If it’s wet, it’s hot; if it’s dry, it’s not; $4/MMBtu is the “new normal” and bigger is still better when it comes to production. That’s the crux of the industry wisdom collected by Barclays Capital analyst Michael Zenker and his team at the firm’s recent CEO Energy-Power Conference.

Dry gas production was clearly out of favor at this year’s conference as producers boasted of their ability to grow liquids-rich production, Zenker said in a note Tuesday. This fact will complicate forecasting production going forward, he said.

“As a greater share of gas supply is a byproduct of the race for liquids, gas yields from new liquids-targeted drilling will become more important,” he said. “This will also blur the concept of ‘gas production costs’ as the revenue from oil and liquids hydrocarbons may cover most of the cost of a well.”

When it comes to costs and gas prices, “the $4 number popped up many times” at the conference, Zenker said, noting that this was not a surprise given current gas prices.

“A few companies stated outright, while others only alluded to, their push to drive all-in dry gas production costs below $4 (including royalties, general and administrative, and infrastructure costs),” he said. “While often not stated directly, gas producers are preparing for a period of prices at the $4 level (note that few companies offer a view on gas prices). One CEO said his company’s gas business was not profitable at a realized (including hedges) gas price of $4. A few companies indicated they could still deliver adequate returns from dry gas drilling at $4.

“…[T]his year marked the first time [at the annual conference] no company was brave enough to suggest that gas prices were ‘temporarily low.'”

Even with prices as low as they are, the imperative is still to grow production, particularly liquids-rich production, Zenker said. “If a company cannot deliver growth through liquids and black oil, it must do so via gas. In other words, investors are still asking companies to grow supply in a gas market that does not need it.”

But investors don’t want the companies they invest in to borrow to grow dry gas production. “Companies with only gas acreage pledged to grow within the constraints of cash flow,” he said. However, “no company complained about a lack of capital resources to fund their coming (2012) drilling programs.”

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