U.S. oil explorers are talking about forming a new insurancefund that would cover the costs of any future oil spill, to avoid ascenario where smaller companies are unable to drill offshore, asenior industry executive said on Thursday.

BP's oil spill is expected to rack up an over $30 billion billfor shutting the leak, cleaning up the oil and compensating thoseaffected.

This has prompted concerns about what would have happened if acompany without BP's massive resources had been operating theblown-out well.

Jim Farnsworth, Chief Executive of Cobalt International, a smallexplorer focused on the deepwater of the Gulf of Mexico, said hiscompany was in talks on a solution to avert such fears.

"It is likely and probably desirable for a combination of us tocome together and insure against these types of accidents," he toldthe Finding Petroleum conference in London.

"Cobalt is actively in discussions along those lines," headded.

Some analysts have predicted that the oil spill could cause ashakeout with smaller companies being forced to sell up because newregulations force them to seek insurance cover which may be eitherunobtainable or unaffordable.

In the wake of Exxon's Valdez oil spill, companies formed a $1billion fund to pay for future oil spills. Farnsworth, a former BPexecutive, said he expected the new fund to be bigger.

Cobalt's market capitalization has dropped by $1.5 billion, or30 percent, since the oil spill began, Farnsworth said.

The CEO added that he expected it would take a long time fordrilling to resume in the Gulf of Mexico even if a drillingmoratorium, installed in the wake of the oil spill, is lifted inNovember, as expected.

"The real moratorium ends when they start issuing permits againand that could take a long time," he said.

Some analysts predict permitting may remain paralyzed until late2011.