Several Gulf of Mexico operators may be visiting their insurance brokers in London in the coming months in meetings that will decide whether these producers have to give up in the region. Word on the street is that post-KatRita insurance costs may force several Gulf independents to call it quits. One producer reports that insurance costs alone now represent a third of his lease operating expenses. New premiums are projected to cost four times more for production assets and 400% more for pipelines. Also, underwriters may begin to require separate, large windstorm deductibles, and cap this liability. "All in all, we expect our premium to increase by 110% and we might be one of the lucky ones," another Gulf operator says. At press time, some 50% of oil production and 40% of gas production from the Gulf of Mexico remained offline, and a portion of it may never flow again. An abandonment-services firm reports that 2006 orders to decommission destroyed or damaged platforms alone may exceed all the expected 2006 orders, pre-storms. Insurers estimate market losses for KatRita at more than $11 billion, and business-interruption claims remain open. "It is likely that no one will be fully covered anymore; rather, the producers will live with 50% to 60% of the assets under coverage and simply hope that no group of storms in a 12-month period will ever destroy more than that percentage," the operator says. The smallest of operators are most exposed, while larger producers have premium caps and they have other assets-onshore and abroad-that insurers want to underwrite, "so my best guess is that the end of the market (in the Gulf) that will suffer is middle and down." As for the supply of Gulf assets on the market, affected producers may carry on at least until their new premium is due. "If you renewed in June, for example, you got a decent rate...However, you just might consider selling once the production is restored and before the next renewal date comes around...The producer might as well take insurance proceeds (from KatRita) and fix the damage and restore as much as possible." Smaller Gulf operators may also encounter lowered credit ratings, thus a higher cost of capital. Standard & Poor's Ratings Services says restoration of Gulf production is taking longer post-KatRita than after Ivan, which affected the easternmost Central Gulf producing region and was most noted for causing Gulf shelf mudslides that rearranged pipelines like Pick-Up-Sticks game pieces. Katrina also affected most of the eastern-central Gulf region, and Rita affected all of the Central Gulf as well as some of the Western Gulf. If there are credit downgrades, the likely targets will be small and midsize operators rather than large, diversified ones. "Strong realized commodity prices on (other) producing properties and healthy liquidity levels are expected to help offset near-term production disruptions and support ratings," S&P reports. Already beaten down by reserve revisions, Stone Energy Corp., whose assets are nearly wholly in the Gulf and on the Gulf Coast, has been hurt by that it did not carry business-interruption insurance, "which could cause concern if meaningful levels of production remain offline for any significant period of time," S&P reports. New entrants will assume liabilities, such as Mariner Energy Inc., which will expand in the Gulf soon by taking in Forest Oil Corp.'s assets there in a deal that was announced post-Katrina but before Rita. As of November 9, some 100 million cubic feet equivalent of Forest's daily Gulf output remained offline, reduced from 180 million offline on October 1, shortly after Rita. What remains offline is waiting for third-party processing and infrastructure repairs. The deal is a bit of a bonus to Mariner, however: at least 10 billion cubic feet equivalent of Forest's proved, developed, producing Gulf reserves weren't produced since Katrina. This easy revenue will go to Mariner's balance sheet, instead, post-closing.