National Survey: Independent Oil & Gas Companies Strained by Staffing & Drilling Issues.

HOUSTON -- A survey of senior executives from U.S. independent oil-and-gas companies reveals an industry straining to keep up with hiring and drilling demands, while also expecting to increase its spending.

The survey of more than 75 executives - which was conducted by the accounting, tax and business-advisory firm Grant Thornton LLP - includes several major findings backing this assertion, for example:

--89 percent of respondents anticipate an increase in domestic capital expenditures in 2006.

--89 percent expect a need for more capital (compared to 83 percent in 2005).

--88 percent report difficulties obtaining drilling services (compared to 70 percent in 2005).

--79 percent anticipate more difficulty securing contract-drilling services in 2006.

--95 percent expect higher employment levels at their companies in 2006 (compared to 70 percent in 2005 and 62 percent in 2004).

--84 percent expect significant increases in compensation for technical staff (compared to 63 percent in 2005 and only 35 percent in 2004).

--65 percent anticipate difficulties hiring and retaining employees (up from 20 percent two years ago).

Reed Wood, Grant Thornton's partner-in-charge of the firm's energy practice, says the findings mark an important first in the survey's four-year history. "This is the first time independent exploration and production companies were more concerned with issues like human resources than they were with price expectations," says Wood.

Many respondents indicated that the problem is linked to the graying of the American engineering force and the dearth of young professionals entering the field. "The need to attract young people to the industry must not be overlooked as a top priority of corporate and individual leaders," commented survey respondent Joe Grady, chief financial officer at Houston's Crimson Exploration. "Young people need to be exposed to the exciting career challenges of the industry, instead of only hearing negative media surrounding high oil and gas prices."

Game is Seen to be "Getting Tougher"

Grant Thornton's Wood sees the survey's results as an indication that competitive pressures are becoming stiffer in the independent oil-and-gas business. "While 2005 was clearly a banner year for the independents, the game is getting tougher," he says. "Our survey shows that a shortage of equipment and manpower will take a toll this year."

Survey respondent Harold M. Korell - chairman, president and CEO of Houston-based Southwestern Energy Company (NYSE:SWN) - echoes this prediction. "For acquisition companies, it will be a battle to position themselves best for growth, and for drilling companies, it will be a battle to secure the equipment and services to carry out their drilling plans," he comments in the survey.

He goes on to point out that the clear winners in the past couple of years have been companies that have focused on the drilling strategy underpinned by the unconventional resource plays. "In many ways, we are starting the energy business over again in North America - it's like when Texaco and Standard Oil obtained their large land positions in the beginning; today, we are dividing up the rights to the unconventional plays in this country," Korell says.

Several of the survey's other respondents made similar comments about the basic dynamics of the industry. "The time has come to face the fact that there isn't any 'cheap energy' left to find and produce," concludes Bob G. Alexander, CEO and president of National Energy Group, which is headquartered in Dallas.

Looking to the Future

Grant Thornton's Wood stresses that the survey also reveals some key opportunities for continued growth. He points out that respondents are looking to grow operations based on successful exploration of existing projects, followed by successful exploitation, and mergers and acquisitions.

"Smart companies will act now to get out in front of these trends," concludes Wood.

To order a copy of the survey or to view more detailed results, visit www.grantthornton.com/oilandgas.

About the survey

This is the fourth annual Survey of U.S. Independent Oil and Gas Companies commissioned by Grant Thornton LLP. Survey questionnaires were mailed to senior executives of public and private independent oil and gas companies throughout the United States.

The survey period was from December 2005 through mid-January 2006. Issues explored by the Grant Thornton Survey of U.S. Independent Oil and Gas Companies were identified by seasoned professionals in Grant Thornton's energy practice.

More than 75 companies, over one quarter of them publicly traded, responded to the survey questionnaire. The following indicate the relative size of the companies that responded to the survey: total average assets at the end of 2005 - $836 million; and average revenues for the 2005 fiscal year - $167 million.

About Grant Thornton

Grant Thornton LLP is the U.S. member firm of Grant Thornton International, one of the six global accounting, tax and business advisory organizations. Through member firms in 111 countries, including 50 offices in the United States, the partners and employees of Grant Thornton member firms provide personalized attention and the highest quality service to public and private clients around the globe. Visit Grant Thornton LLP at www.GrantThornton.com.