Business

Small oil producers take hit from Gulf hurricanes

For the second time in three years, Tim Washington and hundreds of other small oil and natural gas producers are picking up the pieces after back-to-back hurricanes in the Gulf of Mexico.

Even though most people typically associate U.S. oil and gas production with Exxon Mobil Corp., ConocoPhillips and other well-known behemoths, the majority of crude and natural gas is supplied by smaller, independent companies like Washington's Alpine Exploration Cos. Most have fewer than 20 employees.

As the industry continues to assess damage from hurricanes Ike and Gustav, many of those mom-and-pop outfits appear to have taken a beating. Of the 49 platforms destroyed last weekend by Ike, 44 produced less than 1,000 barrels of oil a day, according to assessments from the U.S. Minerals Management Service.

“Anytime a hurricane comes through, we average a minimum of two weeks getting back on line, and that's on a best-case basis,” said Washington, whose Dallas-based outfit operates several production facilities along the Louisiana coast. Most produce 100 to 300 barrels a day.

That's just a sliver of the Gulf's total daily offshore production of 1.3 million barrels. But combined, the nation's roughly 5,000 independent operators account for 68 percent of oil and 82 percent of the natural gas produced in the United States, according to the Independent Petroleum Association of America.

“It's tough. It's expensive. But we're the backbone of the industry,” Washington said. “We ushered it in, and we'll usher it out.”

Oil companies, rig and pipeline owners and others are still calculating damage to the industry caused by Gustav and Ike, but some risk experts say the energy sector's insured losses for Ike alone could rise to near $2 billion.

The good news is that Ike and Gustav caused far less damage than Katrina and Rita in 2005, a one-two punch that destroyed 108 production platforms, damaged hundreds of others and shut down production for months, in some cases, in a region that accounts for 25 percent of domestic oil production and 15 percent of natural gas output.

Still, companies large and small are scrambling to repair equipment and restart production. They include majors like BP PLC and Royal Dutch Shell PLC.

There's also Bill Guidry, a former school teacher who got into the business 25 years ago. He was hustling in recent days to get repair crews to his handful of production sites along the Louisiana coast before the bigger companies swallow up most of those resources for their own, larger platforms.

For operators like Guidry, whose Key Operating Co. in Lafayette, La., produces about 100 barrels of oil a day as well as some natural gas, a production facility often amounts to a 100-foot barge anchored in coastal marshland with oil storage tanks and other equipment aboard. When storms approach, the surge can inundate the barges and equipment or push them miles from their previous sites.

Guidry, 55, said repairs from Rita three years ago cost him about $800,000, though much of that was covered by insurance. This time around he figures he's facing about $200,000 worth of damage – still a hefty blow for a small business.

Guidry estimates it'll take about a month before he's back up to full production.

Yet Guidry and most others will make their repairs, resume production and, of course, hope for a less active hurricane season in 2009. That's the way of the oil patch.

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