North American natural gas production growth over the past five years has been “virtually nil,” but flat output won’t deter investment in U.S. and Canadian assets, energy executives said Tuesday.

Speaking at the day-long Deloitte 2006 Oil & Gas Conference in Houston, a group of top oil and natural gas executives offered their take on the global energy markets, energy politics and the outlook for gas markets. John S. Herold CEO Arthur L. Smith told a capacity audience at the Hilton Americas that according to Herold’s five-year review U.S. gas production had remained virtually flat, despite a spat of positive reports from some large independents, including Chesapeake Energy Corp., Devon Energy Corp. and XTO Corp.

“The independents haven’t been able to do growth through the drillbit,” Smith said. “The lack of production in the North American offshore is so severe that it’s not being offset by the gains reported in deepwater.” Some independents have made gains, but, “the XTOs, the Chesapeakes…those are isolated cases. The producers are running up the [down] escalator.”

“This is a tough time to make decisions,” said Marathon Oil Corp. CFO Janet Clark. “The case gets back to capitalization. We are in business for the benefit of our shareholders. We are constantly looking at how to conserve for costs, for services…trying to figure out where we can do the best for the company.”

North America remains an attractive place for oil and gas investment, despite flat-to-slow gas growth. Access to new reserves worldwide is more difficult, and U.S. and Canadian assets remain highly prized, especially by the majors and global integrated producers.

“Portfolios are lacking for some,” said Smith said. “[Royal Dutch Shell] saw this, and now they are coming back to North America and buying back [the stock in] Shell Canada.

“They want to have a portfolio to create value,” said Smith. Today, “there is more capital chasing less supply. And there’s a lot of private equity firms staking out new projects. There’s a lot of capital out there. The industry has not spent nearly any of its capital for the past five years.

“It’s a telling point when a company like ConocoPhillips acquires a huge company like Burlington Resources…for its gas. ConocoPhillips signaled the fact that basically, North America is not such a bad place to be after all. Anadarko, which isn’t a major but a super independent, is another case [buying Kerr-McGee Corp. and Western Gas Resources Inc. earlier this year].” The majors and some of the super independents had been underinvesting in the United States. “They are not doing that anymore. In any case, more deals are coming, and in any hostile takeover attempt or any buyout, there will be a spirited bidding war.”

The overseas producers are greedily eyeing North America’s onshore and offshore basins, which has created a lot more competition.

“This is a difficult time for the industry to find reinvestment opportunities,” said Smith. “Look at the interest generated in the battle to buy Unocal Corp.,” he said, referring to the takeover battle in 2005 between Chevron Corp., which eventually bought the company, and China’s state-owned oil company CNOOC Ltd. (see Daily GPI, Aug. 3, 2005). Smith expects more battles between national oil companies (NOC) and U.S.-based producers in the near term.

Devon Corp. President John Richels said the NOCs are “very significantly changing the competition landscape. They are looking for national returns, too, they are not driven by the same factors North American companies are.”

Renato Bertani, president of Petrobras Americas Inc., sees opportunities with the competition. Petrobras, Brazil’s state-owned oil company, is 40% owned by U.S. investors, he noted. The “cacophony” of competition is “not really an issue,” he said.

“Increasingly, there is more competition,” said Bertani. “But, increasingly, that means there are more areas for partnership.” Oil and gas producers overall are “becoming more alike,” he said, whether they focus only on the Lower 48 or are diversified around the globe.

“All of us have access to the services companies, all of us have access to the technology,” he noted. “We are an international company, and most of our competitors are international as well…The bottom line is to be successful.”

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