Some U.S. O&G Production Still Offline After Isaac

Energy companies in the U.S. Gulf of Mexico have brought back nearly all of the region's offshore oil and gas production capacity in the wake of Hurricane Isaac, with the ramp-up proceeding at the expected pace, according to analysts.

Some 4% of the Gulf's oil production and 5% of the region's natural gas output remained offline, according to U.S. regulators, which noted that shut-in production has been somewhat slow to return due to damage to onshore processing facilities.

But economists and analysts said that Isaac's impact on the economy is expected to be little more than a blip, especially compared with big hurricanes like Katrina and Rita, which wrought havoc in the last decade.

Analysts say that oil companies usually take several days to ramp up energy production after evacuations because they need to restaff far-off facilities, and then check the integrity of well bores, pipeline connections and the safety of the platforms to make sure the storm didn't cause any hidden damage.

Kyle Cooper, managing partner at Houston's IAF Energy Advisors, said companies are being more cautious about their U.S. Gulf facilities in the wake of the 2010 Deepwater Horizon disaster. "I've been told the inspection process is much more rigorous and much longer," he said.

The methodical process of bringing production back online hasn't had much impact on energy markets. At the height of the storm, Isaac pushed gasoline prices up between 10 and 15 cents, with the bulk of the impact felt in the U.S. Gulf region, said Chris Lafakis, senior economist at Moody's Analytics.

But the storm is likely no longer a factor in markets for refined products like gasoline and heating oil, he said.

Gene McGillian, an analyst and broker at Tradition Energy, said refineries were slower to restart than some might have expected.

But markets are more concerned now with what the Federal Reserve will do later this week than with Isaac's lingering impact.

"Product prices are boosted more by expectations that the Fed might have another round of quantitative easing," he said.

Mr. Lafakis said Isaac didn't cause the same kind of infrastructure damage that cut into economic growth as storms such as Hurricanes Katrina and Rita in 2005, or Hurricane Gustav in 2008.

"I think all those storms were more damaging from an economic perspective. Those storms also produced more lasting damage in terms of energy prices and energy production," he said.

In all, IHS Global Insight estimates that Isaac is responsible for an estimated 13 million barrels of lost oil production and 28 billion cubic feet of lost gas production--together worth about $1.57 billion.

"In terms of real GDP growth this production loss would knock at most 0.16 percentage point off annualized real GDP growth," said IHS economist Gregory Daco. "It's a relatively small impact," he said.

Dozens of platforms and processing facilities were damaged by Hurricanes Katrina and Rita and remained evacuated for months after the storm. For example, in December of 2005, three months after Rita made landfall, 26.2% of oil production and 19.4% of natural gas production remained shut in.

By comparison, all but two of the 596 production platforms operating in the U.S. Gulf and all but one of the 76 rigs there have been restaffed since evacuating before Isaac.

Tuesday's report from the U.S. Bureau of Safety and Environmental Enforcement will be its final update on the storm's impact.

While Katrina left an estimated $120 billion in infrastructure damage in its wake, Isaac is so far estimated to have caused about $1.5 to $3 billion in insured losses, with total losses likely about three or four times that amount, Mr. Daco said.

One reason for that is that Isaac, which made landfall as a Category 1 Hurricane and quickly weakened into a tropical storm, poured massive amounts of rain over Louisiana and caused flooding as it lingered over the state for several days, but the storm lacked the high wind speeds that have wreaked havoc in the past.

"It was a fairly large storm in terms of expanse but didn't pack a ton of power like previous hurricanes," RBC Capital Markets analyst Leo Mariani said.

The BSEE said that shut-in production comes to about 57,439 barrels of oil a day and 213 million cubic feet a day of natural gas.