Hurricane Dolly Shuts Oil, Gas Production

In case of the first storm to menace energy production areas, U.S. Gulf of Mexico producers have shut 5 percent of oil and natural gas production by Tuesday, but the shutdowns were expected to be short-lived even as Dolly strengthened to a hurricane.

"Dolly is a short-term sidebar," said Tim Evans, energy analyst for Citi Futures Perspective in New York. "We're talking about a very modest amount of production."

U.S. crude oil futures settled down $3.09 at $127.95 a barrel, bouncing back from a 6-week low of $125.63 after the U.S. Minerals Management Service announced the production shut-ins.

Dolly became the second hurricane of the 2008 Atlantic season with sustained winds of nearly 75 miles per hour (120 km per hour). It's expected to make landfall Wednesday afternoon near the Texas border town of Brownsville, well away from most sensitive offshore platforms.

Anadarko Petroleum Corp (APC.N: Quote, Profile, Research, Stock Buzz) said it has restored the equivalent of 10,000 barrels per day of oil production in the western Gulf of Mexico because of the fading threat from Dolly.

The company still had the equivalent of 20,000 barrels of oil production shut, an Anadarko spokesman said.

By the numbers, Dolly led producers to turn off 395 million cubic feet per day (cfd) in natural gas production out of a total 7.7 billion cfd and 60,631 barrels of crude oil output out of 1.3 million barrels taken daily from the Gulf, according to the MMS.

Announcements throughout the day from pipeline operator Williams (WMB.N: Quote, Profile, Research, Stock Buzz), producers Apache Corp (APA.N: Quote, Profile, Research, Stock Buzz) along with energy giants Exxon Mobil Corp (XOM.N: Quote, Profile, Research, Stock Buzz), Chevron Corp (CVX.N: Quote, Profile, Research, Stock Buzz) and Shell oil Co <RDSa.L pointed to Dolly making a bigger dent in the Gulf's natural gas output.

Shell also said it had shut an undisclosed amount of onshore natural gas wells ahead of Dolly.

Williams said its giant Transco pipeline system would be carrying 250 million cfd less in natural gas due to shut offshore wells.

Apache Corp has shut 56 million cfd while Exxon has shut 40 million cfd and 10,000 barrels per day (bpd) in oil output. Anadarko has shut the equivalent of 30,000 bpd in oil production.

Chevron said a "minimal" amount of its production was shut.

Other producers were flying workers from offshore platforms throughout the day, though they said output was unaffected.

While Dolly's path will take the threat away from the heaviest offshore production areas, the storm still poses a potential threat to three refineries in Corpus Christi, Texas.

Valero Energy Corp (VLO.N: Quote, Profile, Research, Stock Buzz) and Citgo Petroleum Corp said they were monitoring the storm and readying the refineries, but production remained as before the forecast.

Flint Hills Resources LP said it was monitoring Dolly.

While the 2006 and 2007 hurricane seasons had little impact on offshore production areas, the companies have prepared for a possible repeat of 2005 when hurricanes Katrina and Rita temporarily shut a quarter of U.S. oil and fuel production, sending prices to then-record highs. (Additional reporting by Bruce Nichols in Houston, Janet McGurty, Rebekah Kebede, Richard Valdmanis and Joe Silha in New York; Editing by Christian Wiessner)