Insurance News

Michigan oil spill costs may hit $400M

Posted on: August 20, 2010

CALGARY, Alberta (Reuters)—Enbridge Inc.’s struggles mounted Tuesday as its U.S. affiliate said the oil spill that fouled a Michigan river system could cost as much as $400 million and regulators slapped it with a $2.4 million fine for a deadly 2007 explosion in Minnesota.

Enbridge Energy Partners, the Houston-based operator of the U.S. part of the company’s massive pipeline system, said total charges for the July 26 pipeline rupture near Marshall, Mich., could be $300 million to $400 million, excluding any fines or penalties.

The cost would include charges for emergency response, environmental remediation, pipeline repairs, claims by third parties and lost revenue, Enbridge said in a filing with the U.S. Securities and Exchange Commission.

After insurance recoveries, the charges could be $35 million to $45 million, said Enbridge, whose ruptured pipeline spilled 19,500 barrels of heavy Canadian crude into the Kalamazoo River system.

The charges are not expected to impair Enbridge Energy’s ability to pay distributions to its unitholders, it said.

Calgary, Alberta-based Enbridge is working to clean up the spilled oil in an effort involving more than 1,300 people as the outage of the 190,000-barrel-a-day pipeline, called Line 6B, complicates the North American oil and refining markets.

It is awaiting a decision from the U.S. Department of Transportation’s pipeline safety agency on its plan to restart Line 6B. Regulators rejected its last plan on Friday, saying the line required more extensive testing before oil flows could resume.

As the company worked to rebuild its reputation in Michigan, U.S. regulators slapped it with a $2.4 million fine for a November 2007 explosion in Clearbrook, Minn., that killed two workers.

The U.S. DOT said its investigation into the blast found Enbridge failed to maintain and repair its pipeline adequately. It also failed to clear the work area of sources of ignition and did not hire properly trained and qualified workers, the regulator said.

As part of the ruling, the company must revise its maintenance and repair procedures, the agency said.

“This department holds pipeline operators accountable for protecting their own workers as well as the health, welfare and safety of American communities where they operate,” U.S. Transportation Secretary Ray LaHood said in a statement.

Enbridge spokesman Larry Springer said his company had no qualms with the findings of the investigation and the corrective actions being demanded, but said the amount of the fine was out of line with regulations.

“We agree, not so much with the penalty, but really with the conclusions they reached—they really match our conclusions,” Mr. Springer said.

The DOT said it also issued two other orders against Enbridge, totaling $57,800, for violations at facilities in Houma, La., in 2006, and Cushing, Okla., in 2009.

The 2007 blast occurred when the pipeline, the 450,000-barrel-a-day Line 3 to the U.S. Midwest from Alberta, was at the end of a repair. On the day after the explosion oil prices shot up as much as $4 a barrel.

The current pipeline outage has not had such a pronounced impact on the overall oil market, but it has complicated the affairs of both oil shippers and refiners.

Enbridge’s Line 6B serves refineries in Ohio, Michigan, Pennsylvania and southern Ontario. Three plants in the upper Midwest have been forced to cut back production.

Prices for Canadian heavy crude oil, meanwhile, have dropped with the line out, and another major pipeline in the region is operating under reduced pressure.

Copyright 2010 Reuters Limited.

%d bloggers like this: