07-03-08 Crude oil may have topped $ 100 per barrel, but US independent energy companies like Devon Energy are bulking up reserves and production with natural gas, a market with an increasingly bullish outlook.
"I think oil prices are a little bit too high," Phil Weiss, energy analyst at Argus Research, said. "If you are looking for where there is leverage to make gains, I think there is more opportunity in natural gas."

In 2007, US independent energy companies, even those exploring for oil offshore in the Gulf of Mexico and in other countries, wracked up sizable gains in natural gas production and reserve growth. For example Devon, the largest US independent oil and gas company by market capitalisation, added a total of 437 mm boe to its proved reserves in 2007. Over half of those additions were natural gas, said the company based in Oklahoma City, Oklahoma.
In the Barnett Shale in North Texas, Devon is the largest producer and raised its production 33 % in 2007 to 950 mm cf of gas equivalent per day. Last year, record supplies in storage weighed on gas prices. But this year, the market has been lifted by cold weather demand and lower imports of liquefied natural gas.

"For the first time since 2003, we actually had a winter that was colder than normal since February,” Kenneth Yeasting, director of North American Gas at CERA, said. "The fact that inventories have run down mean you're going to have the need to replenish those inventories over the summer, which will keep upward pressure on prices," he said.
Longer term, factors that should bolster natural gas prices include higher demand for "greener" gas-fired power and falling exports from Canada, where more natural gas will be needed to produce heavy oil, analysts said. Natural gas is also generally less risky, more accessible, and less expensive to produce than crude oil, analysts said.

"You can get the gas reserves on pretty quickly," Gordon Howald, analyst with Calyon Securities, said. "Drilling for oil is a little more challenging and the hit rate is not as high."
And also, Anadarko Petroleum agreed to sell its interest in the Peregrino heavy oil field offshore Brazil and its interest in Kaskida in the deepwater Gulf of Mexico for $ 1.8 bn. The sale was made in part so the Houston company could redirect spending on gas exploration in areas like the US Rocky Mountains, it said.

"Onshore US offers the first option for Anadarko to make an immediate impact on production and financial results," Joe Magner, analyst with research firm Tristone Capital, said.
Production at Kaskida was years away, Magner said, so it made sense for Anadarko to monetise that "long-date" asset. And Apache, which replaced 150 % of its worldwide gas production through drilling in 2007, is poised to add to its bottom line from its gas properties in Australia and Egypt.

"Its big growth opportunity is in Australia, Egypt and Argentina, where historically gas prices have been very low," the analyst said. "In general, any increase in those prices is going straight to Apache's bottom line."
Apache said natural gas prices in Australia climbed from less than $ 2 per 1,000 cf to more than $ 7.00 in the past year.