Ike and Gas Prices - News from the industry

Rigzone is one of the newsletters I subscribe to. Rigzone is the industry newsletter for the Oil Rig industry which tracks the markets for oil rigs and the oil industry. Ike hit pretty hard, but a lot of the assessment is still underway. I post here several stories from the newsletter today.

MMS Reports 28 Platforms Destroyed by Ike
MMS 9/16/2008
URL: http://www.rigzone.com/news/article.asp?a_id=66726

Minerals Management Service (MMS) reports that as of September 15, 2008, 28 of the 3,800 offshore oil and gas production platforms in the Gulf of Mexico have been destroyed by Hurricane Ike. Several other platforms have been reported as significantly damaged; information on those facilities is being compiled and will be released in the near term.

Initial estimates are that the destroyed production platforms produced a total of 11,000 barrels of oil per day and 82 million cubic feet of gas per day. (See table below.) The damage has been reported through over flights by MMS, the oil and gas industry and the U.S. Coast Guard.

Additional damage reported includes three jack-up drilling rigs destroyed and one jack-up drilling rig with extensive damage. In a separate matter, two drilling rigs that had been reported drifting on September 13, 2008 have been secured by tugs.

“To date, most of the destroyed platforms include older facilities with small levels of production,” said Lars Herbst, regional director, MMS Gulf of Mexico Region. “We expect additional reports of damage as the weather allows more flights and operators are able to board the platforms and begin inspections.”

Early reports indicate that there is some pipeline damage. The full extent of damage will not be available until operators are able to test the systems.

MMS has been conducting helicopter fly-overs to investigate reports of oil spills/sheens. While it is too early for definitive reports, there was one reported sheen as of September 15, 2008 estimated to be nine barrels; subsequent investigations showed that the sheen had dissipated.

Production from the Gulf of Mexico accounts for 25 percent of the oil produced domestically and 15 percent of the natural gas produced domestically. As of June 2008, daily production estimates for the Gulf of Mexico were 1.3 million barrels of oil and 7.0 billion cubic feet of gas. Since that time, gas production from the Independence Hub facility increased and in August 2008 gas production from the Gulf was estimated at 7.4 billion cubic feet of gas per day.

As of August 2008, there were more than 3,800 production platforms in the Gulf of Mexico; these structures range in size from single well caissons in water depths of ten feet to a large complex facility in water depth greater than 7,000 feet.

Number of Destroyed Platforms as of 9/15/08	Classified by Daily Oil Production Rates
24	Less than 1,000 barrels per day
4	1,000 to 5,000 barrels per day
0	Greater than 5,000 barrels per day

MMS: Crews Returning, But Production Still Mostly Shut-in
MMS 9/16/2008
URL: http://www.rigzone.com/news/article.asp?a_id=66717

Offshore oil and gas operators in the Gulf of Mexico are reboarding platforms and rigs and restoring production following both Hurricane Gustav and Hurricane Ike. The Minerals Management Service is monitoring activities for both hurricanes through its Continuity of Operations Plan team. This team will be activated until operations return to normal.

Based on data from offshore operator reports submitted as of 11:30 a.m. CDT today, personnel have been evacuated from a total of 498 production platforms, equivalent to 69.5 % of the 717 manned platforms in the Gulf of Mexico. Production platforms are the structures located offshore from which oil and natural gas are produced. These structures remain in the same location throughout a project’s duration unlike drilling rigs which typically move from location to location.

Personnel from 71 rigs have also been evacuated; this is equivalent to 58.7 % of the 121 rigs currently operating in the Gulf. Rigs can include several types of self-contained offshore drilling facilities including jackups, submersibles and semisubmersibles.

From the operators’ reports, it is estimated that approximately 97.2 % of the oil production in the Gulf has been shut-in. As of June 2008, estimated oil production from the Gulf of Mexico is 1.3 million barrels of oil per day. It is also estimated that approximately 84.2 % of the natural gas production in the Gulf has been shut-in. As of June 2008, estimated natural gas production from the Gulf of Mexico was 7.0 billion cubic feet of gas per day. Since that time, gas production from the Independence Hub facility has increased and current gas production from the Gulf is estimated at 7.4 billion cubic feet of gas per day.

As part of the evacuation process, personnel activate the shut-in procedure, which can also be accomplished from a remote location. This involves closing the safety valves located below the surface of the ocean to prevent the release of oil or gas. During Hurricanes Katrina and Rita, the shut-in valves functioned 100 percent of the time, efficiently closing in production from wells and resulting in no major spills from the Outer Continental Shelf. Shutting-in oil and gas production is a standard procedure conducted by industry for safety and environmental reasons.

The production percentages are calculated using information submitted by offshore operators in daily reports. Shut-in production information included in these reports is based on what the operator expected to produce that day. The shut-in production figures therefore are estimates, which the MMS compares to historical production reports to ensure the estimates follow a logical pattern.

After the hurricane has passed, facilities will be inspected. Once all standard checks have been completed, production from undamaged facilities will be brought back on line immediately. Facilities sustaining damage may take longer to bring back on line. The MMS will continue to update the evacuation and shut-in statistics at 1:00 p.m. CDT each day until these statistics are no longer significant.

Districts	Lake Jackson	Lake Charles	Lafayette	Houma	New Orleans	Total
Platforms Evacuated	84	113	119	99	83	498
Rigs Evacuated	9	14	14	20	14	71
Oil, BOPD Shut-in	69,367	35,263	160,059	433,645	565,396	1,263,730
Gas, MMCF/D Shut-in	1,200	816	1,211	992	2,012	6,231

This survey information is reflective of 84 companies’ reports as of 11:30 a.m. CST.

As US Gulf Oil, Gas Output Restarts After Ike, Cracks Appear
by Isabel Ordonez and Jason Womack
Dow Jones Newswires 9/16/2008
URL: http://www.rigzone.com/news/article.asp?a_id=66704

HOUSTON (Dow Jones Newswires), September 16, 2008

As crude oil and natural gas output in the U.S. Gulf of Mexico began to show signs of life, damage to offshore platforms became more evident.

Chevron Corp., the third-largest producer in the Gulf, said Monday that Hurricane Ike toppled several platforms, although it didn't say which ones. Before the hurricane hit, Chevron was close to starting production at its massive 125,000-barrel-a-day offshore Tahiti project.

Eileen Angelico, spokeswoman for the U.S. Minerals Management Service, a federal agency that oversees oil and gas development in the Gulf of Mexico, said flyovers revealed that at least 10 platforms have been affected by the storm "but that number could grow."

There are 717 manned platforms in the Gulf, most of which are still evacuated following Hurricane Ike. There are also hundreds of unmanned platforms.

The damage wreaked by Ike, which made landfall Saturday in Galveston, Texas, as a Category 2 hurricane, is the worst the Gulf Coast region has seen in three years. While the extent of the damage still pales in comparison to that caused by hurricanes Katrina and Rita in 2005 and Hurricane Ivan in 2004, it may delay the restart of output in the Gulf, home to a quarter of the nation's oil and about 13% of its natural gas production.

The MMS said Monday that virtually all oil output and more than 90% of gas output remain offline due to Ike, which ravaged the Texas coastline and knocked out power to millions of households and refineries.

Oil futures have discounted a long-term supply disruption. Benchmark crude futures fell below $94 in electronic trading following the end of the floor session. Natural gas futures ended flat at $7.374 a million British thermal units.

Independence Hub Restarts

The MMS, which didn't provide additional information about which platforms are affected, said it needs to finish analyzing the data collected and that more details would emerge Tuesday morning.

The positive news of the day came from Anadarko Petroleum Corp., which said Monday it restarted production from its Independence Hub and is performing minor repairs to two other platforms that were damaged by Hurricane Ike.

The Houston-based independent oil and gas company operates eight platforms in the Gulf of Mexico - including the Independence Hub, a massive production platform with a capacity of a billion cubic feet of natural gas per day. Anadarko was also returning some workers to its Marco Polo and Constitution platforms in the Gulf, which sustained some minor damage in the storm, the company said. But Anadarko's western Gulf facilities remain shut in, pending flyover assessments, the company said.

Heavyweight oil and gas Gulf producer, Royal Dutch Shell, said it was redeploying workers in the eastern Gulf of Mexico to restart production, a process that will continue until Sunday.

BP PLC, another large producer of oil and gas in the Gulf, said Sunday it expects to progressively restart production over the next week.

The speed of the production ramp-up depends not only on the ability of oil companies to resume operations but also on the capacity of pipelines to start working.

'Moderate' Damage At Shell

Shell said Sunday it had found "moderate" damage to some platforms, although there didn't appear to be any structural damage.

Exxon Mobil Corp., Apache Corp. and BHP Billiton Ltd. deployed personnel to evaluate their platforms but haven't released the results of the inspections.

"Getting out is a challenge," said Bill Mintz, Apache's spokesman. "We are doing it safely and expeditiously and it's going to take some time."

Tim Evans, an energy analyst at Citi Futures Perspective in New York, said that despite the damage to rigs and platforms, production losses from Hurricane Ike wouldn't be as prolonged as those experienced after hurricanes Katrina and Rita ravaged the Gulf Coast.

"I don't think we are talking about anything that severe," he said. Evans anticipates that 80% of production affected by Ike will be restored within two weeks, unlike the nine months that it took to restore production following Katrina.

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