The mood at EnerCom's oil and gas conference in Denver has been positive, if slightly frustrated, says Jeb Armstrong, analyst at Calyon Securities (USA). With gas prices over $8.00 per million Btu and oil still in triple digits, producers are pulling record profits and unprecedented rates of return. But the energy stock price index has risen only 5% this year and many E&Ps are in negative territory, he says. Undervalued stocks are a bargain, but the timing of recovery is uncertain. "There continues to be some disagreement over whether oil and gas prices have reached a near-term floor. Opinions vary from the current level of slightly above $8.00 per million Btu down to $7.00. Widening basis differentials, primarily in the Rockies and to a lesser extent in the Midcontinent, is already impacting the economics of more marginal plays," he says. Also, industrial demand for gas, which appeared to evaporate when gas surged to $13.50, may be coming back. The price of gas in the U.S. is 25% to 40% lower than in much of Asia and Europe, providing the domestic petrochemicals industry a competitive advantage while at same time keeping liquified natural gas imports away. Meanwhile, Armstrong reports that capital spending plans for this year are not threatened by $8.00 gas and $115 oil. Companies generally stress test the economics of their drilling programs down to $7 to $7.50 gas and $70 to $80 oil. Mid-year increases in capital budgets are mostly the result of exploration success, rising steel costs and the acceleration of existing and highly economic drilling programs.