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.