Prepare for another hurricane season

Don Stowers
Editor-OGFJ

Last year Hurricanes Gustav and Ike ravaged the middle Gulf Coast and inflicted significant damage to the nation’s oil and gas infrastructure. The two storms destroyed a total of 60 offshore platforms and damaged another 124 that needed months of repair.

As a result of the two tropical cyclones, nearly all of the natural gas production and processing capacity in the area was shut in, with continued shut-ins impacting production into December 2008. There were 55 major natural gas processing plants in Texas, Louisiana, Mississippi, and Alabama that were in the path of Gustav and Ike, and these plants represented about 38% of total US processing capacity.

Twenty-eight pipelines declared force majeure during early September due to the storms. Most of these pipelines moved natural gas from offshore production platforms to onshore processing plants, and many of them were effectively shut down. Online interstate pipeline companies were also affected, with about a dozen interstate pipelines experiencing lower-than-normal flows in the aftermath of the hurricanes.

The latest prediction for the 2009 Atlantic season, which began June 1 and runs through November 30, is for a milder season than last year, which was the most active since 2005 (Hurricane Katrina year) and the fourth most active since 1944 with 16 named storms, half of which were hurricanes, and five of which were considered “major” (Category 3 strength or greater).

While only three hurricanes made landfall in the United States, a series of tropical storms also caused significant damage to production and distribution systems throughout the Gulf of Mexico and East Coast regions. Within just two months (between July 23 and September 13), the US was hit by three hurricanes and two tropical storms.

According to the National Oceanic and Atmospheric Administration, a “normal” Atlantic hurricane season has 11 named storms, six hurricanes, and two major hurricanes. Here are the predictions by several leading hurricane forecasters:

• AccuWeather predicts 13 named storms and eight hurricanes and says four of the hurricanes will hit the US East Coast or Gulf Coast, and one of those will be a Category 3 storm;
• WSI Corp.’s forecast is for 13 named storms and seven hurricanes;
• Colorado State University predicts 14 named storms and seven hurricanes; and
• The Weather Research Center says it expects only seven named storms and four hurricanes.

NOAA just released its forecast, which is less specific. The agency says a “near-normal season” is more likely this year. In a May 21 press release, NOAA calls for a 50% probability of a near-normal season, a 25% probability of an above-normal season, and a 25% probability of a below-normal season.

Global weather patterns are imposing a greater uncertainty in the 2009 hurricane season outlook than in recent years. Forecasters say there is a 70% chance of having nine to 14 named storms, of which four to seven could become hurricanes, including one to three major hurricanes (Category 3, 4, or 5).

Natural disasters like hurricanes can cause immense devastation, says Vince Morgan of the law firm of Pillsbury Winthrop Shaw Whitman LLP in Houston, but thorough insurance coverage and proper claims filings can help companies recover more quickly in the aftermath of a storm.

Morgan notes, “Understanding your company’s coverage and taking a strategic approach to maximizing the available insurance recovery are two of the most important steps you can take towards restoring the company’s pre-loss position.”

Blake McLane of Houston-based CyrusOne, which offers data solutions for the oil and gas industry, advises that the downtime of a business can be just as devastating as the physical damage from a hurricane and that companies need to take the necessary steps to assure their data is protected and have a disaster recovery plan in place.

“Disaster recovery is not technically a mandatory part of SOX regulation, but it is a practical component of sound IT stewardship,” said McLane. “After all, if a company loses its financial information, it’s in for big trouble.”

Although there is no way to prevent natural disasters such as hurricanes from occurring, what can be controlled is how you prepare for them, says Kevin North, president and CEO of Toronto-based Dyadem, a risk management firm.

“Every day off-line is worth millions of dollars, yet many oil and gas operations are still using clipboards and spreadsheets to mitigate risk and reduce downtime,” says North, whose company offers various types of risk software intended to mitigate operational risk and enterprise risk.

There were lessons learned from the recent active hurricane years in the Gulf, says Adam Hall of EnRisk, an insurance broker that specializes in energy risk. “Premiums increased, but insurance buyers are also a lot better educated than before.”

Lessons learned the hard way.