In a post-mortem on 2003 U.S. natural gas production, Southwest Securities analysts concluded last week that production fell 1.1% sequentially in the fourth quarter and dropped 2.9% year-over-year. Analysts forecast a slight uptick in first quarter production, attributed to incremental high-impact gas production from deepwater Gulf of Mexico projects, but overall, 2004 production should decline 3% over last year.

The 2003 review found that the decline in U.S. production was actually “modestly lower than our previous estimate, suggesting U.S. gas rig productivity is deteriorating at slightly lower levels than we previously expected.” The declining results are similar to a recent forecast by Lehman Brothers, but remain higher than the numbers forecast last month by consultants at Energy and Environmental Analysis Inc. (see NGI, Feb. 23). The 43-company survey accounts for about 75% of the trend in U.S. gas production after considering royalties/working interests, according to Southwest Securities.

What most impacted last year, said analysts, was the 6.2% decline in production from the “top 10” U.S. gas producers, led by ExxonMobil Corp. (in third place) and El Paso Corp. (in tenth place). ExxonMobil’s production fell 6.8%% year-over-year, and was down 4% sequentially. El Paso, which sold several producing assets in 2003, saw its production fall 16.9% year-over-year, and fall 23.5% sequentially.

“Majors continue to allocate more spending away from mature U.S. gas basins toward long-term, high-impact global projects, such as liquefied natural gas (LNG) development,” said analysts John Gerdes, Brian Kinsey and Chris Clark. Production among the top 10 was down 1.9% sequentially in the fourth quarter over the third.

The only top 10 producer to organically grow production year-over-year and sequentially was Tulsa-based Devon Energy, which only improved slightly to 0.7% year-over-year, and was flat quarter-to-quarter. Only 14 of the 43 companies surveyed increased U.S. gas production both sequentially and year-over-year. XTO Energy, Chesapeake Energy and EnCana Corp. were among the top 15 U.S. gas producers that did both.

According to Southwest Securities’ Rig Productivity Model, which is driven by historical production declines and gas rig count data, US. natural gas production should “conservatively” decline 3% year-over-year in 2004, even with a forecast of 990 average gas rigs. To offset the 3% U.S. decline, LNG imports “must grow” at a 36% annual rate through 2007, said analysts. “In aggregate, mature North American natural gas supply and dependence on limited LNG spot cargoes through 2005 implies $4.50-$5.00/MMBtu natural gas prices, in line with our $4.75/MMBtu long-term price forecast.

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