Gulf oil output 70 percent below normal after hurricane

Tuesday, Sept. 6, 2005 | 11:34 a.m.

BP Plc and other Gulf of Mexico oil producers had 70 percent of their production from the region cut eight days after Hurricane Katrina swept through the region, according to the U.S. government.

BP, Europe's biggest oil company, Monday said it resumed production at its 55,000-barrel-a-day Holstein platform in the gulf. About 1.04 million barrels of the area's oil production was still off line as of midday yesterday, the U.S. Minerals Management Service said. The agency has scheduled its next report at 1 p.m. Houston time today.

Continued loss of output in the Gulf of Mexico may keep prices of crude oil and fuels high as the U.S. gets a quarter of its supplies from the region, analysts including Warwick Schneller said.

The Gulf of Mexico is also home to about half the refining capacity of the U.S.

"In global terms, it's only about 2 percent of the world's oil supply," said Schneller, a commodity analyst at Commodity Warrants Australia Pty. in Sydney. "When you think that America is the world's largest consumer of oil, and it gets about 25 percent of it from the Gulf, that puts a different perspective on it."

Producers such as Royal Dutch Shell Plc and Exxon Mobil Corp. are restoring output halted when they evacuated offshore workers before Katrina struck along the Louisiana and Mississippi coast on Aug. 29.

Damage Unknown

Thousands are feared dead and 250,000 people were evacuated from the region, in what officials have called the worst natural disaster in U.S. history.

Oil companies have restored about 390,000 barrels of daily output the past week, from a peak loss of 1.43 million barrels immediately after the storm. Still, the extent of the damage is not fully known, said David Thurtell, commodity strategist at Commonwealth Bank of Australia in Sydney.

"It was a couple of weeks last year before we found what the damage was from Hurricane Ivan and that damage really was in the form of pipelines on the ocean floor," said Thurtell. "The possibility is that there will be similar damage this time."

BHP Billiton, Australia's largest oil and gas company, said its 25,000 barrels a day of production in the Gulf is likely to be disrupted for longer than initially expected because of possible damage to pipelines.

Damage to the oil and gas platforms themselves in which Melbourne-based BHP Billiton has stakes is "minimal" as far as the company is aware, Emma Meade, a spokeswoman said in an e- mail. She said she couldn't estimate when output may resume.

BHP Billiton, which is also the world's largest miner, has stakes in the BP-operated Mad Dog field, the Chevron Corp.- operated Typhoon and Genesis fields, and at the Boris, West Cameron 76 and Green Canyon 18 projects.

'Disruption to People'

"The disruption is likely to be longer than initially thought due to the massive disruption to people and facilities in the region," Meade said. "The problem is more at the downstream end with pipelines and such."

A total of 228 production platforms and 37 drilling rigs remain evacuated, with natural gas output also 5.23 billion cubic feet per day, more than 50 percent, below normal, the Minerals Management Service said yesterday.

As much as 95 percent of the Gulf's oil production was shut when the storm arrived last week, helping push benchmark crude oil futures to a record $70.85 a barrel in New York. Oil for October delivery was at $66.65 a barrel in after-hours electronic trading today on the New York Mercantile Exchange at 2:03 p.m. in Singapore.

'Still Bull Market'

"We see crude still being very much a bull market," Commodity Warrants' Schneller said. "It will take time before everything is fixed" and oil prices longer-term are probably heading higher, he said.

Exxon Mobil, the largest U.S. oil company, has about 28,000 barrels of oil and gas liquids and 320 million cubic feet of gas that is still shut down, spokesman Mark Boudreaux said yesterday in an e-mailed statement. That's about 35 percent of the oil and 27 percent of the gas the company normally produces in the region.

Katrina shut eight refineries in the Gulf states and forced at least 12 others to cut production because of shortages of crude oil. Chevron Corp.'s 325,000-barrel a day refinery at Pascagoula, Mississippi, and ConocoPhillips' 247,000 barrel day plant at Belle Chasse, Louisiana, suffered "major damage" the U.S. Energy Department said last week.

"It's going to take months to get some of these back," said Ashok Sekar, senior client adviser at Tricom Futures Services Pty in Surfers Paradise, Australia. "Even if they fix the plants, where are the workers going to live? That's how big a problem it is."

'Tent-City'

Chevron, the second-largest U.S. oil company, is building a "tent city" near the Pascagoula refinery to house 1,500 employees and their families left homeless by the storm. It isn't predicting when the plant will be restarted, spokesman Michael Barrett said yesterday in a telephone interview.

"There's no power in the area and we're still assessing the damage," he said. Lack of telephone service is hampering recovery efforts by the San Ramon, California-based company, he said.

Exxon said its flooded refinery at Chalmette, Louisiana may have sustained less damage than initially estimated.

The 190,000 barrels-a-day refinery east of New Orleans has been shut since Hurricane Katrina approached the Louisiana coast on Aug. 28. Staff have now got to the plant, though are yet to make a thorough assessment, Irving, Texas-based Exxon said in a statement on the company's Web site.

No estimate on Resumption

"It appears to be in better condition than initially anticipated," Exxon said in the statement dated Sept. 5. The company does not have an estimate of when the flooded refinery will resume operations, Boudreaux said.

"There are people from the Chalmette refinery who are working at the Baton Rouge refinery, planning and looking at what we need to do in order to prepare to get the Chalmette refinery up and running," he said yesterday.

Exxon is running its Baton Rouge, Louisiana, refinery "at close to full production" of about 494,000 barrels a day after being forced to slow output because of the storm, he said.

ConocoPhillips, the third-largest U.S. oil company said on its Web site that assessment crews are inspecting its flooded Alliance refinery. The company gave no estimate for when the assessment would be complete and said it is "premature" to estimate when the plant would resume operations.

Located on the Mississippi River in Belle Chasse, Louisiana, about 25 miles (40 kilometers) south of New Orleans, Alliance can process about 250,000 barrels of oil a day and produce 100,000 barrels of gasoline, according to the Web site of the Houston- based company.

--Editors: Dieterich, Khandeparkar, Cottle.

To contact the reporter on this story: Ian McKinnon in Calgary at (1) (403) 444-5597 or imckinnon1bloomberg.net.

To contact the editor responsible for this story: Robert Dieterich at (1) (212) 893-4485 or rdieterichbloomberg.net.

-0- Sep/06/2005 6:54 GMT