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Offshore Gulf Gas Production Stalls at 20% of Normal Rate

Ramping up oil and natural gas production in the Gulf of Mexico following Hurricanes Rita and Katrina moved at an excruciatingly slow pace last week, with several major producers and pipeline operators still assessing damage to onshore and offshore infrastructure.

The Minerals Management Service (MMS) said on Friday that 7,941.02 MMcf/d of offshore production remained shut in, which was down only about 100 MMcf/d from the peak last week. A total of 471 platforms and 33 rigs were still evacuated Friday. Cumulative gas production shut-ins stand at 196.5 Bcf, or 5.4% of annual Gulf production. About 1.47 million bbl of oil was still shut in Friday, 98% of the Gulf total.

In prescient comments to CNBC last Monday, Exxon Mobil CEO Lee Raymond said onshore refineries came through fairly well, but "offshore is another matter. Offshore production from Katrina is still curtailed, largely because some of the big installations in the deepwater of the Gulf still are not on, and we're still having a lot of difficulty restoring gas processing and pipelines onshore, which were damaged very severely by the high water. In many respects the story of Katrina that's most relevant is the offshore, and not even so much crude oil, but ultimately natural gas supply which will become an issue, I think, later this winter," Raymond said.

ExxonMobil President Rex Tillerson added, "There's no question that things could get tight this winter because of the interruptions we've had in the Gulf of Mexico."

Between Katrina and Rita, nearly two thirds of the gas output and half of the oil was back on line. However, Rita did something Katrina did not: damage platforms and infrastructure in the western Gulf -- including gas processing facilities which had already taken a beating in the earlier storm. Katrina damaged key gas infrastructure along Louisiana's eastern shoreline, where both Dynegy Inc. and Enterprise Products Partners LLC have three gas processors still undergoing damage assessments.

But Rita took down the Henry Hub during bidweek. Sabine Pipe's force majeure at all points at Henry, the gas industry's most important market point, continued for the ninth day in a row Friday. However, some progress was reportedly being made.

Sabine said the main station yard was drained of standing water on Thursday, and personnel were able to access the interior of buildings and structures on the drained portion of the complex. Dewatering of the remainder of the hub complex, located in Vermilion Parish, LA, was continuing, Sabine said.

The parish sustained heavy flooding during Rita, and there also was extensive electrical damage in the region, which is hindering repairs and service. Entergy Corp., the parish's power provider, had no timetable on when the Henry Hub substations would be dewatered and power fully restored. However, Sabine said personnel were connecting temporary generators for areas without power and were planning to establish a "reliable communication system."

Processing Outages Grow

Numerous processing facilities were added to the damaged list last week: BP's Grand Chenier (950 MMcf/d); Williams' Cameron Meadows (500 MMcf/d); Duke Energy Field Services' (DEFS) Port Arthur (206 MMcf/d) Brookeland (100 MMcf/d) and Beaumont (100 MMcf/d) plants; and Enterprise's Sea Robin facility (950 MMcf/d) among others. Those following the Toca (1,100), Venice (1,300) and Yscloskey (1,850 MMcf/d) facilities damaged by Katrina.

DEFS also reported that its Cipco gas gathering pipeline and Spindletop gas storage facility (750 MMcf/d of deliverability) in Jefferson County, TX, suffered damage from Rita.

Meanwhile, Enterprise said repairs restarted at the Toca gas processing plant in Chalmette, LA, and new flooding from Rita did not impact the plant. Repairs to the Toca II cryogenic processing train, which has a capacity of 250 MMcf/d, are expected to be completed in four weeks. Repairs to the Toca I processing train, which has a capacity of 850 MMcf/d, are expected to be completed in eight weeks, the company said. In August, prior to Hurricane Katrina, the Toca plant was processing 500 MMcf/d of natural gas.

Dynegy has not provided a clear estimate on how long it will take to complete repairs to the Yscloskey natural gas processing plant and the Venice processing plant and associated NGL fractionator. Enterprise, which owns a stake in Toca, Yscloskey and Venice, said that while the aggregate gas processing capacity of the three facilities is 4.25 Bcf/d, the average volume of gas being processed by the three plants in the August prior to Hurricane Katrina was 2 Bcf/d.

Tennessee Gas Pipeline told shippers Friday that it anticipates the hurricane impact to gas processing infrastructure may last several months and is encouraging producers to "immediately begin considering alternate processing arrangements including the installation of onsite processing equipment."

Meanwhile, the pipeline also has a long laundry list of repairs to do on its system. On its 500 Line, damage assessments for compressor Station 527 (Port Sulphur) are expected to be complete by the end of October, but the Station is expected to be out of service for three to six months. Tennessee said it continues to reconfigure its pipeline to allow gas to move from the Main Pass, South Pass and West Delta areas through Station 523 (Cocodrie) for separation and dehydration and then through MLV 528 north on the 500 line. This modification is estimated to be completed by mid-October. The majority of the measurement and electronic equipment in the Main Pass, South Pass, and West Delta areas of the pipeline were damaged or destroyed.

Tennessee also has extensive damage to its Blue Water system, its South Timbalier and Bay Marchand systems upstream of the 500 Line. On the 800 Line there's moderate damage to the Starks, LA, compressor (Station 820) and Kinder, LA (Station 823). Both stations should be available to operate once production resumes, the company said. The Johnson Bayou separation and dehydration plant is expected to be operating by mid-October.

Tennessee said it has sustained supply losses of 800,000 Dth on the 800 line and 500 line not including the 650,000 Dth that has remained shut in as a result of Hurricane Katrina. On its 100 Line a force majeure remains for Station 25 in Cleveland, TX, which continues to be without power. Scheduled throughput on the 100 line is approximately 150,000 Dth below pre-Hurricane Rita throughput.

Many other Gulf pipelines were still trying to complete damage assessments late last week. William's Transcontinental Gas Pipeline said its Station 44 in Cameron Parish was damaged and all production upstream in the North High Island, Galveston and West Cameron areas remain shut in.

Southern Natural said it still has about 550 MMcf/d shut in upstream of its Toca Compressor Station and another 400 MMcf/d on its West Leg. However, damage to its system was not nearly as extensive as during Hurricane Ivan last year.

Golden, CO-based consulting firm Bentek Energy said Friday that extensive shut ins continued upstream of most major Louisiana natural gas pipelines: Tennessee (1,882 MMcf/d), Southern (847), Transco (958), Destin (444), Sea Robin (386 and receiving no gas), Florida Gas (152), Trunkline (263), Texas Eastern (411), Mississippi Canyon (511 and completely shut down), Columbia Gulf (331), Garden Banks (421, completely shut down), Gulf South (162), High Island (270, zero gas flows), Texas Gas (100), Stingray (183, shut down), Nautilus (155, shut down), Chandeleur (71), Sabine (40, shut down) and Gulfstream (30).

Shut ins plagued Louisiana last week. The flow of natural gas from 38 of Louisiana's parishes had been cut to only 92.6 MMcf/d, or about 4.1% of its capacity of 2,235 MMcf/d, the Louisiana Department of Natural Resources (DNR) said Thursday. The agency said oil output in the parishes had only reached 4,759 bbl/d -- 2.3% of capacity, which is about 203,000 bbl/d. Production capacity estimates for natural gas and crude oil are based on average flows reported from January to May 2005.

Also, the Louisiana Office of Conservation attempted to contact 55 intrastate pipeline operators in the hurricane-impacted parishes. On Thursday, 33 facilities within the state are shut in, four are partially shut in and 18 operators could not be contacted.

Only 162 wells -- 2.7% of the 5,949 producing pre-Katrina -- have been restored to production. DNR noted the status of 4,770 wells, or 80.2% of the region's wells, hasn't been reported by operators. Another 1,017 wells, or 17.1%, were reported to be shut in. Louisiana's shut ins are in addition to the shut ins in federal waters off the coast and elsewhere in the Gulf, which are reported by the MMS. Louisiana has jurisdiction over oil and gas properties and rights out to three miles in the Gulf as a result of a 1976 U.S. Supreme Court decision, DNR said in its statement.

What Katrina did -- damage so much onshore infrastructure including helicopter transport services, docking facilities, airports and employee's homes -- is having a cascading affect on assessing Rita's damage, which further destroyed a lot of power transmission lines. There's a huge demand for helicopter services, for instance, but there aren't enough transport services currently to complete quick assessments. And while some facilities may have minimal damage, they may have no power to operate.

Apache Corp.'s Tony Lentini said, "it's just harder to marshal our forces and get people out there."

Producers overall are reporting minimal damage to their offshore facilities, with a few significant exceptions. Even if there was no damage to platforms, some were noting that possible damage to pipelines or onshore infrastructure was delaying full ramp up.

Devon Energy Corp. had restored nearly 40% of its offshore production by late Thursday. However, the loss of output from the two storms forced the producer to revise its 3Q production estimates 2.5%, to 54.6 million boe/d.

Meanwhile, BP plc reported Wednesday it has restaffed most of its deepwater platforms, and said it expects gas production will begin at the NaKika and Marlin facilities "within the next few days." The other platforms are "awaiting export facilities repairs from Hurricane Katrina-related damage," the company said on its website. Offshore crews continue to assess damage, "which appears to be minimal," BP said.

BP plc's CEO John Browne said Thursday the company's Thunder Horse platform in the Gulf -- the largest semisubmersible of its kind in the world -- will ramp "next year, sometime." No definitive time was given by Browne, who spoke with reporters at the World Petroleum Congress in Johannesberg, South Africa.

Thunder Horse was damaged during Hurricane Dennis long before Katrina and Rita arrived, but Browne said the latest spate of bad weather delayed repairs. The massive platform originally was scheduled to begin production this fall (see NGI, Aug. 1). BP holds a 75% interest; ExxonMobil Corp. holds a 25% stake.

ConocoPhillips' assessment teams said the largest offshore asset, Magnolia, "has minimal damage and production is expected to resume shortly, contingent on resumption of operations at related onshore infrastructure such as pipelines and utilities. Initial assessments at three smaller fields have identified damage, but the production impact is not expected to be significant." Physical inspections at onshore fields in the path of the storm indicate little or no damage, the company said. Operations are expected to resume once water and power are restored. Operations at its South Texas gas fields not in the path of the storm were curtailed as gas processing facilities were shut down. These fields were restarting as the gas processing facilities reopen.

Overflights of key pipeline systems by ExxonMobil Corp. found "minimal damage," and the oil major was beginning to restaff offshore platforms on Wednesday. "Early reports indicate that damage to most of our offshore facilities has been limited," ExxonMobil said in a statement. "We have begun to restart several offshore and onshore facilities along the Gulf Coast." ExxonMobil's current shut-in production due to hurricanes Rita and Katrina totals about 85,000 bbl/d of oil and 890 MMcf/d of gas. Incremental volumes shut in because of Rita total 50,000 bbl/d and 625 MMcf/d.

Dallas-based Pioneer Natural Resources Co. said its deepwater Canyon Express and Falcon Corridor gas production facilities have resumed operations. Net gas production from these facilities is expected to achieve pre-hurricane levels of approximately 60 MMcf/d and 150 MMcf/d, respectively, later this week.

However, Pioneer's production from the deepwater Devils Tower field, which was averaging approximately 5,000 bbl/d and 5 MMcf/d prior to Katrina, remains shut in. Damage to the spar was minimal and has been repaired, and there was no further damage from Rita, but production cannot resume until operations have been restored at Chevron's Empire pipeline terminal, the company said.

Nexen Inc. said only two offshore platforms -- Vermilion 321 and 340 -- "sustained significant damage. The inspections indicated topside damage to these platforms and further assessments will be required to determine if there is structural damage." Production from these platforms prior to the hurricane was approximately 3,900 boe/d. "Initial inspections of our remaining facilities on the shelf revealed only minor damage," Nexen said

Stone Energy Corp., based in Lafayette, LA, said an initial flyover of its properties indicated the South Marsh Island 108 D platform and Vermilion Block 255 A and B platforms "have been lost." Stone operates 115 structures in the Gulf, with net volumes of 18 MMcfe/d, and it said it was "evaluating alternatives for the lost platforms, including utilizing existing platforms."

Stone also is assessing other operated-platform damage, although it may be several days before information is received on properties and pipelines operated by third parties. Plans have been made to return personnel to unaffected properties, which represents about 75-100 MMcfe/d. These volumes are expected to be back on line within a week, subject to the availability of pipeline and plant facilities.

Whiting Petroleum Corp., based in Denver, revised its earnings guidance because of hurricane damage. Whiting estimates it had 14 MMcfe/d of operated production and 10 MMcfe/d of non-operated production shut in for four days (100 MMcfe) because of Rita. Because of the losses, it revised its 3Q earnings guidance to range between 17.6-17.9 Bcfe, compared with 17.7-18.0 Bcfe in its prior guidance, and full-year 2005 production to range between 72.9-73.9 Bcfe, compared with 73.0-74.0 Bcfe in its prior guidance.

Callon Petroleum Co. reported minor damage to its major production facilities, but it warned production downtime would damage future output. Callon's Medusa field was shut in before Katrina, and the company said restarting production will depend on the start up of third-party pipelines and processors. Limited production should resume at Callon's Habanero field in the High Island area offshore"within the next 10 days."

Hurricane Katrina may have been devastating onshore, but Rita apparently caused more damage offshore to oil and natural gas infrastructure, two offshore data services reported last week. Katrina stormed through a mature exploratory region in the eastern Gulf of Mexico, while Rita blew through the western Gulf, which is home to a lot of new exploration and production activity.

One of the biggest losses may be to Chevron Corp. It reported last week third quarter earnings would be lower because of Katrina -- and then Rita hit, basically destroying its deepwater Typhoon platform, which it jointly owns with BHP Billiton.

The platform took a direct hit in the hurricane and was turned upside down in the storm. Chevron, the platform's operator, is assessing damage, but it's not sure whether the platform can be salvaged, according to spokesman Mickey Driver.

Typhoon, which was installed in 2001, was tethered to the seabed in 2,100 feet of water, according to Chevron, but during Rita, it was apparently ripped from its moorings and pushed 70 miles to the northwest near the Eugene Island region of the Gulf. The field where Typhoon was drilling only had a commercial life of five to eight years, and was "way on the downside," Driver said. Typhoon was built to produce 40,000 bbl/d of oil and 60 MMcf/d, but it was producing less than half that amount, Driver said.

In its assessment, RigLogix said damage to the Gulf drilling fleet and to production facilities "is quite extensive." It reported five mobile offshore rigs incurred major damage, 10 rigs incurred minor damage and eight rigs were set adrift by Rita.

ODS-Petrodata also published a report, stating Rita's damage will lead to a rig shortage off the Gulf Coast in 2006, which could delay exploratory drilling as far away as the Middle East. ODS noted that rigs were already in short supply before Katrina and Rita struck. It said a rig ordered now to replace a damaged or destroyed one would not be available until 2008, at a cost of $90-550 million.

According to RigLogix data, Rita caused major damage to two GlobalSantaFe, two Noble Drilling and one Rowan rig:

RigLogix noted minor damage was sustained by two Diamond Offshore rigs, three Ensco rigs, one Hercules Offshore rig, three Nabors Offshore rigs, three more Noble rigs, three more Rowan rigs and two Transocean Inc. rigs.

The moored semisubmersible rig Transocean Marianas was forced off its drilling location during Rita and was grounded in shallow water at Eugene Island block 133, approximately 140 miles northwest of its pre-storm location. Also, Transocean's moored semisubmersible rig Deepwater Nautilus, which sustained damage to its mooring system during Katrina and was undergoing repairs, was set adrift following the failure of a tow line, and a partial crew on board used the rig's thruster-assist capabilities to navigate the unit 40 miles south of Grand Isle, LA., where the rig remains grounded. All crew members were safely evacuated.

Of its rig damage, Noble said, "The company is not able to make a complete assessment of the condition of the units until additional crew members and other technical personnel are able to conduct further surveys. High levels of offshore drilling activity in recent periods have led to reduced availability and extended delivery times of some offshore drilling equipment, materials and supplies, which could result in delays in returning units to operational status. Latent damage to the units or delays in shipyard repair projects could also adversely impact schedules to return the units to operational status. Additional information will be released after further survey of the condition of the units."

In related news, Citigroup cut its earnings estimates through 2007 for GlobalSantaFe because of its rig losses from the recent storms. The expected increase in day rates won't be enough to offset the surviving rig fleet, Citigroup said. GlobalSantaFe has confirmed the loss of nine jackup rigs because of Katrina and Rita.

Finally, to add insult to injury, the MMS staff, which was forced to move its main New Orleans operations to Houston because of Katrina and then move to Virginia because of Rita -- announced Thursday its Lake Charles, LA office will "likely remain closed" for at least a month. The problems relate to extensive power outages, MMS said.

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