Oil and gas stocks rose Monday as Hurricane Katrina (search) sent oil prices surging to all-time highs above $70 a barrel.
Investors shrugged off the short-term impact of the storm on oil production and facilities in the Gulf of Mexico (search), focusing instead on profits from record oil prices.
Most of the top percentage gainers on the New York Stock Exchange (search) were oil, gas and oil field services companies.
Analysts also said damages the companies suffered in the short term would be offset by insurance recovery. They cautioned, though, that insurance was not a panacea.
"One needs to remember that production disruption insurance usually doesn't start until 90 days elapse from outage, so some companies could stand to lose meaningful cash flow if their facilities are affected," Merrill Lynch analyst John Herrlin said in a note.
As of Monday morning, nearly half of the oil production in the Gulf had been shut in, and that proportion was expected to rise. About a quarter of domestic oil and gas output comes from the Gulf.
Virtually every major company in the industry was expected to feel the impact of Katrina to one degree or another, said Fadel Gheit, oil analyst for Oppenheimer & Co.
"It is significantly bigger than Ivan," he said, referring to a hurricane that caused extensive damage in the Gulf in 2004. "Ivan wreaked havoc in the oil and gas industry. Some of the damage caused by Ivan still has not been fully repaired."
"This did go through the heart of where probably 500 platforms exist in the Gulf," said Brad Beago, an analyst at Calyon Securities.
"The big impact of Hurricane Ivan was something that people didn't see initially — these undersea mudslides that actually severed some pipelines," he said. "There may be a tertiary impact that we can't even see at this point."
But Gheit said all of those losses would be insured, so the industry would end up recovering in the longer term what it loses in the short term — ironically, at the same $70-plus oil prices caused by the shutdowns. Others agreed.
"We estimate 31 of the 154 rigs in the U.S. Gulf were in the direct path of Katrina. Any damage to these rigs would be covered by insurance," Morgan Keegan said in a note. "Additionally, if any rigs were destroyed, the decrease in (rig) supply in an already tight market could lead to higher (daily use) rates, offsetting the lost earnings from the loss of the rig."
On the other hand, oil companies with no Gulf exposure, which can take advantage of high oil prices without recovery costs, include Amerada Hess Corp. (AHC), Occidental Petroleum Corp. (OXY), Burlington Resources Inc. (BR), XTO Energy Inc. (XTO), Comstock Resources Inc. (CRK), EOG Resources Inc. (EOG) and Cabot Oil & Gas Corp. (COG), Gheit said.
"Basically, these companies are going to be printing money at will," he said.
Calyon's Beago said natural gas companies could benefit as well by hedging their future production into the spike in prices. Natural gas futures hit a record high of $12.07 per million British thermal units on Monday.
Besides oil and gas companies, electric utilities could take a hit due to the damage to their infrastructure from Katrina and the resulting costs.
Three days after Katrina hit Florida, FPL Group Inc. said on Monday it still has more than 300,000 customers without power. The company has brought in more than 14,000 extra workers to help make repairs.
Entergy Corp. (ETR) was also in focus, as the company is the major utility serving the New Orleans area being threatened by Katrina. FPL and Entergy shares were both slightly lower in early trade.
The broader utility sector was also lower. Utility operators face the prospect of having to pay sharply higher rates for the natural gas they use to fire some of their generating facilities.
"In general, this should be positive for the merchants, but it obviously creates a difficulty for the more-regulated group, and the reason is because there is always a little bit of a lag in the recovery for the rise in fuel costs," said Daniele Seitz, an analyst at Maxcor Financial Inc.