The top two concerns for oil and gas company executives in 2011 are uncertainty in natural gas and crude oil prices, respectively, according to an annual report by Grant Thornton LLP.

Regulatory requirements, legislative initiatives and the availability of technical staff rounded out the top five concerns for more than 100 company officials, who for the ninth consecutive year have helped Grant Thornton -- a Chicago-based accounting and advisory firm -- compile their "Survey of Upstream U.S. Energy Companies." The responses were collected from last November to January.

"The stable oil price and uncertainty around the gas price has a significant effect," Concho Resources CEO Tim Leach said. "Oil prices seemed to have settled into a range that both sellers and buyers have become comfortable [with], which is ideal for [acquisition and divestiture] activity. Gas, on the other hand, has shown some signs of life recently despite growing production volumes, record high storage and a high rig count."

Survey respondents said the average price of natural gas must be $5.69 per MMBtu -- and West Texas Intermediate crude $87.93 per bbl -- to justify a more than 20% increase in drilling for both.

On regulatory issues, 68% of company executives believe that if government regulation forced drilling costs to rise 20% or more, exploration and development projects would become uneconomical.

"We have over 25 federal agencies that are involved in regulating the exploration, production, transportation and refining of petroleum products," said Loretta Cross of Grant Thornton. "And what is clear is that they may see their particular puzzle piece, but they do not always fit together well or effectively."

Respondents said they believe employment will rebound in 2011, with 61% expecting their companies to hire more people this year, compared to 50% in 2010 and 35% in 2009. Ninety percent predicted that employment would either rise or remain unchanged. But despite the optimism on employment figures, 58% of executives said they believe the U.S. economy will not fully recover until after 2011.

The cost of drilling in the Gulf of Mexico was also widely expected to increase in the wake of the Macondo well disaster. Most of the executives said the costs could rise 10% or more. Of those, 37% expect an increase of 20% or more.

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