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North American Gas Output Forecast to Edge Up Slightly

North American natural gas output may only grow 0.3% this year, but the increase follows three straight years of gas production decline, according to a JP Morgan survey. The 39 publicly traded exploration and production companies surveyed represent 36 Bcf/d, or more than 56%, of total U.S. and Canadian annual gas output.

JP Morgan found an "almost uninterrupted upward trend" in gas output that began in 3Q2003, curtailed only by the 4Q2004 gas shut-ins resulting from Hurricane Ivan last September. The survey reported a 3.1% decline in gas output last year, but after adjusting for Ivan, production was off 0.2%. On a storm-adjusted basis, JP Morgan reported aggregate North American production was down 2.7% in 2002 and 2.2% in 2003.

Overall, the survey does not forecast strong North American gas production this year. JP Morgan noted that its January 2005 forecast had pegged gas production to rise 0.7% this year, and said its new, lower figure suggests that early guidance and Wall Street expectations "were overly optimistic."

Several of the larger independents will be the top producers in 2005, while the majors will continue their skid, JP Morgan found. Of the 39 companies surveyed, 15 are "likely" to post organic growth this year, including Quicksilver Resources, up 30%; Williams, 22%; EnCana Corp., 15%; EOG Resources, 12%; Chesapeake Energy, 11%; Dominion Resources, 8%; and Cabot Oil & Gas, 8%.

Factoring in asset sales, the remaining 22 producers surveyed expect North American gas output to fall this year. The biggest declines are expected from Spinnaker Exploration, down 15%; Unocal Corp., 13%; Amerada Hess, 13%; Pogo Producing, 11%; BP, 10%; Pioneer Natural Resources, 10%; Stone Energy, 9%; Marathon Oil, 9%, and El Paso Corp., 9%.

Because only public companies were reviewed, JP Morgan noted that the survey does not account for the expected growth in gas output from smaller, private producers, or "mom and pops," which it said had a role in pushing up the past year's North American rig count. Because no private producers are included, "our survey likely understates the true production picture."

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