Canadian oil and natural gas industry CEOs and CFOs are more bullish on commodity returns than anytime in the past five years, according to the 2004 Deloitte Canadian Oil and Gas Outlook survey released on Monday. Respondents expect positive double-digit returns for publicly listed companies.

The Outlook Survey was conducted during April 2004 with responses from senior industry executives of leading Canadian oil and natural gas exploration and production companies, integrated oil and gas companies and oil and gas income trusts.

“Comparing results from previous Outlook surveys to actual performance demonstrates survey predictions of returns have generally been accurate,” said Richard Cooper, Deloitte’s Canadian Energy & Resources leader. “In addition, the prediction of the volume of merger and acquisition activity in the Canadian oil and gas industry is higher than at any time over the past three years.”

When asked to estimate the annual average 2004 wellhead price of West Texas Intermediate crude, respondents estimated US$28/bbl. When asked a similar question about the average forecast price for natural gas (AECO) used by their companies for 2004, respondents estimated between US$5-6/Mcf.

When asked about the target cost of replacing reserves, respondents reported their 2004 target price was US$9.49 per proven boe, which is less than US$11.30, the price for last year and less than the US$9.83 average price for the last three years. Junior oil and gas companies reported being most successful at replacing reserves at less than US$10/boe and all other companies/trusts report replacement costs in the US$10-13/boe range.

The geographic areas anticipated to contain the greatest potential for significant new discoveries of natural gas were overwhelmingly identified as Alberta (47%) and British Columbia second (21%). Saskatchewan was third with 8%. More than 70% of respondents also expect employment in the oil and gas industry to increase in Canada in 2004. Previous Outlook survey results on expected employment have generally been accurate in predicting the outlook for employment shifts.

When respondents were asked if they experienced difficulties in 2003 hiring and retaining geologists, engineers and other professionals, a trend confirmed in the last few years of Outlook survey results, 60% reported they did not experience difficulties. A slightly higher majority of respondents (about 70%) do not expect significant salary increases for these professionals will be required this year.

Most companies/trusts responding to the survey reported they believe increased transparency in reserves reporting, including the newly adopted Canadian National Instrument 51-101, will lead to higher investor confidence, but they did not want regulation demanding a regular annual independent reserves evaluation.

When asked about the impact of ever increasing requirements on governance and control coming from regulators and exchanges, most respondents believe the bar has been raised to a level that will be hard to meet and for some will result in a qualification of the auditor’s internal control report. However, most respondents believe this will result in an increase in investor confidence and almost half believe it will benefit their own company.

“At Deloitte, we believe improvement in the transparency, accuracy, timeliness, and reliability of reported information will cause investor confidence to rise,” said Cooper.

Most respondents also believe regulators should require 100% of reserves to be reviewed by independent reserve evaluators, although this view varied considerably between the juniors/trusts and the large exploration and production companies and majors.

“We believe there is an opportunity for companies/trusts to enhance their reserves management framework to reduce risks and costs, and create competitive differentiation in the capital marketplace,” said Cooper. He added that “the emergence of trusts has changed the composition of the industry and growth strategies of juniors in the industry. In fact, improved profitability for the industry overall has meant that, for the first time, many are now in need of tax planning and minimization strategies.”

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