When it comes to making forecasts about the industry, it's nice once in a while to err on the side of being a tad conservative. That way, if you're wrong, it's usually because things have gone better than expected. Such is the case with Raymond James & Associates, which six months ago offered up a cautious 2007 capital-spending outlook for the E&P sector. This was against a consensus view at the time that U.S. drilling activity this year would slow down meaningfully in the face of commodity-price volatility. "We made the prediction that drilling spending for our E&P coverage universe would flatten in 2007, after posting increases of 30% to 40% each year from 2004 through 2006," says Wayne Andrews, Houston-based E&P analyst for the investment-banking firm. "However, looking at data since then, it appears that even our forecast for spending was conservative, once again." Indeed, despite concerns about the recent volatility in natural gas prices, the firm's coverage universe of 51 E&P companies-not including upstream master limited partnerships (MLPs)-is boasting better-than-expected drilling budgets this year. For more on this, see the June issue of Oil and Gas Investor. For a subscription, call 713-260-6441.