Accounting, tax and business advisory firm Grant Thornton LLP announced that, according to its 2007 Survey of Upstream U.S. Energy Companies, the top concern among energy executives is the uncertainty of natural gas and oil prices in the near future.

More than 80 companies (40 percent public and 60 percent private) responded to the survey questionnaire distributed by Grant Thornton’s Energy Practice. Reed Wood, Grant Thornton’s partner-in-charge of the firm’s energy practice, says, “The findings show an industry that is generally optimistic and strong, but somewhat apprehensive about projecting increases in capital spending and drilling activities when the prices of natural gas and oil remain uncertain for the most part.”

According to 41 percent of survey respondents, the average price of natural gas for 2007 must be $8.43 per Mcf in order to justify an increase in U.S. drilling activity of more than 20 percent. More than half indicated that natural gas production would be curtailed if prices were less than $5 per Mcf in 2007. Yet, only 10 percent expect natural gas prices to be high enough to support an increase in drilling this year.

On the topic of crude oil, 93 percent of respondents said that the average price per barrel of West Texas Intermediate crude must be greater than $60 to justify an increase in U.S. drilling activity in 2007. Sixty percent indicated that crude oil drilling would be curtailed if prices dropped to $40 or less per barrel.

Randall D. Stilley, CEO and President of Houston-based Hercules Offshore, Inc., indicated the issues for the sector this year are broad. "For those of us in the oil and gas service industry, we face three main challenges as we enter 2007 – recruiting and retaining talented people; allocating resources in an environment of uncertain demand and increasing geopolitical risk; and planning for the future, when faced with highly volatile commodity prices. Our success will depend largely on how well we anticipate and respond to these challenges.”

* 65 percent anticipate increases in domestic capital expenditures in 2007 (compared to 89 percent in 2006).
* More than half of those interviewed said they plan to focus on both natural gas and crude oil activities in 2007, not primarily natural gas as in 2006.
* As in 2006, the respondents said the Gulf of Mexico holds the greatest potential for oil and gas discoveries, followed by the Rocky Mountains and Alaska.
* 79 percent expect a need for more capital in the next five years (compared to 89 percent in 2006).
* Companies surveyed plan to add jobs in 2007, but executives surveyed expect continued challenges in finding and keeping qualified industry professionals, especially geologists and engineers, even when offering top salaries.
* Respondents also anticipate a rise in merger and acquisitions and restructurings in the coming year.
* 61 percent believe there will be increased environmental legislation enacted in the future to further protect the environment; consequently, almost half of those interviewed say their companies will spend more on environmental remediation or studies compared to current levels.