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Shell self-insurance of Arctic drilling risk

COMMENT BY A FORMER SHELL EMPLOYEE

I just read your blog about Shell not being able to obtain disaster insurance for its operations in the Arctic. I interpret this to mean that the insurance underwriters, who are pros at this sort of thing, find the probability of an ‘accident’ on the part of Shell during drilling operations to be so high that they are unwilling to risk their own financial well being.

This is essentially a vote of ‘no confidence’ on the part of the insurance industry in Shell’s contingency plans, and Shell’s engineering and management capabilities, i.e., the competence of Shell staff, technical as well as administrative. The insurance industry simply finds that Shell is not up to the task at hand and the risk of a major accident is too great.

The folks at DoI real should wake-up and take this under consideration when deciding whether or not to issue drilling permits. Congress and the Courts should take notice as well.

So, the question at hand is: Who is going to insure Shell? Shell itself? Really. Did the shareholders approve this plan and consent to it? After all, it is their investment that is now at risk.

Any ‘accident’ of significance could very well bankrupt the company. A significant accident in the Arctic could cost Shell and its partners far more that the Gulf of Mexico incident cost BP. And that incident nearly took down BP. Who would take over a major clean-up operation if Shell were to file for bankruptcy protection? The American taxpayer? Lord knows the general pubic is unaware of such a possibility.

Clearly, any drilling accident by Shell in the Arctic will be a disaster, not only environmentally, and financially for Shell, it would be a political disaster for the entire oil industry in the US.

COMMENT BY JOHN DONOVAN

Shell definitely stated at the AGM that it is self-insuring the risks involving in Arctic drilling. That implies that no independent experts have been involved in assessing the risk, which could, as is stated above, potentially bankrupt even a company as massive as Royal Dutch Shell Plc. What I am less sure about is whether Shell tried without success to obtain contingency insurance from specialist underwriters e.g. Loyd’s of London. Hence the email I sent yesterday to RDS Plc Company Secretary Mr Michiel Brandjes. There has been no reply. I have serious doubts that the relevant risks are insurable.  I understand that Shell self-insurance is limited to up to $1.15 billion “per event” – a fraction of the potential liability bearing in mind the billions of dollars in claims BP has had to fund in relation to the Deepwater Horizon disaster.

BP oil spill costs to hit $40bn

Wikipedia article “Self insurance

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