At investment conferences in New Orleans and New York, at the Offshore Technology Conference in Houston, and in talking to a number of chief executives, I have confirmed several industry themes. It is always rewarding to hear from the guys on the front line. Pioneer Natural Resources chief executive Scott Sheffield spoke of "the unique situation this industry is in, with high commodity prices and the lack of prospects in North America. Rockies properties are being targeted because buyers see that region as the last onshore U.S. area with growth remaining." Sheffield said consolidation is inevitable for many reasons: sustained high commodity prices, stocks trading at all-time highs, low interest rates, lack of organic growth opportunities, receptive public markets. Two weeks later Pioneer announced it is buying Evergreen Resources in Denver for $2.1 billion, adding thousands of coalbed-methane (CBM) locations to its domestic drilling inventory. These CBM locations produce gas in the same steady way Pioneer's Spraberry play in West Texas has been an oil manufacturer for years-and will be for many years to come. Every company should have a few outstanding plays like these in its portfolio, to balance those that are more difficult, expensive, or fading. So it is worth noting that Dominion E&P recently celebrated completing its 2,000th gas well in the Sonora Field in West Texas. It took over operation of this sterling asset when it acquired Louis Dreyfus Natural Gas. And, Dominion just marked first production from its Devil's Tower spar in the deepwater Gulf of Mexico. Murphy Oil CEO Claiborne Deming explained that he was selling his assets in western Canada because "we simply have not found another Ladyfern, although I would have thought we could. The capital requirements in the basin outweigh our returns. "We are a proxy for what is happening in North America, because we are transitioning from traditional onshore plays to heavy oil and offshore plays, and international, such as in Malaysia. "We are very frontier-oriented." Sheffield said the industry has evolved from a growth business in the 1970s through the 1990s, when E&P companies over-spent cash flow, to a mature industry that is basically liquidating in North America. "Very few people are exploring, yet we've gone from negative free cash flow to excess cash flow. "When you have a choice between dividends, stock buybacks, drilling or acquisitions, you'll see companies choose acquisitions-the top 20 companies could become 10 in the next five years." Questar CEO Keith Rattie said it will not drill any well unless it can generate a minimum 15% internal rate of return at a $3 gas price. "Our long-tem view is that the equilibrium price is between $3 and $4 at the Henry Hub." Analysts say when the U.S. rig count hits 1,200, service companies can begin to exert pricing power. At this writing it is 1,153, up 132 from a year ago. Sheffield cited rising costs such as tremendous increases in steel. Indeed, a private company we met with, Pittsburgh-based Linn Energy LLC, has bought out the casing contents of two equipment suppliers' yards ahead of time, in order to have enough on hand, said CEO Michael Linn. He plans to drill 125 wells in the Appalachian Basin this year and 100 next year. Linn, a second-generation oilman and vice chair of the IPAA, is part of another trend-that of executives who sell their companies to larger firms and turn around and form new ones-sometimes within the same week. Capital is not a problem for those with a good reputation. Sheffield said Pioneer and five of its peer-group companies will generate $25 billion of free cash flow in the next three years if commodity prices hold. In addition, between $40- and $50 billion of private capital from equity funds and within the budgets of independents is chasing $2 billion of assets for sale. More dollars are coming. At press time, EnCap Investments had nearly closed on its next fund, which was nearing $700 million. Quantum Energy Partners just closed a fund with $345 million. That's more than a billion right there. One fledgling independent told us he is toying with the idea of bypassing the private-capital players and going directly to the institutional investors behind them-that may work, given his track record, but it will be time-consuming. In this business, one has to be philosophical. PetroQuest Energy in Lafayette has been on a real trip. The stock was around $4, tumbled to $1.20 and is back around $4. After four years of growth it hit the wall when some wells were dry and production fell. "It is still not difficult to grow a company of our size in the Gulf Coast region," said CEO Charlie Goodson. PetroQuest had 83 billion cubic feet of reserves at year-end 2003.