Many of the independents on the fourth-quarter Oil and Gas Investor This Week scoreboard reported healthy gains in production, compared with the same period last year, from a mixed bag of acquisition and exploration efforts. Most also reported increases in their year-end proved reserves, while the cost of growth via the drillbit grew. JP Morgan analyst Joe Allman estimates proved developed reserve finding and development costs rose from $2.11 per thousand cubic feet equivalent in 2005 to about $3.81 in 2006. "Our analysis suggests that the E&Ps as a whole are struggling to return their cost of capital in the current environment," Allman says. "To earn adequate returns-at least a 20% pre-tax rate of return-the average E&P requires $8-plus gas prices and/or lower costs. We expect costs to decrease because of excess onshore rig and pressure-pumping capacity, and drilling activity to slow if gas futures go below $7." The names in the year-over-year production-growth winners' circle include Petrohawk Energy Corp., Anadarko Petroleum Corp., Stone Energy Corp., Newfield Exploration Co. and Ultra Petroleum Corp. For more on this, see the April issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

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