At press time, questions continue to swirl like autumn leaves as executives finalize their 2002 budgets in the wake of industry and economic uncertainty, not to mention geopolitical worries. The pain of worsening natural gas fundamentals already under way was multiplied by the shock to oil demand since September 11. Lehman Brothers, for one, reduced its forecast of 2002 global oil demand growth to a crawl, a meager 1% because it foresees the growth of global GDP slowing to 1.7%. OPEC is in a delicate spot, politically and economically. Revenues are down due to lower oil prices and lower production. Demand for its product is also falling. In September OPEC was still producing about 1.2 million barrels per day above its new quota that was to kick in that same month. This leaves it plenty of wiggle room to prop up prices while not officially reducing its quotas further. But can these Middle Eastern countries afford to be seen as placating the U.S. while the latter bombs a neighboring state? No one pretends to have all the answers, but in this issue we have assembled many best guesses. You'll find analysts' views on oil and gas prices, supply and demand, OPEC's role, U.S. drilling projections, and the attitudes of investors. These are scattered amongst feature articles such as "Making More of PUDs" and "In the Wake of September 11" and in our departments such as NewsWell and Cash Flows. No surprise, the consensus is for a drop-off in domestic drilling next year. In any case, it would have been difficult for the industry to sustain the peak drilling count we saw last spring. Activity is already heading down, according to Baker Hughes data. Falling offshore rig utilization and lower dayrates provide further evidence. Richard Spears, vice president of Spears & Associates in Tulsa, which has been forecasting drilling activity for 20 years, is bearish. "In our opinion, 31 out of the 34 market segments we track will be down in 2002, and down significantly (i.e. from 10% to as much as 25%), as measured by dollars spent on rigs and supply vessels. For example, we now expect offshore drilling expenditures-this includes both day work and turnkey-to be down 18% from this year. "Our international activity numbers are almost all up, however-it's a great time to be an international drilling contractor." The Middle East is in fact one of the growth areas Spears has identified. For operators, the good news is that finding and development costs are coming off their 2000 peaks-to the chagrin of vendors, this peak wasn't as high as it was in 1997. Overheard in Houston, an operator remarked that his $4-million well going down in shallow water was now costing about $3- to $3.5 million instead. That's fortunate in light of the reduced margins resulting from lower natural gas prices. Believe it or not, we still have a lot to be thankful for, in spite of recent horrors and the dismaying industry outlook. For one thing, we live in the Western Hemisphere, where widely available technology will keep abundant energy resources from North and South America flowing to us. We may have to wait five years or more for new sources to come onstream, whether natural gas from the McKenzie Delta, heavy oil sands in northern Alberta and Venezuela, or natural gas in Mexico and liquefied natural gas from Trinidad. But take comfort in knowing it is a matter of time and effort. The will is there. Energy alternatives will rightly augment our traditional supply. LNG plans may look iffy with gas trading around $2, but at press time, another project was unveiled. CMS Energy Corp. and Sempra Energy plan to jointly build and own a major new LNG receiving terminal in Baja California, Mexico. The partners plan a send-out capacity of close to 1 billion cubic feet per day to Mexico and southern California. As you'll note elsewhere in this issue, even the coal industry is gearing up. Some 100 coal-fired power plants are in various planning stages throughout the U.S. Some of these can be located in lignite producing areas, says a study by Hill & Associates of Annapolis, Maryland. "We have identified 39 major lignite deposits in Texas, Louisiana, Arkansas, Mississippi and Alabama. Of these, 11 prospects have breakeven costs of less than 80 cents per MMBtu that could support mine-mouth power plants ranging from 700 to 1,600 megawatts for more than 30 years," the study said. Finally, most analysts expect things will be looking up in the second half of 2002-about the time that lower gas production data show up, now that drilling is subsiding. "The positive news is that we believe E&P companies will restrain their spending into early 2002. The supply-demand equilibrium remains delicately balanced. We believe the economy will begin to recover in the second quarter, reviving demand against flat-to-down production," says Howard Weil's latest monthly report. You know what that sets the stage for.