Gulf Oil Damage Could Hit $65 Billion From A Cat. 5 Storm

If a Category 5 hurricane with winds exceeding 155 miles per hour strikes the Gulf of Mexico area where U.S. offshore oil rigs are located, the damage may exceed $65 billion, a catastrophe modeling firm announced today.

The estimate was generated by Oakland, Calif.-based Eqecat's new Offshore Energy model, which the firm said was designed specifically to project risks to the area.

"Property damage alone could exceed $35 billion, and losses due to business interruption and reduction in production capacity could add another $30 billion to the loss," said Eqecat's president, Richard Clinton, in a statement.

"Industry insured losses are more difficult to estimate due to the changes in allocated insurance capacity, policy terms and limits following the large losses from 2004-to-2005 hurricanes, but could certainly be in the $15 billion range," Mr. Clinton continued.

"Both the energy industry and the U.S. economy face substantial risks due to Gulf of Mexico hurricanes. The Eqecat Offshore Energy catastrophe model can help exposed parties to better understand and manage that risk," explained Mr. Clinton.

Eqecat Chief Technical Officer Mahmoud Khater said the firm's newly developed modeling capabilities enable more comprehensive loss estimates for the offshore assets than those previously available.

"The model takes into account waves and current, wind, tidal surge and mudslides to estimate platform and pipeline damage," according to Mr. Khater.

The vulnerabilities of the different assets were developed by ABS Consulting engineers, leveraging their lengthy experience in the risk assessment of offshore platforms worldwide, Mr. Khater noted.

"The damage functions were validated using extensive damage and claims data from hurricanes Ivan, Katrina and Rita," he added.

Eqecat noted that Hurricane Camille had tracked through the heart of the Gulf. That 1969 storm had top winds in excess of 200 mph and a 25-foot-high storm surge. When it hit the Mississippi coastline, it left damage in its wake that has been compared to the after-effects of an atomic bomb.

Mr. Khater said further that perhaps the most innovative aspect of the Eqecat model is the ability to quantify the risk of disruption of product delivery to onshore facilities due to pipeline damage.

"This assessment is possible through use of a network analysis that considers pipeline connectivity, redundancy and the impact of wave scouring and mudslides to determine residual pipeline capacity after a storm," he explained.

The program, he added, estimates the initial loss of oil and gas product delivery capacity, and also takes into account the time necessary to restore full delivery capability.

Information about Eqecat risk models is online at www.Eqecat.com.