As you've read the past few issues and read the next few, it will become abundantly clear how necessary fracture technology is to the growth of many companies-and to the supply of natural gas in this country. And, it is clear how many people are betting their careers on bolstering old fields, pushing them to longer productive lives. In our cover story on East Texas, you'll see that XTO Energy and other operators are wringing more reserves out of the ground with multiple fracs. The company's average well in the Freestone Trend is fractured five times and then produced from commingled zones. Also this month, Tom Brown Inc. reveals that at some of the wells in its Pavillion Field in Wyoming, it is ordering 6.5 completion stages per well-each stage being a perforation and a frac. The result is that the company has taken field production from less than 1 million cubic feet per day in the early 1990s to a peak of more than 60 million in 2002. And, it has grown estimated ultimate recoverable reserves from 143 billion cubic feet to 328 Bcf. Next month, you'll see that Anadarko is scheduling two or three fracs per day in its massive Vernon gas field in northern Louisiana, as it keeps 12 rigs running and plans to drill 80 wells in the field this year. What's remarkable is that the service companies that perform most of these fracs-Schlumberger, Halliburton and BJ Services-have shortened the time it takes to complete these multi-pay wells, reduced the cost and lessened the environmental impact. The ability to start and grow a company, or buy and rejuvenate an old field, is what makes this business tick. Those two skills frequently converge. EnCap Investments LLC saw four of its portfolio companies sold to the right buyers in second-half 2003, for a total of $978 million. Three of these sellers were private firms less than three years old. They grew mostly by buying and exploiting old fields. In all four deals, the buyers were public companies seeking-needing-to grow their reserves through acquisition. That need to grow has never left the industry, despite that Wall Street began to say recently that it wants to see returns as its preferred form of value creation, rather than raw reserve growth. That belief has been laid to rest. Witness the pummeling Shell took when it wrote down its reserves and growth turned to a net loss. Old beliefs about the economics of the oil and gas industry are ricocheting back and forth all the time. The only thing that remains constant is the need for investors and advisors to make money, no matter where we are in the commodity cycle. Last year we tested the old belief that higher oil and gas prices inevitably lead to a drilling and spending frenzy. It's good news that we have laid that old chestnut to rest. Yes, the rig count rose to average above 1,000 for most of the second half of the year, but companies were not rushing to drill everything they could get their hands on. They did not buy proved reserves in a frenzy either-although they had to pay more than usual when they did do a deal. The real question is, what caused this? Are CEOs really that much smarter now than in the past, more conservative and more results-oriented, or was it just a case of them finding it hard to identify good drilling prospects and acquisition opportunities? I think the latter. Another old belief is that very high oil and gas prices inevitably hurt the U.S. economy and dampen demand. It turns out that by most accounts, the economy was stronger in 2003 than most experts had anticipated, with GDP up 8% at one point. This is an astounding recovery in light of some of the highest sustained commodity prices in a decade and a trade deficit that has mushroomed. The Federal Reserve Board's quarterly Beige Book indicates all regions of the U.S. are showing better economic conditions, and other federal data back that up. The stock indexes certainly recovered. Most of the oil equities were up substantially. The danger this year is that commodity prices-and stock prices-will decline slightly. On a sadder note, we regret the passing of R. Gamble Baldwin, a founding partner of Natural Gas Partners, which we profiled in February 1992. In the mid-1980s, Institutional Investor magazine ranked him one of the nation's top gas analysts. The last time I saw Gamble was at an industry meeting a couple of years ago. In his late 70s, he was cheerfully looking forward to leaving in just a few days for a photo safari in Africa. Here's one of his contrarian comments from that 1992 article: "Muddy waters are always the best places for smart people to go fishing." Not bad advice.

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