The commodity-price roller-coaster didn't stop many of the independent oil and gas companies from showing year-over-year production growth-organically and via large acquisitions-during the third quarter.

"The performance for the group in the third quarter has actually shown a slight improvement in comparison to third-quarter 2005," report London-based Evaluate Energy analysts Hannah Mumby and Eoin Coyne.

Earnings were strong, in spite of some reported dips in production. "Average West Texas Intermediate and Brent prices have both remained at the same $70 mark experienced last quarter, but have since dropped to below $60 [in late November]. Oil prices have steadily decreased since a peak in July as the potential supply disruptions that drove prices up failed to materialize," the analysts report.

As for gas prices, they also continued their downward slide during the quarter until September, when bouncing back slightly in response to the upcoming heating season. In the group's favor, the 2006 hurricane season was not a factor in Gulf of Mexico producers' output; however, oil- and gas-price premiums disappeared as the season waned.

Oil production for the independents in the Evaluate Energy universe increased 1% quarter-on-quarter. Among the noteworthy are Anadarko Petroleum Corp., with 27% growth compared with third-quarter 2005, due in great part to its acquisition of Kerr-McGee Corp., the analysts note.

Meanwhile, some of the larger decreases in oil production included that of EnCana Corp. However, its 32% decline in output was largely due to its sale of assets in Ecuador that were contributing 70,000 barrels per day.

As for gas, production for the group jumped 10% in the third quarter. Through the assets it purchased in Argentina, Apache Corp. reported 35% growth, compared with the same period in 2005. Also gaining gas-production growth was Anadarko, which acquired Western Gas Resources in the third quarter.

Yet, Apache missed Calyon Securities (USA) Inc. analyst Carin Dehne Kiley's mark in both earnings and production. She says the company's earnings per share came in below her estimate and the Street consensus due to longer-than-anticipated pipeline shut-in/maintenance downtime in the North Sea and in Egypt, along with higher-than-expected lease operating expenses.

"Third-quarter production was slightly below our estimate due to better gas volumes in Australia. Total production increased 13% year-over-year and 2.5% sequentially, underscored by producing-property acquisitions in the Permian Basin, Argentina and the Gulf of Mexico, along with the resumption of shut-in volumes in the Gulf of Mexico. We estimate organic production was essentially flat year-over-year and down nearly 4% compared with the second quarter."

Now that the maintenance issues in the North Sea are resolved, the company expects solid growth in 2007. North Sea production for the company averaged below 50,000 barrels per day during the third quarter; by mid-December, it had already climbed to 70,000.

Themes of gas prices, hedging strategies, capital-investment plans, shareholder-enhancement plans and cost-pressure trends were at the forefront of the quarter's round of conference calls. In the months ahead, CreditSights analyst Brian M. Gibbons expects most E&P companies will continue to "drill through a $5-per-thousand-cubic-foot gas price with the expectation the market is tight and the futures curve at $7.50 will hold."

Though he anticipates the capital-spending outlook for the group going into 2007 will be flat, the production treadmill, along with the maturation of U.S. resources, may very well force producers into spending more than they planned in the coming quarters.

As producers were racing to hit even more positive production numbers by year-end 2006, Gibbons forecast reserve trends and F&D focus to be limited, "but when the dust settles by year-end, reserve replacement will be barely over 100% and F&D costs will be 10% higher, in-line with recent-year trends."