Often overlooked in assessments of recovery from last year's Gulf of Mexico hurricanes, the largest chunk of spending is yet to come in the abandonment arena with an estimated $1.8 billion to $6 billion likely required to close down destroyed fields. And that estimate comes atop the estimated $15 billion worth of abandonment work still under way from storms in 2004 and 2005.
The estimate was provided by Barclay's analyst James West, who has been tracking the abandonment work market the last few years. Because the industry has suffered its heaviest storm toll in those years, it is learning the hard way the advantages of closing down marginal fields ahead of the storms.
West calculates that cost on a typical abandonment project can zoom from $2 million on a standing platform to an average of $32 million or more for a field where the platform has been destroyed. As a result, he says, his estimate for Gulf abandonment work probably is low because it is based only on the 60 platforms destroyed last year.
And the work occurs as the largest abandonment project in the world gets under way finally after four years of study at Mississippi Canyon 20. That's where tiny Taylor Energy has been required to sign a trust agreement with the US Minerals Management Service to abandon a field destroyed by Hurricane Ivan in 2004. Taylor has refused to discuss the project and the MMS also has declined to share details of the trust agreement or answer questions about it.
It remains clear, however, that the cost of hurricane clean-up in the Gulf will dwarf the expenses of surviving the storms.
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