Mother Nature can be cruel — especially if you’re an oil rig floating out in the deep waters of the Gulf of Mexico. Rigs already have to put up with the regular effects of the harsh environment all year long. And then, for a few months each year, the Gulf becomes a swirling torrent of potential destruction and millions of dollars’ worth of potential damage.
That’s right, it’s hurricane season.
The storms can be a huge cost sink for the E&P firms operating in the Gulf of Mexico’s waters. But it can also be a big profit generator for those oils service firms specializing in hurricane clean-up and restoration. And with hurricane season rolling in, now could be a perfect time for investors to snap up shares of these energy stocks.
Hurricane Season is A Major Issue
There are more than 4,000 drilling platforms and nearly 56,000 kilometers of pipelines that dot the sea floor in the Gulf of Mexico. This vast floating and undersea network of infrastructure is vital for making sure the region continues pumping record amounts of crude. Unfortunately, being miles and miles away from the shoreline does pose a big problem when storms starting rolling in.
The combination of strong waves and high winds can lead to some serious damage to drilling rigs, floating platforms and other subsea infrastructure.
For example, mega storms Hurricane Katrina and Rita managed to completely destroy 109 oil platforms and five drilling rigs in the Gulf of Mexico when they hit back in 2005. That doesn’t included the 69 platforms that received extensive damage from the hurricane duo. The damage cost the energy industry some serious coin to repair and remove. Independent E&P firm Apache (APA) saw roughly $700 million worth costs related to damages from the two storms, while deepwater driller Transocean (RIG) witnessed around $170 million.
All in all, the damage from the two mega storms clocked in at a record $17 billion.
Now, since that time, we haven’t seen anything as big rock the Gulf, but damage does occur and even costs from a normal hurricane season can add up quickly. This season, The U.S. National Oceanic and Atmospheric Administration (NOAA) is predicting a normal hurricane pattern for the year. That should bring about 13 tropical storms and three to six full blown hurricanes. Of that number, one or two should reach major Category 3 status.
That normal pattern still packs a punch and could lead to some hefty profits for those energy stocks servicing the Gulf.
Which is why investors may want to consider adding several of the energy stocks in the oil service industry that provide solutions and reconstruction efforts in the face of hurricanes: