BOEMRE ENVIRONMENTAL STUDIES PROGRAM: ONGOING STUDIES
BOEMRE OCS Region:	Gulf of Mexico
Title:	Diversifying Energy Industry Risk in the Gulf of Mexico (GM-92-42-130)
Planning Area:	Gulfwide
Total Cost: $165,302	Period of Performance: FY 2006 - 2011
Conducting Organization:	Coastal Marine Institute, Louisiana State University
BOEMRE Contact:	Kristen L. Strellec
Description: Background: The impacts associated with oil and gas supply interruptions created by hurricanes Katrina and Rita went beyond the region’s economy by impacting both national and international energy markets. These oil and gas supply interruptions occurred during perhaps one of the most inopportune times in the recent history of energy markets and underscored the need for diversifying energy industry risk in the Gulf of Mexico (GOM). This project proposes to investigate how the energy industry diversifies its risk exposure in general in the GOM, with a particular emphasis on insurance-related issues. Risk mitigation is secured through the use of various strategies, including but not limited to the following: the private insurance market, energy supply portfolio management, alternative energy development, and non-traditional markets such as hedge funds. All strategies, but most notably the private insurance market, have undergone significant changes in recent years. Pre-Katrina and Rita, major energy-producing and consuming companies were already beginning to invest considerable amounts of money in diversifying risk by re-allocating energy supply portfolios because there are continued strong business cases for doing so, irrespective of the current intense period of tropical activity. Geopolitical uncertainty had created considerable upward pressure on energy prices throughout the global economy, and forced many integrated companies to reassess the manner in which they make energy supply investment decisions.
Objectives: The purpose of this research is to examine the main issues associated with the energy industry’s risk diversification strategies, with a particular focus on the implications that these strategies will have not only on major oil and gas companies, but also smaller independents and Gulf Coast communities. The questions and topics that need to be examined in the Gulf of Mexico-specific analysis include: How do the major oil and gas companies’ allocate their energy supply portfolios traditionally and how have those traditional allocations changed post-Katrina and Rita? How will diversifying energy supplies impact corporate goals and business development in the Gulf of Mexico? Given the large amount of offshore infrastructure impacted by the recent hurricanes, and the heavy concentration of offshore infrastructure in the Gulf, will insurance issues play a greater role in influencing energy companies’ investment decisions? Will any of the impacts of changing current energy supply portfolios impact local and state economies and if so, how do they compare to traditional E&P economic impacts?
Methods: The methods will include a detailed literature review and synthesis of existing information, including: annual shareholder reports and 10-Q SEC filings from all major oil and gas companies operating in the GOM, research institute analyses, equity analyst reports, Wall Street Journal articles, government reports, trade journal articles, and trade association reports.
Products: A final report publication with annotated references.
Importance to BOEMRE : This research will provide BOEMRE with a thorough study on risk diversification choices being made by energy companies and how they relate to the GOM region and its oil and gas activities. The study will specifically address how these changes are impacting industry and have the ability to impact the communities and economies of the Gulf Coast.
Current Status: A final draft report has been submitted to BOEMRE for final review.
Final Report Due:	August 2011
Publications:	None
Affiliated WWW Sites:	None
Revised date:	March 2011
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