As some oil and gas companies were still working to fully recover from 2004's Hurricane Ivan, Katrina blazed across the Gulf, leaving a trail of destruction in its wake. Offshore driller Rowan Cos. Inc. lost one of its 22 rigs. Other companies did not fare as well, and Danny F. McNease, Rowan chairman and chief executive, pointed out that the timing of the storm was made even worse by current boom market conditions. Before Katrina, the Gulf was home to 819 manned production platforms and 137 drilling rigs. "For previous storms we could get [surplus] rigs to go out and continue to do the work, but right now all the available rigs are already out there working," McNease said. "It will be interesting to see how many rigs are lost, but also what's happening out there with the platforms. "We've heard that for many pipelines, the pressure is low. Folks doing flybys are seeing bubbles rising to the surface, and that isn't good. It's going to be a huge challenge to this industry to fully recover." It may take months to fully assess the damage, according to Tony Mayer, managing director, and Andrew Kadin, senior vice president, for the marine and energy practice at insurance-services firm Marsh Inc. "We have found that these initial damage reports can be deceptive," Mayer says. "Aside from platform damage you have a scouring-action effect on subsea pipelines. There is no way to know the full extent of the damage at this time." Kadin adds, "Several companies were still repairing several miles of pipeline damage from Ivan. Ivan was a Category 4 [storm] and Katrina was a 5. I think we are going to see that Katrina did much more damage...." Complicating the road to repairs is the fact that winter is coming, so the window for repairing the damage is closing, Kadin says. In addition, there's the issue of whether to do the repairs offshore or to bring the infrastructure onshore-all in the face of limited equipment and the personnel to do the repairs. "[And] many of the yards are already full of existing projects," Mayer adds. There is physical damage and business interruption. Some producers choose not to purchase the business-interruption coverage, gambling that a natural disaster will spare some of their assets. Michael Darden, a partner in the global oil and gas section of law firm Baker Botts LLP, says the wild card in this situation is onshore. "Historically, the oil and gas industry has had to deal with hurricanes in the Gulf, and they have done a remarkable job repairing the offshore Gulf infrastructure [after a storm]...We get them every year. But the onshore flooding is new. With the levees breaking, onshore operations are affected in ways that haven't happened before." Myron Ebell, the Competitive Enterprise Institute's director of global warming and international environmental policy, says, "Katrina exposes the facts that our aging and inadequate energy infrastructure is stretched to the limit and that any disruptions will therefore cause major problems." Jim Flanagan, regional manager, frontier Gulf of Mexico, for IHS Energy, says, "When the process of bringing platforms and rigs back online begins, producers will be faced with many challenges such as heavily damaged staging areas onshore and limited transportation means to get everyone back to work offshore. "It's anyone's guess as to how long it will take to attain pre-Katrina production levels." From an investment perspective, analyst Paul Sankey of Deutsche Bank, says the environment remains fundamentally bullish for upstream stocks. "However, a slowdown in demand can be seen as negative, as the key driver of earnings is demand strength," he says. "The vital question is the level of impact on the wider economy from high gasoline prices, which will squeeze corporate profitability, increase inflation, reduce consumer confidence, and are generally a net negative everywhere but amongst oil companies." Katrina's destruction could push oil-service stocks higher, reports Sterne Agee oil-service analysts Robert E. Ford and Gary Nuschler. They have raised their six-month OSX price target to 205 from 180. "Katrina changed everything, at least for the short term. We believe the storm's significant impact on the Gulf of Mexico and Gulf Coast energy infrastructure and the region's electrical power and transportation systems is likely to positively influence investor sentiment toward energy stocks for some time." Earnings multiples may climb to 2004 levels, he adds. "After all, the oil and gas industry is really not that much closer to increasing its productive capacity than it was this time last year, and after Katrina, may actually be further behind in the U.S."