An unbiased Texas oil and gasoline producer is hanging again in opposition to a gaggle of insurance coverage corporations, which collectively are searching for $250 million in collateral past what the oil firm has already contracted for bonds backing its manufacturing actions.
The power firm, Houston-based W&T Offshore, is asking a federal decide to declare insurers have colluded to break the corporate by collectively demanding further collateral and premiums.
On the coronary heart of the dispute are guidelines from the federal Bureau of Ocean Vitality Administration (BOEM) which require power producers within the Outer Continental Shelf to offer a bond to pay for effectively, platform, pipeline and services cleanup if the working firm fails to take action.
A number of years in the past, BOEM imposed the concept of requiring small to mid-sized corporations reminiscent of W&T to offer further bonds. In over 70 years of producer operations within the Gulf of Mexico, the federal authorities has by no means been compelled to pay for any abandonment cleanup operations related to effectively, platform facility or pipeline operations.
W&T’s authorized submitting says that armed with that proposal, its insurers (also called surety suppliers), together with Endurance Assurance Corp., which is owned by Japanese insurance coverage holding firm Sompo and others, started demanding further collateral for surety and indemnity agreements W&T already makes use of and for which it has already paid premiums.
In July, one of many surety corporations demanded W&T totally and instantly collateralize their bond by paying an extra $89 million as collateral, then filed swimsuit in November demanding $93.5 million, regardless of W&T by no means having missed a earlier fee. Different W&T surety corporations adopted swimsuit, demanding full and quick collateralization of their bonds.
“These insurance coverage corporations and their unreasonable calls for for elevated collateral pose an existential risk to unbiased operators like W&T,” CEO Tracy W. Krohn mentioned. “We can’t afford to maintain paying for insurance coverage we’ve already paid for in the midst of our operations.
“That is no completely different than your auto insurance coverage service impulsively demanding you set up one hundred pc of your automotive’s money worth along with doubling or tripling your present premium. It’s simply not potential or sensible—nor honest. These unfair practices beg the query: if insurance coverage corporations are requiring full money collateralization of the bonds they challenge, then what’s the objective of unbiased operators paying them tens of millions of {dollars} to challenge the bonds? These unfair insurance coverage practices deprive unbiased operators of the very consideration for which they contracted, thereby making the insurance coverage corporations’ contractual obligations illusory or non-existent,” mentioned Mr. Krohn.
“We hope the courtroom will acknowledge these crippling calls for are improper and malicious and cease these insurance coverage corporations from attempting to arbitrarily extort huge quantities of further premium and collateral from clients like W&T.”
Amongst different issues, W&T’s lawsuit, filed in August and amended at present, accuses 5 insurance coverage corporations of conspiracy, saying the insurers met a number of instances in 2024 and conspired to lift premiums and collateral. The criticism additionally contains allegations of price-fixing, antitrust violations and tortious interference with present contracts, in addition to violations of the Texas Insurance coverage Code and violations of the Texas Free Enterprise and Antitrust Act.
It asks a federal decide in Houston to dam the businesses’ unconscionable and unreasonable calls for for collateral and to award damages to W&T.
W&T says it has legitimate bonds to cowl the potential eventual value of cleansing up its offshore operations if or when the time comes.
A number of states, together with Texas, are difficult the BOEM rule and in a single case they particularly cite W&T for instance of how the rule could possibly be misused to irreparably hurt power producers.
