Nobody can predict the future. But when more than 100 senior executives at independent oil and gas exploration and service companies show unbridled optimism for 2010, it’s worth taking note.

Grant Thornton released its annual survey of upstream US energy companies, titled “The state of the industry – Trends, plans, and policies,” to media representatives Jan. 27. While respondents weren’t 100% in agreement in a rebounding industry, they were certainly much more hopeful than they were a year ago.

Reed Wood, Grant Thornton LLP’s partner-in-charge of the firm’s energy practice, said, “[Optimism] was convincingly evident in their outlooks for prices, capital expenditures, and employment.”

While only a third of the respondents expect an overall increase in employment for the industry as a whole in 2010, half indicate that their companies would increase employment levels. The numbers for 2011 are even more promising, with 74% saying that they expect industry employment to increase and 56% expecting their own companies’ employment to increase.

With regard to the economy, two-thirds believe that conditions will improve enough for the US economy sometime during 2010 for most business leaders to consider the current recession to be over.

Wood feels the survey responses confirm other dialog with industry leaders that “the upstream industry experienced increased cash flow during the second half of 2009 and more favorable interest in their domestic capital-intensive projects requiring highly trained and experienced personnel. Continued stabilization and improvement of the key drivers should result in 2010 as a strong beginning of hopefully another extended recovery for the industry and the US pursuit of less dependence on foreign resources.”

Other highlights:

  • Uncertain natural gas and crude oil prices repeat for a second year as the top concerns in the industry today;
  • Respondents still believe that incentives for increased US drilling are the number one way for US consumers to reduce energy prices;
  • While most respondents view alternative fuels as a long-term solution, respondents indicated that clean coal is the most likely to be effective in the short term;
  • The area of most opportunity is successful exploitation of existing prospects, followed by mergers and acquisitions and then operating efficiencies; and
  • While 35% of respondents believe the US is a global leaders in the industry, 80% believe the US is lagging by its dependence on foreign sources of energy.

Bruce Vincent, Swift Energy CEO and chairman of the Independent Petroleum Association of America (IPAA), briefed reporters on the survey as well as some of his organization’s ongoing concerns about the current administration. He agreed that the main message from the survey was one of optimism, and job growth expectations are one of the more meaningful takeaways. Optimism has spread to lending firms, which are more likely to lend money and finance projects. This in turn leads to more aggressive E&P plans, and he feels companies are well-positioned going into 2010.

“IPAA focuses on the ability of our industry to provide good job growth in a tough economy,” he said. “These are not hard jobs to create, and job growth leads to energy security.”

His primary concerns going forward relate to the energy policy in the US. Shortly after Barack Obama was elected, IPAA officials met with his administration and felt that the group understood the role of energy, and particularly natural gas, to the US economy. However, Obama’s first budget proposal put every industry tax incentive on the table to be removed. While this would add significant money to the Treasury, it also would have the unintended consequence of killing job creation and making many wells, including most of the stripper wells that account for 20% of current US production, uneconomic.

“I’m sure this is not what they were thinking of when they came up with the idea,” he said.

Regulatory issues are another threat. Access to public lands has long been a concern for IPAA, and Vincent noted that the amount of money the Department of the Interior (DOI) took in from leasing in 2009 was only 10% of the amount it had garnered the previous year. The EPA’s endangerment finding, studying the effects of global warming on species, could affect not just the oil and gas industry but almost every industry in the country. The Senate, meanwhile, is considering a bill that would change the way leases are offered – instead of industry earmarking the areas it wants open for leasing, a group within the DOI would make that decision for them.

“When you’re marketing a product, you don’t tell the customer what product you’re offering; you ask him what he wants,” he said.

Financial reform measures, particularly those that involve hedging, are also a concern. While certain financial reforms are a must given the 2008 bank and real estate crisis, hedging is a legitimate practice that, Vincent said, provides a price risk management strategy for industries (not just oil and gas) that are affected by price volatility.

Finally, he’s concerned about impacts that pending legislation could have on future market conditions. While the Waxman-Markey bill, passed by the US House of Representatives in June 2009, is supposed to be a climate change bill, Vincent said that coal actually comes out the winner, not oil or natural gas.

“It doesn’t make sense for a member of Congress to decide the winners and losers,” he said.

He agreed with the Grant Thornton that incentives are the best way to reduce America’s reliance on foreign oil. And he disagrees that the thing the oil and gas industry really needs is more regulatory oversight.

“When people in Congress ask me what I want from them, I say, ‘Just leave us alone,’” he said.