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Hurricane Threatens Oil Production

Posted on: Friday, 8 July 2005, 21:00 CDT

Jul. 9--With speeds approaching 150 miles an hour Friday, the Gulf of Mexico's first hurricane of the season threatened to shut down oil production over the weekend and spur a sharp reaction from already volatile oil and gas markets.

Hurricane Dennis, after hitting Cuba Friday afternoon, was expected to touch the U.S. coast before nearing major oil and gas platforms.

For many oil producers and traders, the growing strength of the storm recalled the brutal impact of Hurricane Ivan, which destroyed undersea pipelines and demolished platforms in the gulf last September.

The damage kept oil and gas prices higher for months after the hurricane due to supply cuts.

"It's a tight market," Ken Miller, a vice president at Purvin & Gertz Inc., a consulting firm. "Last year was a really serious situation. We can't afford to have that these days with OPEC capacity being limited and demand continuing to rise."

On Friday, major oil companies were evacuating non-essential personnel and preparing their offshore rigs and platforms for heavy wind and rain.

Irving-based Exxon Mobil Corp. said it had focused its preparations on the eastern gulf and its operations at Mobile Bay, Ala.

Exxon Mobil evacuated 300 workers but still had others operating in the gulf on Friday evening. The rest of its operations were on an early-stage alert to monitor the hurricane's development.

"You never know how the storms are going to turn out once they enter the gulf," said spokesman Len D'Eramo. "We continue to monitor the storm, and we'll act very well out in front of the storm arriving as far as further evacuations."

The U.S. Minerals Management Service said that as of midday Friday, evacuations by 19 oil companies had affected the equivalent of almost 10 percent of 819 manned platforms and 26 percent of the 134 rigs operating in the Gulf of Mexico.

About 220,000 barrels a day of oil production had been shut down by the storm, accounting for about 15 percent of daily output, the agency said. More than 10 percent of the 10 billion cubic feet of daily gas production had also been cut.

The gulf region accounts for about 30 percent of the nation's oil output, sending worries through markets earlier in the week.

Prices pulled back Friday as some fears eased. Oil for August delivery lost $1.10 to $59.63 a barrel, after touching $62.10 earlier in the week on the New York Mercantile Exchange.

"The markets tend to react ahead of these things," Mr. Miller said. "The durability of that response is a function of what actually physically occurs. Last year, we had some serious damage and it caused prices to stay up."

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XOM,

Source: The Dallas Morning News

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