Luncheon – Dec. 4, 2009

Title: Outlook 2010: Commodity Prices, Activity Levels and the Industry’s Bankbook

Speaker: Peggy Williams, Senior Exploration Editor, Oil and Gas Investor

Date: December 4, 2009

Publication: The Outcrop, Dec. 2009, p. 27

World energy markets are beginning to stabilize, recovering modestly from the effects of the global downturn and the newly aggressive U.S. environmental agenda.

Oil prices ricocheted between $150 and $30 a barrel in 2008 and 2009, but recently have steadied in the $60- to $70-per-barrel range. The complex interplay of supply, demand, strength of the dollar and expectations of world economic recovery will determine 2010 prices. For natural gas, after sinking to levels this past summer that failed to sustain drilling programs, prices have staged a timid recovery. Key factors for prices of this commodity in 2010 are chock-full storage, burgeoning production from shale-gas reservoirs, soft demand and a global LNG surplus. Production declines are forecast from the drastic slow-down in drilling, but evidence is equivocal as to whether they have yet begun.

Going forward, challenges remain on all fronts, but the industry is showing its characteristic resilience. During the past year, U.S. oil and gas producers have retrenched to ensure they could remain viable businesses. Several quarters of cost cutting have helped shore up margins, but bank redeterminations are the latest hurdle. International spending continues to drop, although deepwater drilling has been an area of strength. Domestically, oil rig counts are rising as efforts shift to oil-prone plays; high-end horizontal rigs have been one bright spot in gas drilling.