RMS: BP Oil Well Site Has 40% Chance Of Being Hit by a Storm

One catastrophe risk management firm said there is more than a 40 percent chance that by the end of August, at least a tropical storm will pass over the spot where the Deepwater Horizon oil rig operated by British Petroleum once drilled into the Gulf of Mexico floor.

In a recent report, Risk Management Solutions (RMS) analysts also concluded there is a 15 percent chance that by the end of July, a tropical storm or hurricane will pass within 100 miles of the Macondo oil well BP was using before an explosion in April sunk the rig and killed 11 workers. The well continues to spew oil into Gulf.

There is a 13 percent chance that a hurricane will pass over the oil slick now floating in the Gulf of Mexico, and a 7 percent chance of it being an intense hurricane, defined as Category 3 or above, RMS said.

The disaster at the Macondo field will become a "de facto probable maximum loss," meaning the oil spill will have a "long-lasting impact on offshore energy insurance availability, rates and coverages," RMS said.

Contract terms will likely be revised, rates are reportedly already higher, and the event has been at the forefront of the political agenda, RMS said.

"The more punitive the situation is made, the more difficult it will be to conduct offshore deep drilling in the future," said Robert Muir Wood, chief research officer at RMS.

In forcing BP to set up a $20 billion fund to pay claims and requiring BP to compensate laid-off oil workers, the federal government is "pressing extralegal remedies that will raise the assessed political risk around future natural and manmade U.S. catastrophes," the report said.

Much depends on the outcome of litigation between BP and other partners in the oil drilling operation.

BP, which is self-insured by a captive insurer it formed, had a 65 percent stake in the Macondo field. The captive, Jupiter Insurance Ltd., has about $6 billion in capital with no reinsurance.

Estimated insured losses related to the event are between $1 billion and $3.5 billion, according to the Insurance Information Institute (I.I.I.). Companies with exposure to the oil rig are insured for losses of about $1.4 billion, the institute has reported.

In addition to the possibilities of rate increases and more regulatory oversight, I.I.I. President Robert P. Hartwig recently told Congress a hike in damage limits could stop drilling in U.S. waters. Lawmakers have proposed an increase in the limits for environmental liability from an oil spill from the current $75 million up to $10 billion. Mr. Hartwig said the amount is beyond the capacity of the industry to handle.