Amber Alert: Some Nonop GOM WI-Owners Lack Sufficient Risk Protection; Wind Cover May Be Sold Out By June 1

Sell the asset—and problem? Not in this A&D marketplace.

Owners of nonoperated working interests in Gulf of Mexico assets may be without any coverage for the upcoming hurricane season, which begins June 1, says John Ludwig, chief executive officer, Fort Worth-based EnRisk energy insurance risk-mitigation and management firm.

Meanwhile, acquiring the coverage can take 60 to 90 days if starting now, wind coverage is selling out, and merely dumping the Gulf assets before the next hurricane would require overcoming an anemic A&D marketplace—and with a hot-potato offering! (Listen to the interview.)

“What we’re finding today is a disturbing trend,” Ludwig says. “Most larger operators in the Gulf of Mexico who have been obligated by joint operating agreements (JOAs) in the past number of years (to hold coverage) have recently, as a result of the hurricanes of the last three seasons, now dropping any coverage that they might (normally) be extending out to the nonoperated-working-interest-owners.

“Even though the JOA is requiring (the operator to) provide coverage, they are walking away from those JOAs, as a result of the increasing cost associated with it, and the fact that there is less and less capacity for wind cover in the Gulf of Mexico.”

He suggests a nonoperated-working-interest-owner find out what’s in the JOA, what coverage exists, what properties are exposed, and enlist a risk-mitigation firm, such as EnRisk, to walk through the exposure. Sorting it out and sealing the leaks may take at least 60 and up to 90 days. The market today is requiring a tremendous amount of information and proof.

“It’s going to be no less than 60 days by the amount of information that is now being required of the market,” Ludwig says. Meanwhile, hurricane season begins June 1. And, the market may be out of wind cover before June 1, so Ludwig recommends taking care of the matter sooner than later.

The option of simply selling the nonoperated working interest is not a strong one right now. “Because the credit markets are so tight, I don’t see that anybody is looking to increase their amount of exposure in the Gulf of Mexico…Plus, the fact is, with (oil and gas) prices where they are today, no one wants to sell those interests under this current (price) multiple situation.”

For more information, contact Ludwig at 817-877-1884. More information on the firm is at www.enriskservices.com.