Lehman Brothers confirmed Friday that beneath the hefty first quarter earnings for oil and gas companies a more compelling tale is unfolding as both majors and independents operating in North America benefited from the move to the drill bit. Production numbers are mixed, but many report that production is up significantly — and some predict the best is yet to come.

Reviewing natural gas production from 29 of the largest U.S. producers that produce about 45-50% of U.S. gas, Lehman analyst Thomas Driscoll found that production has increased 2.2% over the fourth quarter.

“Our updated production survey shows that U.S. production has turned the corner,” Driscoll said. “The production figures show a quarter-to-quarter and year-over-year production increase of just over 2%.”

The Lehman Bros. analyst predicts that about 0.5% to 0.6% of the quarterly increase is related to companies rejecting natural gas liquids in the short-term. In January, natural gas production volume gains came from companies “rejecting” ethane, propane and other NGLs, which added about 1.3% to natural gas volumes.

However, by February and into March, Lehman Bros. found that the economics of “stripping” NGLs from the natural gas stream were “much more favorable” than in January, and that enhancement to volumes was “sharply reduced, resulting in a first quarter average increase in about the 0.5%-0.6% range of volumetric natural gas production.”

Lehman Bros. also is forecasting natural gas prices in the range of $5.00/MM Btu in 2001, $4.00/MM Btu in 2002 and $3.50/MM Btu in 2003.

In its forecast last week, Salomon Smith Barney also predicted that first quarter domestic gas production levels for the top 40 producers would be up 0.8% from the first quarter of 2000 and 1.8% from the fourth quarter to 27.3 Bcf/d. In total, Salomon estimates the top 40 U.S. and Canadian companies represent roughly two-thirds of total domestic production.

“Interestingly, though the integrated producers tended to be the major culprits in overstating domestic natural gas production in recent quarters, the aggregate first quarter domestic natural gas production for the six integrateds that have reported to date have slightly exceeded estimates,” SSB analysts said in a research note. “Meanwhile, the independent producers, on average, have thus far met or slightly undershot domestic natural gas production estimates.”

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