E&P Programs Seeing the Money
The 2001 mantra of most North American exploration and production companies
could be the oft-quoted line from the 1996 movie Jerry Maguire: "Show
Me The Money!" Driven by the continued strong interest in North America
and sustained high energy prices, both majors and independents have upped
their capital spending budgets for the coming year. Most target domestic
natural gas projects.
Companies already making announcements about double-digit E&P increases
in recent days include U.S.-based Phillips Petroleum, Unocal Corp. and
Mitchell Energy & Development Corp., along with Canadian-based Alberta
Energy Company Ltd. and Gulf Canada (see NGI, Dec.
18). But the announcements continue, and most are expected to boost
spending in exploitation and development projects, according to Salomon
E&P stocks, which are up about 40% on the Standard & Poors index
of oil and gas companies, are poised for even more gains and should provide
a "shelter from the storm," according to Salomon Smith Barney
analysts. Robert Morris and Michael Schmitz said they "continue to
view the longer-term risk/reward profile for our coverage group to be quite
favorable, on average, with a particular affinity for some of the more
natural gas-leveraged names."
Deutsche Banc Alex. Brown analysts David Bradshaw and John Bailey said
that "strong evidence continues to mount that suggests the upstream
cycle will prove to be stronger for longer than most trackers have been
willing to concede. We also believe that E&P stocks, on balance are
inviting, and most important, that investors are, at long last, becoming
appreciative of the basics as well as the nuances of the sterling near-
and extended-term environment."
Bradshaw and Bailey noted that "prospects for the natural gas sector
are exceptional and are likely to get better. Operational performance continues
to outstrip expectations as a broad-based repositioning of the sector gave
rise to tightened cost structures and strengthened balance sheets, thereby
enhancing leverage to solid hydrocarbon markets and volume gains."
Energy companies announcing boosts to their E&P budgets recently
Magnum Hunter: This Irving, TX-based company plans to drill 142 new
wells in 2001, including 17 offshore in the shallow waters of the Gulf
of Mexico and 125 wells in Texas, New Mexico and Oklahoma. Thirteen of
the planned 17 GOM wells are exploratory and 14 of the 125 onshore wells
are exploratory. To accommodate the drilling increase, the company boosted
its capital expenditure budget to $85 million, up from $20 million this
year. It expects to increase oil and gas production 49% next year to 112
MMcfe/d, up from this year's forecast of 75 MMcfe/d.
Devon Energy: This Oklahoma City-based company announced an initial
2001 exploration and development budget of $1.05 billion to $1.15 billion,
a 20% to 30% increase over 2000. Nearly 76% of its assets are in North
American natural gas, and much of the increase will go toward domestic
St. Mary Land & Exploration Co.: This Denver-based company will
jump its capital expenditure budget 35% next year to $155 million, including
$95 million for exploration and development and $60 million for property
acquisitions. The E&P budget is a 44% increase over the $66 million
spent this year, and of that total, about 35% will be keyed on the Gulf
Ocean Energy: The board of directors of this Houston company approved
a capital investment program of $700 million for the coming year, a 22%
increase over estimated 2000 spending of $575 million. Ocean plans to boost
its development in deepwater Gulf of Mexico, where the company plans to
spend up to $350 million to grow its reserve base. Another $125 million
to $175 million will be spent to enhance production in the Bossier natural
gas play in East Texas.
Cabot Oil & Gas Corp.: This independent, based in New York, approved
a capital budget of $167 million for 2001, a 37% increase from 2000. Of
the total, $112 million will fund drilling projects, with 42% for exploration
wells and 58% for development wells.
Shenandoah Energy: The Denver-based company's board approved a $73 million
capital budget for 2001, a 10% increase from 2000. About 91% will be spent
on upstream projects, with $56.9 million directed toward 103 Wasatach natural
gas wells and 28 Green River crude wells.
Carolyn Davis, Houston