Salomon Smith Barney (SSB) said it is expecting a decline of 400MMcf/d in gas production during the first quarter of this yearcompared to the same period last year and a drop of about 1 Bcf/dby the second half of the year because of the sharp decline indrilling activity. SSB is forecasting gas production in 1999 willbe down 1 Bcf/d compared to last year.

In an industry report released last week, the firm said itexpects gas drilling to bottom out near 400 rigs before making aturnaround later this year. The gas rig count last week was 425rigs, down 154 from the same week last year but up five rigs fromthe week prior, according to Baker Hughes. “In comparison, weestimate [about] 500-550 rigs are required to maintain gasproduction,” Salomon Smith Barney said.

However, the substantial storage surplus compared to last year,442 Bcf, based on the AGA’s survey, will serve to delay asignificant spot price increase, according to SSB, which raised itsforecast for the year only slightly to $2.10/MMBtu at the Henry Hubfrom $2. SSB is forecasting prices to soar next year to between$2.35 and $2.75 on average.

Consequently SBB upgraded the shares of several producers,including Enron Oil & Gas, Forrest Oil and Sante Fe Energy, to”Buy” and increased ratings on several others.

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