Equipment also in short supply as industry works to restore platforms, pipelines damaged by hurricanes Katrina and Rita

Brad Foss

Associated Press Business Writer

There is no shortage of work these days for Bay Ltd., which specializes in repairing offshore oil and gas platforms. The trouble is, the same hurricanes that slammed the Gulf of Mexico’s energy infrastructure and created this extra business also upended the company’s southern Louisiana work force.

“If we had more people, we could definitely get more work,” said Mark Comeaux, manager of Bay’s fabrication plant in Belle Chasse, La., just south of New Orleans. Comeaux, who lost half of his 80-person crew after hurricanes Katrina and Rita, said employees either moved away or they found better-paying blue-collar jobs once federal reconstruction funds began flowing to the region.

Enough work, not enough workers — a familiar refrain among companies supporting the Gulf’s oil and gas industry. It underscores one of several major problems the industry faces as it struggles to rebuild a complex web of platforms, pipelines and processing plants before the next hurricane season arrives.

Labor and equipment shortages

“There’s so much work down here for diving it’s unbelievable,” said Jeff Sikut, president of Avondale, La.-based J&J Diving, an underwater pipeline inspection and repair company that is turning away two to three potential new customers a day. Sikut said he’d love to hire an additional 50 divers and take on additional work, but the available labor pool is extremely shallow and those who would consider relocating to southern Louisiana often cannot find reasonably priced housing.

Labor and housing isn’t all that’s scarce. Sikut said projects have been slowed by the shortage of hydraulic and pneumatic tools _ a byproduct of soaring construction demand throughout the Gulf Coast — as well as a tight market for the jet pumps that are used to move sand in order to bury pipelines.

Even when all the best crews and equipment are available, it is slow going.

“There are boats sunk everywhere. Platforms were mangled, and the pipelines look like spaghetti,” Sikut said.

Progress being made

“The impression we’re getting from our members is that it’s going even better than expected,” said Larry Wall, a spokesman for the Baton Rouge-based Louisiana Mid-Continent Oil and Gas Association.

Still, about a quarter of the Gulf’s daily oil output, and one-fifth of its natural gas output, remains offline and the pace of progress is expected to slow in the months ahead, a trend that could keep upward pressure on energy prices.

The region’s daily output of oil and natural gas is not anticipated to reach pre-hurricane levels until next summer. It could be at least two years before all of the damaged energy infrastructure in the Gulf of Mexico is fixed, those involved in the recovery effort say.

Todd Hornbeck, chairman and founder of Covington, La.-based Hornbeck Offshore Inc., believes that if current weather patterns persist and more oil and natural-gas drilling occurs in the Gulf — a region he called “hurricane alley” — the industry may find itself in a “perpetual repair cycle.”

However, Hornbeck said the current labor crunch shouldn’t come as a surprise. It is partly a reflection of the industry’s history of boom and bust cycles, whereby employees laid off during periods of low energy prices move on to other skilled professions and do not return.

Thunder Horse, Mars to have large impacts

“There were a fair number of those platforms that were destroyed that were very low producers, so if they do not come online it doesn’t mean we cannot get back to a pre-hurricane level,” said Gary Strasburg, a spokesman at the Minerals Management Service.

Yet even the platforms that are eventually rebuilt will not all be in place by the middle of next year. Instead, in order to get back to pre-hurricane levels by then, the industry is relying on the addition of one major platform that was under construction prior to Katrina and Rita — BP’s Thunder Horse.

Once up-and-running in the second half of 2006, Thunder Horse will have the capacity to produce as much as 250,000 barrels per day of oil and 200 million cubic feet a day of natural gas. It is equivalent to more than half of the region’s daily oil production still offline, and almost 10 percent of the daily natural-gas production offline.

Another very important platform for the region is Royal Dutch Shell Group’s Mars platform, which was producing 130,000 barrels per day of oil and 150 million cubic feet a day of natural gas pre-Katrina. Mars, which suffered extensive damage, is expected to resume operations in the second half of 2006.

Some 150 pipelines damaged

About 150 pipelines that gather and transport oil and natural gas from offshore wells were damaged by the back-to-back storms, according to federal statistics. That is 50 percent more pipeline damage than Hurricane Ivan caused in the summer of 2004.

London-based BP says its daily output was down by 135,000 barrels of oil equivalent per day in the third quarter and it expects to be down 160,000 in the fourth quarter, in large part because of problems with pipelines.

Another key bottleneck exists onshore, in the form of damaged natural-gas processing plants.

Dominion Resources had been pumping 435 million cubic feet of natural gas per day before Katrina and is now producing slightly more than that, but still 15 percent short of its goal of 525 million cubic feet by now, due to the processing shortfall, said spokesman Dan Donovan.

Gas Daily, a trade publication, reported late last month that nine plants with 5.7 billion cubic feet of processing capacity remained shut down because of storm damage.

The Minerals Management Service, a division of the Interior Department that regularly gathers such information from the industry, is expected to release a comprehensive update on the region’s recovery before the end of the year, a spokesman said.