Katrina's effect on US oil, gas sector credit seen minimal: S&P

Washington (Platts)--16Sep2005

Strong liquidity levels and "robust" crude and natural gas prices should
"insulate the credit quality of US oil and gas companies with substantial
exposure to the US Gulf of Mexico and the Gulf Coast regions in the aftermath
of Hurricane Katrina," Standard & Poor's said Friday.
     Still, the rating agency warned it could take several months to fully
assess the financial impact of the storm in terms of lost production volumes,
decreased refinery throughput, repair costs for damaged facilities, the amount
of insurance payments realized and other potential costs from disrupted
operations.
     S&P noted that the storm has affected several refiners,
exploration-and-production companies, and oilfield services companies with
operations in the region. Several key refineries remain off-line, a number of
pipelines are operating at less than full capacity and "meaningful shut-in
production continues to remain problematic. In addition, S&P said the storm
has displaced many oilfield workers, damaged operational bases, and created
logistical difficulties for companies. "The labor component," the rating
agency added," could be key to the industry's ability to recover from the
storm; before the hurricane, labor supply was already tight."
     In the refinery sector, the report said four refineries, accounting for
5% of the US refining bases, are shut down and "could remain down for an
extended period, perhaps well into 2006." The outages, however, are not likely
to affect ratings on three of the four owners--Chevron Corp, ExxonMobil Corp
and ConocoPhillips, given that each has large and geographically diverse
refining operations. Less clear, S&P said, is the effect a prolonged shutdown
of Murphy Oil Corp's Meraux refinery will have on the company's ratings. The
refinery accounts for about 65% of the company's throughput capacity.
     S&P said key issues for the e&p sector in bringing shut-in production
back on-line will be assessing damage and restoring operations to natural gas
gathering facilities, third-party pipelines and production facilities. The
report noted that following Hurricane Ivan in 2004, a full return of
production "lagged initial industry estimates by several months.
     The rating agency also said that offshore drilling contractors could see
some "modest near-term financial impacts" from Katrina damage in the third
quarter because of down time and rig repairs, the ratings on the large
offshore drilling operators with exposure to the region "are not expected to
be negatively affected." All, S&P said, have been benefiting from very
favorable industry conditions and have large well-diversified fleets, strong
liquidity profiles, and insurance in place that should help minimize the
financial impact of the storm."
     S&P, like Platts, is a unit of The McGraw-Hill Companies.

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