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TheStreet Open House

Gulf Repair Job Tougher Than Expected

Bringing oil and natural gas production back online in the Gulf of Mexico isn't turning out to be as easy as many had hoped.

That was the message from the U.S. Minerals Management Service Tuesday when it provided an update on production from the Gulf in the wake of hurricanes Katrina and Rita. Over 1 million barrels of daily oil production and over 6 billion cubic feet of natural gas remain offline in the Gulf, the federal agency said.

To date, 54.5 million barrels of oil production have been lost in the Gulf, nearly 10% of the region's annual output, and nearly 272 billion cubic feet of natural gas production, over 7% of yearly natural gas output. While that energy will eventually be extracted, it's still a significant amount of supply taken out of an already tight market.

As a result, oil prices remain well above $60 a barrel and natural gas prices are holding firmly above $10 per million Btu.

Infrastructure Mess

Bringing Gulf of Mexico production back to life is more than just turning on a spigot. At last week's Independent Petroleum Association of America investor conference in San Francisco, most Gulf exploration companies suggested they are beginning to return workers to production platforms, and they're finding the majority of platforms fared pretty well in the storms.

However, what didn't fare as well were wellheads, pipelines, gathering systems and coastal processing facilities. The infrastructure that helps bring oil and gas from the sea to shore is just as critical as the anchored hunk of steel from which energy is produced. Without pipelines and processing facilities, there is nowhere for oil and natural gas to flow. And, with flood and wind damage to such key areas as Venice, La., and the Sabine Pass area -- which straddles the Louisiana-Texas border -- it could be months before the Gulf infrastructure can handle pre-Katrina and Rita levels of oil and natural gas production.

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