As commodity prices continue to rise, there is a sense in the industry that circumstances will stay this way forever. There is nothing more frustrating to an analyst than this particular point of view. "That is one of the hardest things about investors and people in Washington, who haven't been paying attention to this industry for very long," said Jeff Robertson, senior vice president, Lehman Brothers, at the annual IPAA meeting recently in Houston. "They look at prices and they think it must be easy for companies to create value, and we're not so sure that's true." As finding and development costs continue to go up and production continues to come from unconventional sources, increased prices do not always mean increased production. "Rig activity is up, but there is a decline in production and investors seem to forget these are naturally depleting assets. The more wells that are drilled, the more it's like a treadmill. You have to run faster just to keep up." Higher commodity prices have not necessarily resulted in faster per-share growth rates, either. "We haven't caught up to where we were in 2000 and 2001. Reserve-per-share growth looks better, but that could be because of increasing amounts of undeveloped reserves going onto the books." Even if parts of the business don't lend themselves to quick investor understanding, there are always the key investor themes that seem to cycle through the years. "Right now we are hearing the magic 'shale' word a lot," Robertson said. "Oftentimes companies can mention 'shale' enough times in their investor presentations and their stock price will have come up by the time the presentation is over. What investors don't realize is the amount of risk involved." Another important buzzword that investors want to hear is "long-lived," Robertson said. The key fact that is not to be missed about the oil and gas business is the difficult road that lies ahead for companies trying to grow. "What I tell investors is, even though prices are higher, this is still a pretty hard business to try to add value," Robertson said. Joseph Allman, director, RBC Capital Markets, says that, as prices continue to rise, the market is working. "Demand has been lowered because of high prices. We have seen demand destruction," he said. "Now we know that the demand response will start to happen around $60 per barrel." One factor in higher or lower crude prices is excess OPEC capacity. "Last year, it was razor thin, but this year is better," he said. "Our forecast will be that excess capacity will be at least as it is now. The price of oil won't go much lower because OPEC needs a high price. "Despite record prices, Saudi Arabia's GDP is flat because of its growing population. To keep up social programs it needs high prices. Around $50 a barrel is where OPEC will cut production. It will defend that price." He forecasts that strong gas prices are here to stay, and the saving grace for our supply needs will be imported liquefied natural gas (LNG). "LNG will come to the rescue," he said. "When you talk about LNG, people say, 'Oh, that's 2007 or 2008.' LNG is right now."

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