In Houston, the energy capital of the world, it's common sport to pontificate, with a somewhat superior eye, on gasoline prices, oil and gas shortages and electricity problems. But the floods of Tropical Storm Allison may have left us with a potential gasoline shortage of our own. Will water contaminate the gasoline in underground tanks, rendering it useless? There is speculation that companies may have to pump out and dispose of the gasoline and then, scramble to replace it just as the summer driving season hits its stride. A bit humbling. Not so humble are the dealmakers. At press time, we saw a flood of deals because the deadline was near for the pooling-of-interest accounting rules to be changed in July. Investment bankers were advising clients to make a decision on intended deals soon. Sure enough, newly public Westport Oil & Gas said it would merge with third-generation-owned Belco Oil & Gas. Williams took over Barrett Resources, Kerr-McGee announced it would acquire HS Resources and Conoco said it will acquire Gulf Canada. These four deals alone total $10.5 billion. However, as the producer landscape evolves, one thing remains the same: when reserves change ownership, it is a nifty exercise in paperwork. It is not necessarily an exercise in value or stepped-up production for the long-term good of the country. In May, in a roundabout way, NBC showed consumers how tough it really is to find oil and gas. "The Today Show" was broadcast from Conoco's Britannia platform, which overlies about 3 trillion cubic feet of reserves in the North Sea. Host Matt Lauer toured the computerized dog house, emphasized safety by showing underwater helicopter evacuation drills, and tasted the onboard cuisine. The geologist in charge showed viewers a core sample and explained why Conoco and partner Chevron are drilling there. NBC's tour was an easy, friendly way to educate the public. But viewers didn't realize that Britannia was discovered in 1977. U.K. approval for full-scale development came in 1994 and the subsea pipeline was installed in 1997! That's a long time to production for a society not weaned from instant gratification. Despite what environmentalists may want, we are not weaned from oil and gas yet either. In May and June industrial demand was a bit softer, summer temperatures had not appeared and gas storage levels rose. As natural gas prices eased, concerns in California and elsewhere waned somewhat. For consumers, this was all to the good-in the short term. How are gas supplies doing? Some observers have suggested that new supplies, born of robust drilling activity, may actually overshoot demand in 2002, pushing wellhead prices down (even if demand goes up). Energy Security Analysis Inc. expects lost industrial demand to revive by 0.3 billion cubic feet this year through 2002 if prices stay in the $4 to $5 range. It forecasts power plant consumption to rise another 1 Bcf per day in 2001 and again in 2002. On balance, ESAI expects average spot prices to be closer to $4 at the Henry Hub, assuming a normal 2001-02 winter. Others think that despite all the gas well drilling, production will not rise fast enough. Says a June report from Simmons & Co. International, "After analyzing first-quarter 2001 production data...significant supply response remains elusive." A.G. Edwards & Sons reported "second-quarter dry gas production could be lower than many analysts expect, especially given the ramp-up in gas drilling." Amid the uncertainty, it appears that growth and momentum investors have moved away from oil, gas and power stocks, to timidly move back into the tech-laden Nasdaq. But what does this mean to investors who are watching their energy equities retreat? I asked a couple of Wall Street buysiders, who asked to remain anonymous, for their thoughts. "Psychology is starting to get bruised. We worry about money flows, in that people who bought the E&Ps, especially the natural gas story, may elect to get out [now that gas prices are falling]. The Street will misinterpret the transition from a shortage-induced price spike to more sustainable growth as 'the end' of the macro cycle...but we do not see $2 gas and $19 oil." I constantly hear commentators complain that those ex-oilmen in the White House are up to no good, only trying to line the pockets of their cronies. I ask the sanctimonious critics, who better to dissect the problem and suggest solutions than seasoned veterans with energy industry experience? It is they who know what is feasible, what is uneconomic and what will take 20 more years to accomplish. Who would the critics and skeptics seek out for a medical problem, if not a doctor? Who should they call if not a mechanic, when their SUV breaks down? So, why is it some kind of corrupt travesty to seek the counsel of oil and gas professionals to get a handle on our energy crisis?

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