Annual report pursuant to Section 13 and 15(d)

Hurricane Remediation and Insurance Claims

Hurricane Remediation and Insurance Claims
12 Months Ended
Dec. 31, 2012
Hurricane Remediation and Insurance Claims

3. Hurricane Remediation and Insurance Claims

During the third quarter of 2008, Hurricane Ike and, to a much lesser extent, Hurricane Gustav caused property damage and disruptions to our exploration and production activities. Our insurance policies in effect on the occurrence dates of Hurricanes Ike and Gustav had a retention requirement of $10.0 million per occurrence to be satisfied by us before we could be indemnified for losses. In the fourth quarter of 2008, we satisfied our $10.0 million retention requirement for Hurricane Ike in connection with two platforms that were toppled and were deemed total losses. Our insurance coverage policy limits at the time of Hurricane Ike were $150.0 million for property damage due to named windstorms (excluding certain damage incurred at our facilities of marginal significance) and $250.0 million for, among other things, removal of wreckage if mandated by any governmental authority. The damage we incurred as a result of Hurricane Gustav was below our retention amount. Below is a summary of remediation costs and amounts approved for payments related to Hurricanes Ike and Gustav that were included in lease operating expense (in thousands), with bracketed amounts representing credits to expense:


     Year Ended December 31,  
     2012     2011     2010  

Incurred and reversals of accruals

   $ 1,022      $ 132      $ (1,380

Plus amounts returned to insurers


Less amounts approved for payment by insurers

     (146     (1,334     (10,350










Included in lease operating expenses

   $ 876      $ 39      $ (11,730











We recognize insurance receivables with respect to capital, repair and plugging and abandonment costs as a result of hurricane damage when we deem those to be probable of collection, which arises when our insurance underwriters’ adjuster reviews and approves such costs for payment by the underwriters. Claims that have been processed in this manner have customarily been paid on a timely basis. Incurred expenses included revisions of previous estimates. Amounts in 2011 include return of reimbursements that were previously received by us related to prepayments based on preliminary estimates. In 2010, incurred expenses were a credit due to revisions of previous estimates. See Note 5 for additional information about the impact of hurricane related items on our asset retirement obligations. See Note 18 for information regarding legal actions taken by certain insurers and the Company.

Below is a reconciliation of our insurance receivables (in thousands):


Balance, December 31, 2011

   $ 715   

Costs approved under our insurance policies, net


Payments received, net





Balance, December 31, 2012





At December 31, 2011, substantially all of the amounts in insurance receivables relate to the plugging and abandonment of wells and dismantlement of facilities damaged by Hurricane Ike. Insurance receivables are included in Joint interest and other receivables on the Consolidated Balance Sheets.

From the third quarter of 2008 through December 31, 2012, we have received $142.2 million from our insurance carrier related to Hurricane Ike. To the extent that additional remediation cost or plug and abandonment costs are incurred that are not covered by insurance, we expect that our available cash and cash equivalents, cash flow from operations and the availability under our revolving bank credit facility will be sufficient to meet necessary expenditures that may exceed our insurance coverage for damages incurred as a result of Hurricane Ike.