This column was originally published on RealMoney on Nov. 4 at 2:03 p.m. EST. It's being republished as a bonus for TheStreet.com readers.The Gulf of Mexico is coming back. The Mineral Management Service -- the government arm that measures oil and gas production in the Gulf -- said Thursday that daily production received a big boost: Shut-in oil output declined to 790,610 barrels a day, or 52.7% of total Gulf output, down from 63.9% on Wednesday, and shut-in natural gas production decreased to 4.726 billion cubic feet a day, or 47.3% of daily output, a big improvement from 50.4% on Wednesday. Still, the impact of hurricane season is significant. More than 77 million barrels of oil production have been lost as a result of Hurricane Katrina and Hurricane Rita, equaling more than 14% of the annual Gulf production. Lost natural gas production totals more than 396 billion cubic feet, almost 11% of annual production. And problems remain: A whopping 207 offshore platforms remained unattended since Katrina, explaining why 50% of oil and natural gas production remains offline since late August. While Thursday's improvements provide some hope that production will begin to come back more rapidly than it has over the past two months, comments from oil and gas executives are much less sanguine.
Repairs Into 2007While I expect to see more and more production coming back online in the Gulf of Mexico, the region is likely remain challenged for months to come. Executives from Gulf of Mexico boat purveyor Hornbeck Offshore ( HOS) suggest that they see work related to the storms likely to last throughout next year. Other companies such as Tetra Technologies ( TTI) and Superior Energy Services ( SPN) suggest that business for well remediation is strong. Oceaneering International ( OII), the largest operator of remotely operated vehicles, or ROVs, that inspect platforms and pipelines underwater, raised guidance for 2006 as a result of an abundance of work related to the hurricanes. "The 2006 EPS growth is anticipated to be driven by profit improvements from our oilfield Subsea Products, particularly our umbilical manufacturing operation, current prospects for higher ROV pricing and a larger fleet size, and an expected increased level of Subsea Projects profitability due to Hurricanes Katrina and Rita repair work," said Oceaneering CEO John Huff.
Speaking of VisibilityWhile we have focused a lot on oil and gas production, it is also important for investors to focus on the sustainability of earnings for energy service companies, and the last two weeks have provided solid evidence that the cycle will continue. First, in its quarterly earnings release, Nabors ( NBR) -- which moved to the New York Stock Exchange from the American this week -- said it was signing three-year term contracts for newbuild rigs that would not be delivered until 2007 at prices that approximate today's stout day rates. Moreover, Transocean ( RIG) said this week that it signed two deepwater rigs to three-year contracts with Anadarko ( APC) beginning in 2007. Finally, among Nabors' smaller brethren, Pioneer Drilling ( PDC) said it was increasing its new-build program from five to 11 rigs, with the new rigs being built under two-year contract commitments from exploration-and-production companies. While the Nabors and Transocean news is good enough, Pioneer's ability to provide visibility of earnings out two years is meaningful evidence of the ability of this drilling cycle to last much longer than pessimists suggest. Remember, in the past year, we have nearly doubled the number of rigs drilling for natural gas in North America, and production has barely budged. In a recent presentation, Nabors noted that the rig count has tripled since 1995 and cumulative natural gas production is actually lower than it was back then. Those who need evidence of the need to drill more wells needn't look further than that. Have a great weekend. P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
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