The 2003 spending guidances reported by several of the leading North American producers have made clear that exploration and production (E&P) activities are a priority, but spending will be more focused, more streamlined and more cash-conservative.

Capital spending next year at leading domestic independent Devon Energy will be cut dramatically over what it slated for this year. Although not finalized, the 2003 budget is projected to fall between $1.4 billion and $1.6 billion. Through the first nine months of this year, capital spending totaled about $3 billion. In the coming year, Devon plans to spend between $455-525 million on drilling and facilities costs, and $485-555 million for “low-risk low-reward” projects. New “higher-risk, higher-reward” projects are budgeted for $435-510 million in 2003, according to a filing with the Securities and Exchange Commission.

Devon indicated that its low-risk low-reward projects will include development drilling that won’t offset production now under way. Meanwhile, the higher-risk higher-reward projects will include exploratory drilling in Devon reservoirs and fault block assets that have not yet been tested.

In 2003, the Oklahoma City-based independent expects to spend between $971 million and $1.03 billion on marketing and midstream activities, with expenses falling $784-833 million. For the first nine months of 2002, Devon’s marketing and midstream revenue amounted to $692 million; marketing and midstream costs and expenses totaled $528 million.

The company also estimates lease operating expenses for 2003 of $621-659 million, while transportation costs are estimated to be $141-150 million. Devon’s estimated consolidated general and administrative expenses for 2003 are $222-237 million, with interest expenses of $512-522 million. For the first nine months, lease operating expenses were $470 million, transportation costs were $115 million, general and administrative expenses were $151 million and interest expenses were $402 million.

In all, Devon’s oil, natural gas and natural gas liquids production is projected to total between 178.1 MMboe and 186.9 MMboe next year. Of that, 731 Bcf to 767 Bcf is expected in natural gas, all in North America. Devon expects U.S. gas production to reach 472-495 Bcf, and expects Canadian production to fall to 259-272 Bcf in 2003. For the first nine months of this year, Devon’s total gas production was 576.2 Bcf; in all of 2001, it was 498 MMcf.

Natural gas liquids production next year should reach 20.9-21.9 million bbl. For the first nine months of this year, liquids production totaled 14.7 million bbl; for all of 2001, production reached 8 million bbl. Oil production for 2003 is expected to amount 35.4 million bbl to 37.2 million bbl. Domestic oil production will be between 19.1 million bbl and 20.1 million bbl; Canada will have between 13.5 million bbl and 14.2 million bbl. International will fall around 2.9 million bbl.

At Houston Exploration Co., the preliminary capital spending plan is slated to reach $286 million in 2003, excluding acquisitions. The budget includes about $20 million for capitalized interest and employee-related costs that pertain to exploration activities. Also, management stated that “capital expenditures will be subject to adjustment in response to changes in commodity pricing, shifting market conditions and operational developments.”

Production-wise, the Houston-based independent expects to reach 105-109 Bcfe next year, with 91% weighted toward natural gas. For the first quarter, daily rates are expected to average approximately 285-290 MMcfe/d; average production rates for the second through fourth quarters of 2003 are expected to range between 290 and 300 MMcfe/d.

Natural gas hedges for the first quarter total 185,000 MMBtu/d at a weighted average floor price of $3.43/MMBtu and a weighted average ceiling price of $4.57/MMBtu. Crude oil production totaling 1,000 bbl/d has also been hedged at a swap price of $28.50/bbl. For the second through fourth quarters, natural gas production totaling 190,000 MMBtu/d has been hedged at a weighted average floor price of $3.42/MMBtu and a weighted average ceiling price of $4.55/MMBtu.

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