and how it was handled had a lasting effect on the way environmental accidents are handled, with many regulators stepping up the severity of fines and punishments for the polluting companies at fault. Since that time Lloyd’s has seen many more requests for environmental liability cover, as general awareness of environmental risks, for companies of all sizes, increased. Many more products have been developed, to cover pollution events, including clear-up costs, environmental/natural resource damage, third party liability and emergency costs.

The Piper Alpha explosion – 1988

Piper Alpha, a North Sea oil production platform with 226 men on board, exploded in a ball of flames caused by a gas leak on 6 July 1988. Within two hours, the rig had collapsed from its position 300ft above the sea, and become a flaming ball of twisted metal. At its height, the fire could be seen 70 miles away; nearer to the disaster the heat was so intense that a helicopter could only circle at a perimeter of a mile and a fishing trawler which tried to approach to save survivors found paint on its hull blistering and its handrails beginning to smoke.

Only 59 survived, most having jumped into a sea aflame with burning oil. Two crewmen of a rescue vessel also perished.

At the time of the disaster, the platform had been in use for 12 years and was the world’s single largest oil producer, accounting for around 10 per cent of North Sea oil and gas production. Piper Alpha was the worst offshore oil disaster in terms of lives lost and industry impact.

Dominick Hoare, joint active underwriter at Munich Re Underwriting, recalled the immediate aftermath of the tragedy; ‘Lloyd’s was in a state of shock when news of the disaster came out,’ he said. ‘There was a very emotional reaction to the number of fatalities and injuries. After that initial emotional response, the Room had to come to terms with the magnitude of the loss as it dawned on us what a truly catastrophic event had happened.’

Lloyd’s initially struggled to quantify its exposure. Said Hoare: ‘Piper Alpha revealed just how deficient some exposure monitoring systems were then.’ He added, ‘Life has changed dramatically since.’

Piper Alpha was a turning point for Lloyd’s and the insurance industry as a whole. At a $1.4bn insurance loss, at the time it was the industry’s costliest man-made catastrophe.

Today, Lloyd’s risk systems are acutely fine-tuned and precise. Added to which, since the Realistic Disaster Scenario (RDS) framework was introduced in 1995, syndicates have had to demonstrate an accurate handle on risk accumulations for major offshore complexes.

As the memory of the Piper Alpha disaster recedes, it’s reassuring to know that the lessons learned, certainly from an exposure management perspective, are not forgotten.