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Vol. 12, No. 10 Week of March 11, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Oil price No. 1 concern

Oil execs rank Gulf, Rockies, then Alaska as having best discovery potential

By Ray Tyson

For Petroleum News

The top concern among U.S. energy executives is the uncertainty of natural gas and oil prices in the near future, according to a survey conducted by accounting, tax and business advisory firm Grant Thornton LLP and released to the public March 6.

More than 80 companies responded to Thornton’s 2007 Survey of Upstream U.S. Energy Companies. Forty percent were public companies and 60 percent private.

Survey questionnaires were mailed to senior executives of independent oil and gas operators and service companies throughout the United States. The survey period was from December 2006 through mid-January 2007.

“The findings show an industry that is generally optimistic and strong, but somewhat apprehensive about projecting increases in capital spending and drilling activities when the prices of natural gas and oil remain uncertain for the most part,” said Reed Wood, Thornton’s partner-in-charge of the firm’s energy practice division.

According to 41 percent of survey respondents, the average price of natural gas for 2007 must be $8.43 per thousand cubic feet in order to justify an increase in U.S. drilling activity of more than 20 percent. More than half indicated that natural gas production would be curtailed if prices were less than $5 per thousand cubic feet in 2007. Yet, only 10 percent expect natural gas prices to be high enough to support an increase in drilling this year.

In regard to oil prices, 93 percent of respondents said that the average price per barrel of West Texas Intermediate crude must be greater than $60 to justify an increase in U.S. drilling activity in 2007. Sixty percent indicated that oil drilling would be curtailed if prices dropped to $40 or less per barrel.

Randall D. Stilley, chief executive officer and president of Houston-based Hercules Offshore Inc., indicated the issues facing the upstream sector this year are broad. He explained:

“For those of us in the oil and gas service industry, we face three main challenges as we enter 2007 — recruiting and retaining talented people; allocating resources in an environment of uncertain demand and increasing geopolitical risk; and planning for the future, when faced with highly volatile commodity prices. Our success will depend largely on how well we anticipate and respond to these challenges.”

Majority expect increase in capital expenditures

Additional highlights from the survey:

• Sixty-five percent anticipate increases in domestic capital expenditures in 2007, compared to 89 percent in 2006.

• More than half of those interviewed said they plan to focus on both natural gas and crude oil activities in 2007, not primarily natural gas as in 2006.

• As in 2006, the respondents said the Gulf of Mexico holds the greatest potential for oil and gas discoveries, followed by the Rocky Mountains and Alaska.

• Seventy-nine percent expect a need for more capital in the next five years, compared to 89 percent in 2006.

• Companies surveyed plan to add jobs in 2007, but executives surveyed expect continued challenges in finding and keeping qualified industry professionals, especially geologists and engineers, even when offering top salaries.

• Respondents also anticipate a rise in merger and acquisitions and restructurings in the coming year.

• Sixty-one percent believe there will be increased environmental legislation enacted in the future to further protect the environment. Consequently, almost half of those interviewed say their companies will spend more on environmental remediation or studies compared to current levels.

Aging workforce a concern

“Energy industry leaders should be concerned about replacing the rapidly aging workforce,” said survey respondent Matt Manning, controller of Lafayette-based Marlin Energy LLC. “In these times of record profits and employee compensation, jobs in the energy industry should be attractive to young professionals.”

Many of the survey’s respondents concluded that the growth of operations last year bodes well this year for local economies that are supported by energy and energy related companies.

“We are optimistic that our market will continue to thrive, and demand will remain high,” said Gene Miller, partner in Grant Thornton’s Dallas office. This was the fifth survey of U.S. energy companies commissioned by Grant Thornton.

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