Modeling Lost Production in the Gulf of Mexico—I. Redevelopment Economics and Impact Assessment
Abstract The oil and gas industry in the Gulf of Mexico has the greatest weather exposure in the world, and is vulnerable to a range of losses that include physical damage, destruction, business interruption, and pollution liability. During the 2004 and 2005 hurricane seasons, a number of offshore facilities, drilling rigs, and pipelines were destroyed and extensively damaged. In total, Hurricanes Ivan, Katrina, and Rita destroyed 122 structures and severely damaged 76 others. Owners of destroyed assets are faced with a difficult decision: Should the property be abandoned along with its remaining reserves or should the asset be redeveloped? The purpose of this three-part series is to examine the destroyed infrastructure from the 2004 and 2005 hurricane seasons and the likely contribution this collection of assets would have made to future production in the Gulf of Mexico. In Part 1, we describe the weather risk that operators encounter and review the factors that are involved in redevelopment decisions. The impact of the 2004 and 2005 hurricane seasons on the infrastructure and production in the Gulf of Mexico are summarized.
The impact of the 2005 hurricane season on the Louisiana Artificial Reef Program
The 2005 hurricane season in the Gulf of Mexico was the worst in the history of offshore production, with Hurricanes Katrina and Rita destroying 110 oil and gas structures and eight mobile offshore drilling units. Infrastructure destroyed by accident or natural catastrophe are decommissioned according to the same federal regulations that guide normal decommissioning operations, but depending on the nature of the destruction and the market conditions in the months following the event, special conditions and delays may occur. Historically, offshore infrastructure destroyed by hurricanes or other unusual circumstances have been considered for inclusion in the Louisiana Artificial Reef Program (LARP) under the Special Artificial Reef Site (SARS) category. The purpose of this paper is to review the impact of the 2005 hurricane season on the LARP and the current status of the SARS program. We examine the criteria employed in project evaluation and approval as well as aggregate program statistics. The characteristics and risks associated with decommissioning destroyed infrastructure are also described. At the end of 2006, 10 projects representing 35 platforms destroyed in the 2005 hurricane season have been approved as SARS in the Gulf of Mexico, effectively doubling the number of sites and structures classified as SARS.
Analysis: The Agenda 2007 Proposals: Evolution or Revolution?
On 10 February 2004 the Commission published its proposal for the financial perspective 2007-2013. A week later it adopted the third report on economic and social cohesion. These two documents form the basis of the so-called ‘Agenda 2007 reforms’. They will be the greatest challenge for the enlarged EU after the intergovernmental conference, since they will determine the financial basis for EU policy-making until the middle of the next decade. The Agenda 2007 proposals certainly hint at courageous reforms, because they place a previously unheard-of emphasis on performance and quality. Under the proposals, structural operations should generate value for money, and the funds should focus on projects which generate added value at a European level. Overall the Commission’s proposals point in the right direction, because they balance, on the one hand, solidarity for the new Member States and weak regions in the old Member States with, on the other hand, investments in future tasks. Moreover, they constitute a paradigm shift. For the first time, the Common Agricultural Policy will not be the dominant expenditure category. Now it is up to the Member States to examine the proposals politically and find a compromise between sometimes very divergent interests. It is to be hoped that, during the debate over expenditure limits and division of funds, national interests do not outweigh European interests.