Assorted events and some comments by the industry's analysts continue to suggest a nontraditional interest on the part of major oils in the business of the independents. In last month's issue, we discussed a Deutsche Banc Alex. Brown forecast that because the majors will run low on new exploration prospects, they will tap independents' staffs in the next few years, to help develop some. Since that report, Marathon Oil has announced it hopes to buy small-cap producer Pennaco Energy, for its Wyoming coalbed-methane gas assets. This follows Phillips Petroleum's year-old strategy of actively acquiring the same, also from independents. These operators have turned the long-ignored shallow gas into cash by combining low finding and development costs with healthy gas prices. Yet, Salomon Smith Barney analysts suggest independents may also be hurting for projects eventually, due in part to a scarcity of qualified personnel. "This issue is compounded by the maturity of the North American natural gas markets, limiting the amount of large, untested exploration projects," the analysts say in their 2001 E&P spending forecast. (For more on this, see "Easier Money" in this issue.) John S. Herold Inc.'s analysts say the Marathon and Phillips movements into coalbed-methane assets may signal that these and other majors are about to step up activity in the Lower 48 and, they add, "we would expect them to be buyers, not drillers." Bob Christensen, analyst with First Albany Corp.'s FAC/Equities division, thinks Marathon and Phillips are not alone among the integrated oils in a quest for additional Lower 48 gas assets. Conoco, Unocal and Occidental Petroleum are also short on North American gas positions. "Coalbed methane is really an ideal play for most of these companies, in our opinion, as it is basically a long-term (15-year) manufacturing proposition for natural gas-not an exploration proposition fraught with inherent risks," he says. Bob Morris, Salomon Smith Barney E&P analyst, noted that Marathon's acquisition news "seems to have directed the market's attention to other independents." Christensen raised his price target on Barrett Resources, another Powder River Basin coalbed-methane player, based on the premium Marathon is offering to pay for Pennaco's acreage. At press time, Pennaco was trading higher than Marathon's $19-per-share offer, suggesting that deal is not done. Marathon could lose this prize, Christensen says. Interestingly, independent Newfield Exploration will soon acquire traditional gas assets that Phillips Petroleum sold in 1999 to privately held start-up Lariat Petroleum, which Newfield plans to purchase. If this and the Marathon-Pennaco deals are done, Newfield and Marathon will be competing for deep-gas drilling rigs in Oklahoma, and Marathon and Phillips bumping into each other in Wyoming in the shallow-gas Powder River Basin. (For more on deep-gas drilling activity, see "Bring Out the Rigs" in this issue.) Their gas production should be worth $4.49 per million Btu on average this year on the spot market, according to the latest First Call consensus. Texas gas producers, who contribute a third of U.S. output, were barely able in October to keep up with their October 1999 output, despite recent record drilling activity, says Adam Sieminski, Deutsche Banc Alex. Brown global oil and gas analyst. The future-month outlook is yet dimmer. "Drilling permits fell in November to 1,141 and further in December to 1,030 after reaching 1,330 in October," he adds. U.S. gas producers are digging deeper and deeper into their inventory of gas drilling projects, Salomon Smith Barney's Morris says. And, drilling efficiency has dropped sharply, he adds. "In fact, several companies have indicated to us that they believe production additions for the most recent 100 to 250 domestic gas rigs are about one-half of that for the first 500 to 600 rigs put to work industrywide." If growth in U.S. gross domestic product is just 1.25% this year and domestic gas production rises only 1.5%, gas in storage in November will total about 2,600 billion cubic feet, which is less than the amount in storage this past November. For all their interest in gas production, however, the producers surveyed recently by Salomon Smith Barney concerning their 2001 E&P budgets are putting most of their money elsewhere. Of the total $114 billion they plan to spend, 38% is slated for U.S. and Canadian projects. The rest is aimed outside North America. Just eight of the 89 producers in the survey that operate outside North America plan to spend less overseas this year, than they did in 2000. Among those that expect to spend considerably more are Exxon Mobil and Royal Dutch/Shell. One independent with big overseas plans is Kerr-McGee Corp. Of its $1-billion 2001 E&P budget, $630 million will be spent in the North Sea and $160 million in Australia, Indonesia, Ecuador and China. The remaining $240 million, or about 24%, is slated for Gulf of Mexico and onshore U.S. projects.