As most of the Texas energy complex appears to have ducked the harsh winds of Hurricane Rita, many refiners and consumers are breathing a sigh of relief.Although the devastation of the latest major hurricane to hit the Gulf Coast is widespread along the coast near the Texas-Louisiana border, it could have been much worse. Original predictions that the storm could tag the Texas coast near the energy-rich center between Houston and Galveston had many prognosticators fearing the worse. Instead, the storm took a northeasterly route and made landfall Saturday morning near Port Arthur, Texas, and Lake Charles, La. While still rich with energy infrastructure, less dense refining capacity combined with a weaker-than-feared storm (a Category 3 is still major, just not cataclysmic as the Category 5 storm many thought would make landfall) made for much less drama and damage than first feared. The reaction of commodity traders provided a glimpse of how lucky many think Texas was. In a rare Sunday session at the NYMEX, which opened to allow traders to react to Rita news before the workweek began, crude was down over $1.50 a barrel to $62.65. Heating oil and gasoline were also trading lower, a sign traders believe the refining impact of Rita will be small, especially compared to its evil sister Katrina. All that said, there is still plenty of work to do and several concerns to address when oilmen return to work Monday morning.
The recovery task in the Gulf will be monumental. According to the U.S. Minerals Management Service, or MMS, Gulf of Mexico hydrocarbon production is at a standstill. As of Sunday afternoon, 1.5 million barrels of oil and over 8 billion cubic feet of natural gas were "shut-in" as a result of Rita and the lingering impact of Katrina. That represents all of the crude production and over 80% of natural gas production in the Gulf of Mexico. In addition, a significant amount of onshore Gulf Coast production is also shut-in as a result of the two storms. Over the past month, over 33 million barrels of oil -- or about two days of U.S. consumption -- has been shut-in. Natural gas producers have been unable to produce about 156 Bcf, equivalent to about three days of domestic demand. Given the quick and complete evacuation of the Gulf of Mexico ahead of Rita and the fact that nearly 50% of oil and one-third of all natural gas production in the Gulf of Mexico is still offline because of Katrina, it is likely Rita will exacerbate the challenges of returning Gulf of Mexico production to normal. In fact, there were a handful of repair and workover crews still working on recovery efforts related to last year's Hurricane Ivan when Katrina hit. At least anecdotally, that provides a glimpse into the challenges that Gulf of Mexico oil and natural gas producers will face as they work to return to pre-Katrina and Rita production levels. The first task will be returning workers to platforms and rigs and completing an assessment of any damage as a result of the two Category 5 storms passing over parts of the producing fields within a single month. The logistics of returning personnel are complex. With helicopters and boats in short supply, it may be weeks before the Gulf's infrastructure is completely repopulated. Companies like Offshore Logistics ( OLG) and Petroleum Helicopters ( PHEL) will certainly benefit from the additional work.
Then the inspection work begins. A complete review of platform and well stability and rig readiness will also take days, if not weeks. Companies with inspection crews, such as Oceaneering International ( OII), CalDive ( CDIS) and Tetra Technologies ( TTI) will benefit in that regard, and companies with lift boats and work boats such as Tidewater ( TDW) and Superior Energy Services ( SPN) will also benefit from additional transportation and logistics work. The real issue becomes the level of damage on two fronts. First, damage to platforms and rigs will have to be repaired before production or drilling can return to pre-storm workloads. On the platform front, marine construction companies like Gulf Island Fabrication ( GIFI) and Global Industries ( GLBL) are likely to stay busy for months to come. On the rig side, companies like National Oilwell Varco ( NOV), Rowan's ( RDC)) LeTourneau division and even Hydril ( HYDL) may find extra work if rig components are needed. Remember, when Rita hit, the lasting impact of Katrina to the Gulf of Mexico infrastructure was still being assessed. Although it appears Rita may not have the impact of Katrina, at best it slowed the process of damage assessment and recovery to the Gulf's energy infrastructure. And while my optimistic side wants to dominate this discussion, it is likely that Rita has additional impact on the ability of the Gulf production to bounce back quickly.