Silence isn't golden when it comes to the oil-and-gas industry in the Gulf of Mexico.

Recent reports from the Minerals Management Service, the arm of the Department of Interior that tracks production in the Gulf of Mexico, show little improvement in oil or natural gas production since Rita ripped through the Western Gulf of Mexico a week ago. Nearly all oil production and over 79% of natural gas production is still off-line across the Gulf of Mexico production belt.

Although early reports were sanguine on the recovery prospects in the wake of Rita, reality is different. Nearly a dozen rigs were damaged, many tossing in the open Gulf of Mexico dragging anchor chain and other below-water components along the sea floor, likely damaging pipelines and gather systems.

That is only one problem that will affect the recovery; there are a handful of others that will affect the speed of recovery.

So Close, Yet So Far Away

Damage estimates from oil and gas producers are trickling in as slowly as oil and natural gas are moving through Gulf of Mexico pipelines. One of the problems is the ability to transport offshore employees back to platforms and rigs because of damage to and a lack of transportation infrastructure. One exploration company executive told me last week that platform inspections would likely "take weeks" because it is currently "impossible" to get access to helicopters and boats.

Companies like Offshore Logistics ( OLG) and Tidewater ( TDW), in the air and sea businesses respectively, will benefit greatly. Small work boats (200 to 220 foot vessels) are reportedly leasing for over $20,000 a day, more than double what the same boat could get for work just a year ago.

"Any company that tells you they will have all their production back in the next week isn't telling the truth," the executive said.

Once out to sea, platforms and other infrastructure have to be inspected. That helps companies like Oceaneering International ( OII), which Thursday night announced it would build another six remotely operated vehicles (ROVs), a sign of confidence that the inspection and underwater work market will continue to improve. Also, companies like CalDive ( CDIS) and Superior Energy ( SPN) provide a number of services needed as companies work to recover from the hurricane sisters.

Lost Time

While high oil and natural gas prices will help companies post solid third-quarter results, offshore producers will likely struggle to make production goals in both the third and fourth quarters. Gulf of Mexico-focused companies like Remington ( REM), Houston Exploration ( THX), Energy Partners ( EPL) and others will feel the pinch in their numbers. The longer that production is off-line, the larger the impact. In the coming days, the uncertainty of production restarts will likely begin to weigh on some of these producers.

Some services companies will also feel the pinch. Drillers like Rowan ( RDC), which has lost as many as four rigs for at least some period of time in the storms, could see 2006 numbers affected from Katrina and Rita. Two of the rigs now missing were scheduled to begin lucrative work in Saudi Arabia in the coming months.

In addition, tubular provider Lone Star Technologies ( LSS) found two facilities impacted by Rita and the damage is likely to affect third-quarter shipments and results. While it is difficult to determine the exact magnitude, the damage came at the end of the quarter that is typically a period of heavy shipments for the firm.

Earlier last week, I argued that the damage from Rita could be worse than expected. As reality sets in over the coming days, it looks like the impact may be more significant than even I expected.

Damn those winds.

Christopher S. Edmonds is partner and managing director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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