The 2001 mantra of most North American exploration andproduction companies could be the oft-quoted line from the 1996movie Jerry Maguire: “Show Me The Money!” Driven by the continuedstrong interest in North America and sustained high energy prices,both majors and independents have upped their capital spendingbudgets for the coming year. Most target domestic natural gasprojects.

Companies already making announcements about double-digit E&Pincreases last week include U.S.-based Phillips Petroleum, UnocalCorp. and Mitchell Energy & Development Corp. and Canadian-basedAlberta Energy Company Ltd. and Gulf Canada (see Daily GPI, Dec. 15). But the announcementscontinue, and most are expected to boost spending in exploitation anddevelopment projects, according to Salomon Smith Barney.

E&P stocks, which are up about 40% on the Standard &Poors index of oil and gas companies, are poised for even moregains and should provide a “shelter from the storm,” according toSalomon Smith Barney analysts. Robert Morris and Michael Schmitzsaid they “continue to view the longer-term risk/reward profile forour coverage group to be quite favorable, on average, with aparticular affinity for some of the more natural gas-leveragednames.”

Driven by the increased drilling for natural gas in NorthAmerica and increased E&P in the rest of the world, SalomonSmith Barney analysts Geoff Kieburtz and Mark Urness predict NorthAmerican E&P spending to rise 19.6% next year. Spending in therest of the world is expected to grow by 20.6% in 2001 after an8.4% increase this year.

Deutsche Banc Alex. Brown analysts David Bradshaw and JohnBailey said that “strong evidence continues to mount that suggeststhe upstream cycle will prove to be stronger for longer than mosttrackers have been willing to concede. We also believe that E&Pstocks, on balance are inviting, and most important, that investorsare, at long last, becoming appreciative of the basics as well asthe nuances of the sterling near- and extended-term environment.”

Bradshaw and Bailey noted that “prospects for the natural gassector are exceptional and are likely to get better. Operationalperformance continues to outstrip expectations as a broad-basedrepositioning of the sector gave rise to tightened cost structuresand strengthened balance sheets, thereby enhancing leverage tosolid hydrocarbon markets and volume gains.”

Energy companies announcing boosts to their E&P budgets inrecent days include:

Devon Energy: This Oklahoma City-based company announcedan initial 2001 exploration and development budget of $1.05 billionto $1.15 billion, a 20% to 30% increase over 2000. Nearly 76% ofits assets are in North American natural gas, and much of theincrease will go toward domestic production.

Ocean Energy: The board of directors of this Houstoncompany approved a capital investment program of $700 million forthe coming year, a 22% increase over estimated 2000 spending of$575 million. Ocean plans to boost its development in deepwaterGulf of Mexico, where the company plans to spend up to $350 millionto grow its reserve base. Another $125 million to $175 million willbe spent to enhance production in the Bossier natural gas play inEast Texas.

Cabot Oil & Gas Corp.: This independent, based inNew York, approved a capital budget of $167 million for 2001, a 37%increase from 2000. Of the total, $112 million will fund drillingprojects, with 42% for exploration wells and 58% for developmentwells.

Shenandoah Energy: The Denver-based company’s boardapproved a $73 million capital budget for 2001, a 10% increase from2000. About 91% will be spent on upstream projects, with $56.9million directed toward 103 Wasatach natural gas wells and 28 GreenRiver crude wells.

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