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The Value of Lost Production from the 2004-2005 Hurricane Seasons in the Gulf of Mexico

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  • Kaiser Mark J.

    (Louisiana State University)

  • Dismukes David E

    (Louisiana State University)

  • Yu Yunke

    (Louisiana State University)

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. Most of the destroyed infrastructures were mature assets that are unlikely to meet the economic thresholds to support redevelopment, and in the majority of cases, the production and revenue from these structures will be "lost" and written off by operators. The purpose of this paper 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. We estimate the amount and value of lost production under various model scenarios, present the results of sensitivity analysis, and discuss the limitations of the analysis. We estimate that between 60 and 65 million barrels of oil and 231 to 266 billion cubic feet of gas were permanently lost in the 2004-2005 hurricane seasons at an estimated value ranging between $1.3-4.5 billion, depending on the future price profiles of oil and gas.

Suggested Citation

  • Kaiser Mark J. & Dismukes David E & Yu Yunke, 2009. "The Value of Lost Production from the 2004-2005 Hurricane Seasons in the Gulf of Mexico," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 4(2), pages 1-34, April.
    • Handle: RePEc:bpj:jbvela:v:4:y:2009:i:2:n:4
    DOI: 10.2202/1932-9156.1046
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    References listed on IDEAS

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    1. Adelman, M.A. & Watkins, G.C., 2005. "U.S. oil and natural gas reserve prices, 1982-2003," Energy Economics, Elsevier, vol. 27(4), pages 553-571, July.
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    Cited by:

    1. Anita Schiller, 2011. "The impact of a storm surge on business establishments in the Houston MSA," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 56(1), pages 331-346, January.

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