Oil Companies Begin Evacuations as Rita Threatens US Gulf

Tropical Storm - Rita
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Sept 19 - Tropical Storm Rita
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HOUSTON Sep 19, 2005 (Dow Jones Commodities News via Comtex)

Oil companies began pulling workers back out of the Gulf of Mexico on Monday, as Tropical Storm Rita threatened the Gulf Coast production and refining assets spared by Hurricane Katrina just three weeks ago.

Chevron Corp. (CVX) decided to evacuate the staff needed to keep oil and natural gas production platforms running, while Royal Dutch Shell PLC (RDSB.LN) and BP PLC (BP) began pulling nonessential staff. The Chevron evacuations also affect production facilities previously owned by Unocal Corp., which Chevron bought in August.

The U.S. National Hurricane Center expects Rita to grow into a major hurricane covering a wide area in the Gulf of Mexico before making landfall this weekend. The center has shifted its forecast path for Rita northward and now shows the storm targeting Houston and running near producing areas in the western Gulf, heightening concerns in the U.S. and global energy markets.

"You add any supply problems on top of anything we have now, we'll likely see prices spike, at least until the infrastructure gets back to where it is, which is still not back to normal," Doug MacIntyre, an analyst at the federal Energy Information Administration, said in an interview.

"We just have to see what damage the storm does and what's affected," he said. "Obviously, we were on a thin thread even before Katrina. Katrina made the situation very difficult, which is why we had the huge rise in prices."

At the New York Mercantile Exchange, the nearby October crude contract jumped $4 to a high of $67 a barrel. October natural gas futures climbed $1.446 to a record $12.59 per million British thermal units. Gasoline futures were up more than 22 cents, and heating oil futures rose by more than 20 cents, both topping $2 a gallon.

Katrina caused producers to suspend nearly all oil and gas output in the Gulf of Mexico and shuttered some 12% of refining capacity along the Gulf Coast. Three weeks later, more than half of the oil production, over a third of the gas output and some 5% of the shuttered refining capacity remain off line.

The new threat to U.S. oil and gas output comes as the Organization of Petroleum Exporting Countries meets to discuss how it will address rising prices. Analysts think the group is more or less helpless, as it's about out of spare production capacity and because it is tight refining capacity, not a lack of crude, that is pushing prices up.

The storm has got ministers' attention.

"I'm always concerned about these types of things," Saudi Arabian Oil Minister Ali Naimi said in Vienna. "The message to the market this week is that supply is not certain."

The status of natural gas inventories for this winter will be a prime concern, Daniel Yergin, chairman of the Cambridge Energy Research Associates, said on CNBC.

"As we get into winter, we'll talk more about natural gas, because that is where the real price pressure is this winter, and the buildup of inventories was disrupted by the hurricane," he said.

U.S. inventories remain above average, but have lost their surplus to last year under pressure from heavy demand from power generators during an unusually hot summer.

Shell said it had evacuated 195 non-essential personnel Sunday and that another 350 nonessential personnel were set to leave its facilities Monday.

Apache Corp. (APA), Marathon Oil Corp. (MRO) Kerr-McGee Corp. (KMG) were watching the storm closely. Murphy Oil Corp. (MUR) said it will decide tomorrow whether to evacuate workers.

"We're looking at it," said spokesman Tony Lentini. "All we need is another hurricane."

Petroleum Helicopter Inc., a transport services company based in Lafayette, La., said evacuations could pick up as the storm draws closer.

"I guess that when this storm moves into the Gulf of Mexico, more people will start evacuating," said Richard Rovinelli, chief administrative officer.

Kerr-McGee Corp. has several deepwater facilities in the Western Gulf, including the Nansen, Boomvang and Gunnison developments.

Apache still has 19% of its natural gas production and 35% of its oil production in the Gulf of Mexico off line after Katrina.

Rita also poses a threat to refineries, which could be forced to shut down ahead of the storm or be knocked off line by power outages.

The Gulf Coast of Texas and western Louisiana includes 19 refineries whose processing capability totals 4.485 million barrels a day, or 26% of the U.S. total. Three of the five largest U.S. refineries are in the region.

The facilities, however, don't face the same risk of flooding that crippled four refineries in Louisiana and Mississippi after Katrina.

The waterways by which crude oil gets to refineries on the Gulf Coast could also shut. The Coast Guard is monitoring the storm, but thinks major, lasting damage to waterways is unlikely.

There are also some 28 ports in the storm's potential impact area on the western Gulf Coast.

"That storm is so far out, that until it gets into the Gulf of Mexico, we are not looking at any specific port," said Commander Jerry Torok, commanding officer of vessel traffic service at the port.

(C) 2005 FWN Select. All Rights Reserved (John Edmiston in Houston; and Masood Farivar, Leah Goodman, Beth Heinsohn, Katya Kazakina, Spencer Jakab and Andrew Dowell in New York contributed to this article.)

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