FitchRatings gave the entire North American gas and oil industry a “stable” credit outlook Tuesday based on expected average (lower) crude oil prices in 2004 and moderating (but still robust) gas prices.

Fitch said it expects gas prices will moderate sometime after the first quarter of 2004 — from more than $5.44/Mcf for 2003 to about $4/Mcf in 2004 because gas storage levels “should be more than adequate to meet peak winter consumption.” In the intermediate term, Fitch expects gas prices to remain in the $3-6/Mcf range.

The agency said it also believe oil prices will fall back into the low $20 area next year from the current $30/bbl level because of increasing Iraqi exports, non-OPEC production increases and Saudi reluctance to cede market share.

“As a result of strength of high hydrocarbon prices over the last four years, most integrated and upstream company balance sheets and credit profiles are strong,” Fitch noted. “Although Fitch expects some softening of oil and gas prices longer term, realized prices should still remain relatively robust and resulting cash flow for companies should still be ample and provide for adequate credit protection.”

Fitch said it expects continued gas demand destruction, which will help to balance the market and “keep a lid on prices ($6/Mcf or below on a 12-month strip).”

“The North American natural gas market is currently a regional market that is constrained by import capacity limitations,” Fitch noted. “Growth in domestic natural gas supply has been restrained by higher finding and development costs in the U.S. and Canada. Said differently, the low hanging fruit of new natural gas sources has already been picked. Drilling restrictions for environmental reasons. in the U.S. have also retarded growth in domestic production.”

Fitch also gave the drilling and oilfield service segment a stable outlook because “integrated and upstream companies will always have to replace reserves to remain in business and…as a consequence there will always be a base level of demand for drilling and services.”

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