No one would argue that the stakes in subsea deepwater drilling are high: Currently, investors are managing up to $2.5 trillion in deepwater wells across the globe. Deepwater oil production capacity (2,000 feet or deeper) has tripled since 2000 to five million barrels a day and has the potential to double again by 2015, according to Cambridge Energy Research Associates. There are now 14,000 deepwater wells worldwide.
After facing significant financial losses from the BP oil spill, more than 50 U.S. and other global investors sent letters to major energy companies (offshore oil and gas producers) demanding disclosure of information regarding their risk oversight measures, which include both spill prevention and response plans such as contingencies in the event of another deepwater well blowout. The letter-sending initiative, headed by Ceres, a Boston-based coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges, also were sent to insurers, requesting them to disclose whether they are considering adjusting their relative exposure to the industry or are changing underwriting rules in the wake of the disaster.
Ceres also directs the Investor Network on Climate Risk, a network of 90 investors with collective assets totaling about $10 trillion.
The letters, sent to CEOs at 27 oil and gas companies, were signed by 58 global investors with collective assets totaling more than $2.5 trillion, including the New York State Comptroller, California State Treasurer, Florida State Board of Administration and the UK-based Local Authority Pension Fund Authority Forum.
Ceres released portions of the letter: "The shareholder harm that has flowed from the BP spill has focused investor attention on governance, compliance and management systems needed to minimize risks associated with deepwater offshore oil and gas development worldwide. The BP Gulf of Mexico disaster has also raised concerns about response plans by companies and the industry for dealing with offshore accidents."
The letters were sent to 27 companies, including the world's three largest deepwater oil producers - Petrobras, ExxonMobil and Royal Dutch Shell. It was not sent to BP or Anadarko Petroleum, which jointly owned the Deepwater Horizon rig that exploded in April, Ceres said.
"The Gulf tragedy provided dramatic evidence that investors and pensioners have high stakes in deepwater oil exploration. In my state alone, the nation's two largest public employee pension funds have seen the value of their BP holdings plummet by $349 million," said California State Treasurer Bill Lockyer, who serves as a trustee on the board of CalPERS and CalSTRS, which have a combined $337 billion in assets. "Our message is simple: investors have a right to full disclosure of the risks associated with oil companies' offshore operations, and the prevention, response and governance measures they have in place to minimize those risks."
"Investors are by definition risk takers, but our risks need to be calculated and measured," said New York State Comptroller Thomas DiNapoli, sole fiduciary of the NYS Common Retirement Fund, said in a statement. "Investors have a right to know that our companies are taking all necessary steps to maximize opportunities without sacrificing safety. We believe improved practices and policies to mitigate risk will ultimately improve the bottom line, which is good for all investors."
A second letter was sent by most of the same investors to 26 insurance companies that provide insurance for offshore drilling activity. The letter asks if insurers are, among other questions: considering adjustments to their overall exposure to offshore oil and gas operations, including possible changes in policy volume; considering changes in their underwriting criteria; supportive of new regulations that would reduce offshore drilling risks.
For many in the insurance industry, it’s a matter of perspective. As Insurance Networking News reported August 4, insured losses will be between $4 billion and $6 billion, a fraction of the total economic loss that is currently estimated to be $35 billion. By comparison (in 2009 dollars), losses from the 9/11 attacks were about $23 billion, and losses from Hurricane Katrina tallied about $71 billion.
And although not impervious to the BP-related losses incurred, many insurers are still reporting profits.
Recently, Swiss Re estimated that total insured losses for all affected parties from the BP rig explosion and spill could top $3.5 billion - a figure that would surpass the $2.2-$2.5 billion in annual insurance premiums worldwide for oil and gas exploration. Yesterday, Swiss Re reported an $812M second-quarter net profit despite the cost of disaster damage from the Gulf of Mexico oil spill.
Insurance companies receiving letters include:
RJ Kiln & Co.
Tokyo Marine Holdings (parent of RJ Kiln)
Travelers Validus Re
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