Northern Alberta oil sands projects are tentatively resuming operations following an evacuation of the Fort McMurray area due to the ongoing forest fire. While not directly impacted by the flames, many suspended business in order to provide their camps as temporary shelters for displaced city residents, or were forced to shut down due to lack of on-site personnel.
While the projects didn’t sustain any physical damage however, they are faced with losses as the fire has estimated to have hit production by 1.07 million barrels per day – representing a daily loss of roughly $65 million. The total loss from lost production could total $760 million in May.
However, it’s unclear to what extent they’ll be covered by their commercial business interruption policies.
“Business interruption can be really complex from a commercial perspective,” says Paul Cutbush, Senior Vice President Catastrophe Management at
Aon Benfield. “At this early stage, there are a lot of questions about the oil sands.”
He adds that large amounts of ash-contaminated ground water as a result of the fire may also have led to the shuttering of the projects – but the projects’ proximity to the city pose a grey area.
“There are going to be questions about things like civil authority in Fort McMurray itself – it was a mandatory evacuation. Well, some of these facilities aren’t in the area,” he says.
“There’s going to be questions around civil authority, service interruption, which has to do with water, and things like contingent business interruption – with these types of coverages, I think there will be a lot of questions around what losses these will be contributing to commercial risk.”
The forest fire, which has been burning for two weeks, has since has since destroyed up to 229,000 hectares in northern Alberta. Adjusters have yet to gain access to the Fort McMurray to assess damage, but it has been estimated 2,600 structures have been totalled. Costs to insurers and reinsurers are anticipated to be among the costliest in Canadian history, outpacing both the 2013 southern Alberta floods, and the 1998 Quebec ice storm.
