Financial outlook for the North American gas industry

An investor's viewpoint of the natural gas business in both the commodity and equity markets is presented. It is clear that the supply surplus is gone, and that the principle source of production gains, the reduction of reserve/production ratios, can no longer provide volume growth. The industry has reacted to the deregulated environment by aggressive marketing, to such an extent that producers are caught in a classic short squeeze. In order to meet contractual obligations, an aggressive drilling program is essential. While strong cash flow growth is expected over the next three years, substantial external capital will be required to fund expenditures. Financing opportunities should be utilized when they are available. More selective investment in equities is necessary, however it is proposed that the market is not overvalued, and a return of ca 50% in the oil and gas index over the next 2 years is targetted. 16 figs