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Hurricane Stock Season

Posted: Apr 01, 2009 14:04 PM by Eric Fox

Tickers in this Article: EPD, TTI, ATPG, APC, XOM

If predicting stock prices was a Herculean task, consider how difficult it might be to predict the number of hurricanes expected to impact the U.S. in 2009. Investors should pay close attention to which companies have high dependence on the Gulf of Mexico and consider this information when.

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IN PICTURES: 10 Ways To Prepare For Nature's Worst

Hurricane Watch
A recent estimate has predicted 13 storms for the duration of 2009, four of which are to be hurricanes aiming for coastal areas including the Gulf of Mexico. This is important information for investors in the energy sector, as many exploration and production companies have considerable assets in the Gulf and are susceptible to damage from these storms.

Exxon Mobil (NYSE:XOM) has substantial production in almost every location, so it makes sense that it is a large producer in the Gulf of Mexico as well. During the fourth quarter of 2008, Exxon said its earnings were $570 million lower, due to hurricane repairs and shut-ins. (Drill down into financial statements to tap into the right companies and let returns flow, see Unearth Profits In Oil Exploration And Production.)

Anadarko Petroleum (NYSE:APC) is one of the largest independent producers from the Gulf of Mexico, with 2.2 million acres under lease and reserves at the end of 2008 of 300 million barrels of oil equivalent (MMBOE). Anadarko operates the Independence Hub, a platform complex located more than 100 miles offshore that has the capacity to handle one billion cubic feet of daily production. Enterprise Products Partners LP (NYSE:EPD) is the owner of the hub and the Independence Trail system, a pipeline network serving the platform.

Hurricane Aftermath
Last summer, Anadarko had to shut down its production in the Gulf and evacuate its personnel from offshore platforms due to hurricanes. The company lost five million barrels of oil equivalent (BOE) of production.

One producer with a high dependence in the Gulf is ATP Oil & Gas Corporation (Nasdaq:ATPG), which has 63% of its proved reserves in the Gulf of Mexico. The company emerged from last summer's two hurricanes relatively unscathed, with minimal damage or production interruptions.

Turn Foresight into Profit
An alternative play for an investor might be to buy Tetra Technologies (NYSE:TTI), an oil services company that provides plugging and abandonment services on offshore wells. The company saw significant new business last year due to hurricane cleanup. (Find out how reinsurance companies stay afloat during disasters, read Event-Linked Bonds: Competing Against A Catastrophe.)

Hurricane season in the Gulf of Mexico can actually have a perverse side effect to the natural gas market. If it takes significant production offline, even temporarily, the drop in supply can help balance the market and support prices.

The Bottom Line
Many exploration and production companies are susceptible to variability of earnings and sales, because operations in the Gulf of Mexico are exposed to hurricane season, and investors should monitor which companies have the greatest risk in this area. (Learn to explore a company's past profits to find today's opportunities Earnings Cyclicality Exposes Profitable Trends.)

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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