A survey by global accounting firm Grant Thornton of 60 senior executives at mid-sized independent exploration and production (E&P) companies found that on average most expect Henry Hub natural gas prices to increase modestly over the next four years, moving from $4.44/Mcf in 2004 to $4.82 in 2007.
One year earlier, survey predictions were more stable, with prices ranging from $4.20 in 2003 to $4.35 in 2006, the firm said in its second annual survey. Meanwhile, Henry Hub futures for 2004 are substantially higher at $5.85, and the Energy Information Administration is expecting composite spot prices (generally 10-15 cents less than Henry Hub) to average $5.19/Mcf this year and $5.17 in 2005.
The Grant Thornton survey, which was conducted by mail from December 2003 through February 2004, also found that independent E&P companies plan to increase spending in the United States this year in response to continuing increases in demand and high commodity prices. About 70% of respondents plan to increase their U.S. exploration spending in 2004, while only 21% plan to increase foreign exploration efforts.
“Although a healthy majority of respondents expect domestic drilling activity to increase this year, only 30% and 44% expect prices for oil and gas, respectively, to be high enough to support an increase of more than 20%,” said Ed Davis, partner-in-charge of Grant Thornton’s Houston energy practice. Davis said that forecasted natural gas prices are the most important factor affecting respondents’ capital spending plans.
According to the survey, 60% of respondents will concentrate on natural gas exploration over the next three years, while only 10% will focus on oil and 30% plan to pursue both. Respondents believe that the Gulf of Mexico and Rocky Mountains provide the greatest potential for domestic natural gas discoveries.
Respondents on average expect West Texas Intermediate crude oil prices to remain relatively flat over the next four years, with predicted prices of $28.10 per barrel in 2004 and $28.18 in 2007.
Respondents also anticipate growth in industry employment, with 62% predicting an increase in 2004, compared to only 38% of respondents in 2003. In addition to overall industry employment growth, individual companies also expect to increase their headcounts, with more than 60% planning to expand in 2004.
Oil and gas companies anticipate a rise in merger, acquisition and restructuring efforts in 2004, with 64% of respondents predicting an increase in such activity. However, respondents predict that the trend will start to slow by 2006, with 58% predicting an increase and 19% predicting a decrease in such activities.
Respondents anticipate more moderate increases in spending in response to environmental regulation over the next five years. Only 22% of respondents predict increases in environmental costs of more than 10%, a notable decrease from 45% of respondents in the preceding year.
For more information on the survey contact Grant Thornton at www.granthornton.com/oilandgas.
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