API: $10 billion liability limit would push independents from gulf

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, May 14 -- Increasing the federal oil spill trust fund’s liability limit from $75 million to $10 billion would force many independent producers out of the Gulf of Mexico, the American Petroleum Institute warned on May 13.

Precipitous changes could make oil and gas operations in the gulf uninsurable to all but the largest companies, “forcing midsize and smaller firms who cannot self-insure from the market,” API Pres. Jack N. Gerard said.

“Insurance industry equity is insufficient to provide such coverage,” Gerard said, adding, “but even if insurance were available, the hypothetical premium increases could raise the total unit costs of exploration and production in the Gulf of Mexico by 25%, making many fields uneconomical to produce.”

Members of Congress and the Obama administration proposed federal offshore spill liability increases in response to the Apr. 20 Deepwater Horizon rig accident and the subsequent crude oil spill into the gulf.

US Sen. Robert Menendez (D-NJ) introduced a bill on May 3, with Sens. Frank R. Lautenberg (D-NJ) and Bill Nelson (D-Fla.) as cosponsors, to raise the liability limit for a company deemed responsible for an offshore spill to $10 billion. US Rep. Rush Holt (D-NJ), with seven House cosponsors, introduced a companion bill on May 5. The White House also included such a provision in oil spill legislation it sent to Congress on May 13.

“Existing law holds companies accountable for all the costs associated with cleaning up oil spills and up to $75 million in economic damages, though even that liability limit does not apply in instances of gross negligence, willful misconduct, or violation of applicable federal regulations,” said Gerard. Injured parties can also pursue damages in state courts, which are not limited by the federal liability cap, he added.

“Any necessary changes in the trust fund should be determined after there is a clear sense of the resource needs arising from this incident and should be thoughtfully considered with an opportunity for all stakeholders to be heard,” Gerard maintained.

Contact Nick Snow at nicks@pennwell.com.

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