Crude oil prices have surpassed $50 a barrel for the first time in months! OPEC held its production quotas firm at its March 15 meeting and compliance with those cuts is fairly decent this time around. And just yesterday, I saw the first Wall Street report where the analyst actually increased his average oil-price estimate for 2009, to $52 a barrel from $50. Meanwhile, natural gas prices continue to soften, well below $4 most days. But we see the elements of recovery on the horizon--lower drilling rig counts for gas, falling production in most basins. Now we have to hope that while LNG shipments to the U.S. are increasing over 2008 levels, they won't increase too much and spoil market dynamics. Drilling in shales continues to prove your best bet. Even smaller companies that are challenged in many ways, intend to keep drilling in them if they can. GMX Resources Inc., under fire from Centennial Partners, said on March 9 that it has reduced its 2009 capex by $70 million to $150 million--yet it still expects to drill 14 net Haynesville/Bossier horizontal wells. And why not? Even though gas prices are below $5 per Mcf, these wells create a rate of return of 25%, president and CEO Ken Kenworthy says. What do the bigger companies say? Top executives from EOG Resources, Range Resources, Southwestern Energy and XTO Energy shared their views a week ago at the annual Simmons & Co. International energy conference in Las Vegas. A Simmons report says the panelists hesitated to forecast gas prices for the near term, but all agreed they will range between $6 and $10 per Mcfe in 2010, as production trails off in response to lower rig counts. In this case, the decline curve is your friend. The commodity will fluctuate around the marginal cost of production. XTO chairman Bob Simpson looks for $7 to $10 long term. He said the company now estimates U.S. gas production will fall 10% to 12% year-over-year by December 2009--and this will outstrip demand destruction. XTO thinks the Haynesville and the Woodford shales will yield 25% IRRs at $4 per Mcf, assuming tax deferments. Range Resources CEO John Pinkerton said the longer term looks like $7 to $8. The company estimates that if the U.S. runs 900 gas-directed rigs throughout 2009, production will be down 8% to 9% by December. He also warned that without IDC tax deductions (intangible drilling costs), less capital will go into the ground, delaying any production ramp-up. In the southeast area of the Marcellus, where Range is the major player, it can achieve a 20% IRR at $3.25 gas, due to the rich BTU content and favorable royalties. EOG's Loren Leiker, SVP of exploration, agrees with the range of $7 to $8. But he said EOG needs $5 in its core Barnett shale acreage and $6 in the non-core. Finally, Harold Korell, CEO of Southwestern, says he will ramp back up in the Fayetteville "when they have the people in place and the returns justify it." Current returns don't justify increasing activity--but even so SWN will grow its production 70% this year. It needs $5 gas to meet its own internal hurdle rate of spending $1 to get back $1.30--but wells still show a positive present value at $4 per Mcf. --Leslie Haines, Editor in chief, lhaines@hartenergy.com