RMS Revises Hurricane Ike Industry Loss Estimate To $13-21 Billion

Risk Management Solutions (RMS) today announced that it has updated its estimate for U.S. onshore and offshore insured losses from Hurricane Ike to $13-21 billion, of which $10-15 billion is estimated for wind and storm surge in Texas and Louisiana. The estimate also includes $2-3 billion from inland wind and flood losses and $1-3 billion in offshore losses, but does not include losses covered by the National Flood Insurance Program.

RMS published a preliminary loss estimate of $7–12 billion on September 17 shortly after Hurricane Ike made landfall over Galveston Island, Texas. The revised loss estimate is based on a new post-event modeling methodology that captures the uncertainty in Ike’s wind and storm surge footprint, due to the lack of observations, using an ensemble of 300 varying simulations of this footprint.

The updated industry loss estimate also includes an additional $2-3 billion of inland wind and flood losses that were not included in the previous RMS estimate. Most of these losses in the Midwestern U.S. resulted from wind damage caused by an unusual combination of the remnants of Ike with another meteorological system.

While the new modeling methodology better represents the losses expected from Hurricane Ike, the range of $13-21 billion reflects the significant uncertainty that still remains in assessing insured losses. One of the greatest sources of uncertainty in the range is the amount of storm surge losses that will be insured across the broad coastal areas of Texas and Louisiana impacted by Ike. In addition to the customary challenges of differentiating wind and storm surge damage after a hurricane and uncertainties in the percentage of properties with flood insurance, the final insured losses for Ike are also expected to be affected by the extended evacuations of Galveston and other coastal areas. Offshore platform losses are another source of uncertainty, due to a wide range of practices within the offshore energy industry on insuring both physical platform damage as well as business interruption caused by loss of production.

The updated range of insured losses makes Ike the third most costly U.S. hurricane after Katrina and Andrew. RMS will continue to monitor the impacts of Ike and may provide further estimates if significant new information arises.

Exxon brings hydrogen pipeline to gulf coast

Exxon Mobil has entered in to a long-term contract with Air Products for constructing a new Steam Methane Reforming (SMR) Hydrogen production facility in Louisiana. The facility will be connected to Air Products’ Louisiana Hydrogen Pipeline Network and will service Exxon Mobil’s Baton Rouge, Louisiana refinery. It will also provide services to other customers in the region and is expected to be online by March 2010.

Air Products has collaborated with Exxon Mobil in other hydrogen based facilities in both Baytown, Texas and Joliet, Illinois.

“We are very pleased to expand our global business relationship with ExxonMobil. Air Products takes great pride in its production facilities and hydrogen supply reliability, and this project will enable us to demonstrate the added value of our expanded Louisiana Hydrogen Pipeline Network,” said Alex Masetti, vice president, North America Tonnage Gases for Air Products.

Supplying refineries with hydrogen for cleaner burning fuels is one of Air Products’ main areas of growth. In fact, Air Products has the largest hydrogen pipeline in the US Gulf Coast, which supplies more than fifty refineries.

Dow Chemical pens case study on contractor safety

According to ReliablePlant, a case study developed by the Occupational Safety and Health Administration (OSHA) and The Dow Chemical Company Alliance shows how Dow's contractors reduced their recordable injury rate by more than 90 percent at Dow's Freeport, Texas, facility.

The case study, titled "Contractor Safety Case Study: Texas Operations Contractor Alliance for Safety at Dow Facility in Freeport, Texas," describes how Dow and 15 contractor companies formed the Texas Operations Contractor Alliance for Safety (TOCAS). The organization consisted of senior managers from Dow's Texas Operations and from its on-site contractors who could authorize implementing safety and health management systems within their own companies.

"Through the Alliance Program and its other cooperative programs, OSHA has developed a growing collection of success stories and case studies that demonstrate the value of safety and health management systems,” said Assistant Secretary of Labor for OSHA Edwin G. Foulke Jr. “This case study effectively demonstrates how safety and health management systems can be successful if organizations take proactive steps to implement and encourage their use.”

In 1994, TOCAS had an annual recordable injury rate goal of 3.43. By 2007, the rate dropped to 0.20. Dow's recordable injury rate for contractors at Freeport improved by 95 percent from 1995 to 2007.

There also was an increase in the number of contractor companies involved in TOCAS from 15 in 1995 to 85 in 2008. Because of the success of the TOCAS contractor safety and health organization at the Freeport, Texas, location, it is now in place at three other Dow facilities in Texas and at two in Louisiana.

Oil Drilling Supplier Expanding in Louisiana

Gulf Island Fabrication Inc., a manufacturer of offshore drilling and production platforms and other specialized structures, will invest approximately $27 million to expand its operations in Houma, Louisiana, according to the Louisiana governor’s office. The company will create 200 new jobs with an average annual salary of $53,000 per year and retain 1,300 existing positions with the project. Plans call for a new corporate headquarters and warehouse, updates to equipment, a new fabrication shop, road improvements, new sewage lines and drainage systems, and a new dry dock. “In 1985, the company chose to locate to Houma for several reasons — two reasons were the Houma Navigation Canal, which allowed the company to be competitive in the oil and gas industry, and the work ethic of the people in south Louisiana,” says Kerry Chauvin, Gulf Island Fabrication’s CEO. “Because of the positive changes we see in Louisiana, our board of directors is committed to staying and expanding in Houma.” The state has awarded the company $2.3 million in performance-based financial assistance.

BP announces oil find in Gulf of Mexico

Oil-and-gas company BP America Inc. said Tuesday it has discovered oil in the deep waters of the Gulf of Mexico, its third discovery in this area.

The discovery at BP's Freedom Prospect is about 70 miles southeast of the Louisiana coast in about 6,100 feet of water. The well was drilled to a total depth of 29,280 feet.

BP said an appraisal will be necessary to determine the size and commerciality of the discovery.

The announcement follows discoveries by BP at its Tubular Bells and Kodiak wells.

BP Exploration & Production Inc., a subsidiary of BP America, operates the well with a 25 percent working interest. Both are owned by London-based BP PLC.

Noble Energy Inc. has a 37.5 percent working interest in the site, Samson Offshore Co. a 25 percent working interest and Marathon Oil Co. a 12.5 percent working interest.

Noble Energy and Samson Offshore acquired the lease for the site in March 2006.

BP shares fell 64 cents to $45.86 in late morning trading, while Marathon Oil declined $1.74, or 6 percent, to $29.79. Nobel Energy shares gained $4.84, or 12 percent, to $45.96.

Energy industry poised to add jobs in South Louisiana

HOUMA — As the rest of the country girds for recession, a study released Wednesday shows Houma-Thibodaux is on tap to gain 4,200 new jobs next year, buoyed by the strength of the local oil-and-gas industry.

The chaos across the country caused by the subprime mortgage crisis and the resulting “credit crunch” for borrowers both big and small should bypass south Louisiana, said Loren Scott, professor emeritus of economics at Louisiana State University and head of a group of economists in charge of the study.

“Right now we think that you’re going to blow right through this one,” Scott said of the recession.

With a local industry concentrated heavily in offshore drilling and shipbuilding, Scott said the Houma-Thibodaux area should be insulated from the financial fallout of the mortgage mess by oil prices that remain profitable, despite taking a dive in recent months.

“Typically your economy relies much more heavily on what’s going on with oil-and-gas prices,” Scott said.

Overall, Louisiana banks are not experiencing the problems of their counterparts in states like California and Arizona, which were among the hardest hit by the subprime-mortgage crisis.

“Most of our banks did not get involved in subprime loans,” Scott said. “Our banks are not suffering with a whole set of assets on their books that they don’t know how much they’re worth.”

Though the price of oil reached historic highs this year, hitting a record of $147.21 in July, most people forget that just a year ago the average price of oil was $65 a barrel, Scott said.

As of today, oil was trading at just under $89 a barrel, and even if the prices fall as low as $45 or $50 a barrel, oil companies will still turn a substantial profit, the economist added.

“That’s still a very profitable price,” Scott said.

However, across the state, job growth overall will virtually stop in 2009 as the nation goes into recession but should pick up in 2010, the report says.

Billions of dollars in construction involving industrial expansions, levee and highway projects, rebuilding from hurricanes and less exposure to the nation’s credit crisis will shield Louisiana somewhat.

But Scott cautioned the crisis that triggered Congress’ $700 billion financial-industry bailout made the forecast tenuous.

“This is a new animal,” he said.

Scott said the country is in a recession now, defined roughly as two straight quarters where real gross domestic product falls.

The recession, however, is expected to be short-lived, he said.

“We’re going to get the financial markets worked out,” he said, adding that other parts of the economy, including oil-and-gas production, remain strong. “It’s just this credit crunch.”

Though he added he would have preferred the government insure, rather than purchase, the bundled subprime mortgages responsible for the financial mess, he said the bailout approved last week will benefit “Main Street” as well as Wall Street.

“As anyone who opens their 401K will discover, it wasn’t just a bailout for Wall Street,” Scott said. “I think something had to be done because the fear level is so high.”

Events on Wall Street since August, when the report was completed, resulted in a major — and downward — forecast for Louisiana, Scott said.

Over the next two years, the state will add 29,700 jobs — only 1,300 in 2009. The original projection had the growth tally for 2009 and 2010 at 53,800, including 27,000 in 2009.

Historically, economic slumps in Louisiana have been buffeted because only 4.6 percent of jobs are tied to production of durable goods, compared with 6.4 percent nationwide, Scott said.

Marathon estimates Q3 refining margins up 40%

HOUSTON, Oct 8 (Reuters) - Marathon Oil Corp on Wednesday estimated that its third-quarter oil and natural gas production rose and its refining margins soared about 40 percent from year-earlier levels.

Sales in the quarter were 384,000 barrels of oil equivalent per day, up from 371,000 a year earlier and 350,000 in the prior quarter.

The Houston company said the volume of oil and natural gas available for sale in the period is expected to be 388,000 barrels of oil equivalent per day, above Marathon's initial forecast of 360,000 to 385,000.

"The production was better than I expected, so that's a positive," Phil Weiss, energy analyst with Argus Research, said. "But the downstream news is slightly negative. The volumes are a little bit negative, obviously the hurricanes had an impact."

At the height of disruption, hurricanes Ike and Gustav shuttered nearly all of the oil production from the Gulf of Mexico and disrupted supplies to refineries including Marathon's Midwest plants.

Marathon said its expects its refined products sales volume will average about 1.37 million barrels per day (bpd) in the third quarter compared to 1.44 million a year ago.

The company said its refineries are expected to process 1.15 million bpd compared to 1.24 million in the prior year.

The oil and gas company's refining and wholesale marketing gross margin climbed, helped by a $40-per-barrel drop in the price of crude oil and a gain related to hedging.

Marathon said said it expects its net share of bitumen production before royalties from the Athabasca Oil Sands Project will be about 27,000 bpd in the third quarter, in line with company projections.

Energy XXI cuts 2009 budget after platforms are damaged by hurricanes

Posted by The Times-Picayune October 09, 2008 7:00AM

Energy XXI, the Bermuda company that is drilling a high-profile Gulf of Mexico well with McMoRan Exploration Co., is cutting its 2009 budget by 17 percent after Hurricane Ike destroyed some of its production platforms.

But the spending cut won't impact the South Timbalier Block 168 No. 1 well it is partnering with McMoRan on. The energy industry has been closely watching progress at the well, formerly known as Blackbeard, because it could potentially set a record for the depth it reaches beneath the ocean floor.

McMoRan, a New Orleans energy company, said this week that the well has currently reached more than 32,850 feet beneath the sea floor. The well is permitted to go as deep as 35,000 feet.

Gulf of Mexico energy production slowly coming back online

Posted by The Times-Picayune October 08, 2008 1:13PM

Nearly 44 percent of all Gulf of Mexico production remains shut down in the aftermath of hurricanes Ike and Gustav, the Minerals Management Service reported this afternoon. More than 38 percent of the Gulf's gas production also remains shuttered.

Over 12 percent of the platforms in the Gulf remain evacuated because of the storms, but all of the drilling rigs have been fully restaffed. Platforms are the offshore structures from which oil and natural gas are produced. Rigs are offshore drilling facilities.

Oil services executive forecasts fast exploration growth

HOUSTON, Oct. 7 -- Exploration services are likely to grow much faster than the overall oil field services market worldwide for years, Schlumberger Ltd. Chairman and Chief Executive Officer Andrew Gould said. Absent a global recession, he is optimistic about the long-term outlook for oil and gas.

"We are now in the fifth year of an up cycle in E&P investment," Gould said in a recent speech, noting that supply remains flat because of a declining mature production base, cost inflation, the time for exploration to translate to production, and increasing numbers of complex, capital-intensive projects in deep water or targeting unconventional resources.

"It is unrealistic to think that 5 years of increased spending in an inflationary environment can compensate for 20 years of underinvestment," he said. He foresees continuing increased spending on exploration worldwide.

"The number of exploration blocks awarded has also been increasing substantially. This part of the business is most influenced by geopolitics and access to reserves," he said. More than 12,000 exploration licenses were awarded during 2003-07 worldwide.
Meanwhile, the offshore drilling fleet is growing. Current construction plans will increase the existing fleet by 29% by 2012, he said, noting that a significant share of the newbuilds are designed for high-specification deepwater operations.

"Among these newbuild rigs are 44 new drillships, which will almost exclusively be involved in exploration and delineation work," Gould said. "In addition, there are 81 new semisubmersibles capable of drilling in ultradeepwater—defined as being deeper than 5,000 ft. These will probably double the number of deepwater rigs involved in exploration activity."

McMoRan Exploration Co. Updates Gulf of Mexico Operations and Impacts of Hurricanes Gustav and Ike

NEW ORLEANS, Oct 07, 2008 (BUSINESS WIRE) -- McMoRan Exploration Co. today reported on the status of its operations following Hurricanes Gustav and Ike, which impacted Gulf of Mexico operations prior to making landfall on the coasts of Louisiana and Texas on September 1, 2008 and September 13, 2008, respectively. Following these events, McMoRan completed initial assessments of the McMoRan-operated structures and received reports from third-party operators on certain properties, including Flatrock at South Marsh Island Block 212.

There was no significant damage to McMoRan's properties resulting from Hurricane Gustav. Assessments following Hurricane Ike identified several platforms, comprising approximately 3 percent of production and 2 percent of reserves, with significant structural damage. Substantially all of McMoRan's remaining production facilities are capable of resuming production pending restoration of downstream pipelines and facilities operated by third parties.

McMoRan has re-established production at a current rate of approximately 140 million cubic feet of natural gas equivalents per day (MMcfe/d), approximately 50 percent of average production rates in July and August of 2008. Based on reports from third party operators of downstream facilities and pipelines, McMoRan expects significant additional production to be restored in the fourth quarter of 2008.

The operator of the Tiger Shoal facility, which processes production from the OCS 310/Louisiana State Lease 340 area including Flatrock, indicated no material damage to the structures and production at Flatrock was re-established on September 22, 2008. The three wells are currently producing at a gross rate of approximately 175 MMcfe/d, 32.5 MMcfe/d net to McMoRan. Exploration and development activities in this important area are continuing as previously scheduled.

McMoRan is engaged in development activities at Flatrock (completion of the No. 4 well and drilling of the No. 5 well) and in exploratory activities on the following prospects, South Timbalier Block 168, Tom Sauk on Louisiana State Lease 340, and Northeast Belle Isle in St. Mary Parish, Louisiana. These rigs sustained no significant damage in the storms and operations have resumed.

Following is a status report on McMoRan's in-progress exploration and development wells:

In-progress wells Working Interest Current Depth Status Flatrock No. 4 -- "C" 25.0% 18,500' Completing in the Rob-L section location Development Well Flatrock No. 5 -- "E" 25.0% 15,300' Spud July 1, 2008: targeting Rob-L and Operc sands, location drilling to proposed total depth of 18,400' Development Well South Timbalier Block 168 32.3% 32,850' Drilling ahead: permitted to 35,000' Tom Sauk 18.3% 11,700' Spud August 14, 2008: drilling towards a proposed total depth of Louisiana State Lease 340 19,000' Northeast Belle Isle 35.7% 9,400' Spud August 24, 2008: drilling towards a proposed total depth of St. Mary Parish, LA 18,500'

The Flatrock No. 4 ("C" location) infill development well was drilled to a total depth of 18,500 feet in August 2008 and is being completed in the same Rob-L sand which is currently producing at an approximate rate of 100 MMcfe/d in the Flatrock No. 2 well ("B" location). The No. 4 well should be capable of flowing at similar high rates.

The Flatrock No. 5 ("E" location), which commenced drilling on July 1, 2008, is located between the Flatrock No. 1 discovery and the Flatrock No. 2 wells. The No. 5 well is drilling below 15,300 feet and log-while-drilling tools have indicated hydrocarbon bearing sands in the Rob-L section approximating 115 net feet over a total approximate 205 foot gross interval. The primary Rob-L sand should be capable of flowing at similar high rates seen in the Flatrock No. 2 well mentioned above. The well will be deepened to a proposed total depth of 18,400 feet to evaluate additional targets in the Rob-L and Operc sections.

Following completion activities at Flatrock No. 4, the rig will be moved to the Flatrock "F" location to drill the No. 6 delineation well on South Marsh Island Block 217. The Flatrock No. 6 well is located approximately 3,000 feet southeast of the Flatrock No. 3 well currently producing in the Operc and approximately 8,000 feet north northwest of the Hurricane Deep well that was productive in the Gyro. Flatrock No. 6 will target the deeper Operc, which could add significant new reserves to the Flatrock field, already a major discovery, and possibly penetrate the upper Gyro section of the Flatrock/Hurricane Deep structure.

McMoRan controls approximately 150,000 gross acres in the Tiger Shoal/Mound Point area (OCS 310/Louisiana State Lease 340) and has multiple additional exploration opportunities with significant potential on this large acreage position. McMoRan has a 25.0 percent working interest and an 18.8 percent net revenue interest in Flatrock. Plains Exploration & Production Company (NYSE: PXP) holds a 30.0 percent working interest.

The South Timbalier Block 168 No. 1 ultra-deep exploratory well (formerly known as Blackbeard West No. 1) is drilling below 32,850 feet to evaluate potentially significant targets. Previous logs had indicated three potential hydrocarbon bearing zones that would require further evaluation. Recent logs in October 2008 indicated that the well has encountered a fourth potential hydrocarbon bearing zone. The South Timbalier Block 168 well, which is permitted to 35,000 feet, is located on the top of the identified structure. Seismic data on the prospect indicated the potential for significantly thicker sands on the flanks of the structure as confirmed in recent major deepwater discoveries. Based on information obtained to date in the South Timbalier Block 168 well, McMoRan believes additional drilling on the flanks could result in significant reserve potential. McMoRan operates the well and owns a 32.3 percent working interest. McMoRan's partners, PXP and Energy XXI (NASDAQ: EXXI), hold a 35 percent working interest and 20 percent working interest, respectively.

In September 2008, McMoRan entered into a drilling contract with Rowan Companies, Inc. for the new 240C class jack-up, Rowan-Mississippi. This rig will allow McMoRan to continue to execute its deep and ultra deep exploration program on the Shelf of the Gulf of Mexico. McMoRan's partners in the ultra deep trend include PXP and Energy XXI. McMoRan expects drilling operations to commence with this rig at the Ammazzo exploration prospect located on South Marsh Island Block 251 in 25 feet of water in November 2008. The Ammazzo prospect has a proposed total depth of 24,500 feet.

Based on geologic and seismic data, the Ammazzo prospect is targeting one of the largest undrilled deep structures below 15,000 feet on the Shelf of the Gulf of Mexico. It is positioned on the southern portion of the structural ridge extending from the Flatrock and JB Mountain discoveries (located approximately 16 and 11 miles north-northwest, respectively), where McMoRan has successfully proven the existence of Rob-L, Operc and Gryo sands in the Middle Miocene. There are multiple targets at the Ammazzo prospect in these sections representing significant exploration potential (500 billion cubic feet of natural gas equivalents to greater than 1 trillion cubic feet), similar to Flatrock and potentially larger. McMoRan will operate the well and holds a 25.9 percent working interest and 21.1 percent net revenue interest. McMoRan's partners, PXP and Energy XXI, hold a 28.1 percent working interest and 16.0 percent working interest, respectively.

A charge to third quarter results will be required to reduce the net book value of certain property damaged in the storm and for related adjustments to estimated future abandonment costs associated with damaged structures and well abandonment. Preliminary estimates indicate a charge of approximately $150 million. McMoRan intends to pursue recovery of costs under its insurance program, which is subject to a $50 million deductible.

McMoRan ended the third quarter of 2008 in a strong liquidity position with $160 million in cash and no borrowings under its $450 million bank credit facility.

Lower Prices,Refining Margins To Hit Conoco 3Q Results

HOUSTON -(Dow Jones)- ConocoPhillips' (COP) third-quarter earnings will be hit by lower oil and natural gas prices, smaller refining profits and less production compared with the previous quarter, the company said Thursday.

The third-largest U.S. oil company by market value said in its interim update that quarterly output and refining margins, the difference between the crude oil refiners buy and the products they sell, will be slightly below the second quarter in part due to hurricane disruptions.

ConocoPhillips said its refining results will be reduced by about $200 million during the third quarter due to Hurricanes Gustav and Ike, which hit the coast of Louisiana and Texas on Sept. 1 and Sept. 13, respectively. The storms forced offshore producers to evacuate personnel and halt output, while refiners had to shut down coastal operations.

Conoco's 247,000-barrel-a-day refinery in Belle Chasse, La., for example, shut down for more than two weeks until Sept. 17 due to both storms. It is now producing at normal rates, according to the Department of Energy.

The Houston company also said Ike and Gustav translated into a 20,000 barrels of oil equivalent per day not produced.

Some analysts see Conoco's preliminary quarterly report as the bellwether for other major oil companies as all of them have experienced lower oil prices, tighter refining margins and disruptions in Gulf of Mexico output during the third quarter. However, analysts said ConocoPhillips might be the hardest hit as it has less international leverage than other majors such Exxon Mobil Corp. ( XOM), Chevron Corp. (CVX), Royal Dutch Shell (RDSA) or BP PLC (BP), which have a larger global presence.

Shares of Conoco recently were off 4.6% at $67.42.

"We are going to see all oil companies with exposure to the Gulf of Mexico reporting unusual costs," said Sal Ilacqua, analyst at Monness Crespi Hardt & Co. "The third-quarter results are going to be very confusing, while the real impacts could come in the fourth quarter."

During the first month of the quarter that ended Sept. 30, oil prices reached an all-time high of $147.27 a barrel, but prices ended the period with a drastic drop to below $95.

Although oil prices are still much higher than a year ago, analysts expect prices to keep below its all-time high for the rest of the year, which is expected to shrink companies' fourth-quarter earnings. These results are also expected to keep reflecting the effects of Ike and Gustav as almost 50% of oil and gas production was still off line in early October and it could take weeks until output returns to pre-storm levels.

Conoco will report third-quarter results on Oct. 22.

- By Isabel Ordonez, Dow Jones Newswires; 713-314-6090; isabel.ordonez@ dowjones.com